Structure of the Indian Economy & Demographics (Part-I)

Total Questions: 50

41. Assertion (A): Ceiling on foreign exchange for a host of current account transaction heads was lowered in the year 2000. [2001]

Reason (R): There was a fall in foreign currency assets also.

Correct Answer: (a) Both A & R are individually true & R is the correct explanation of A
Solution:Correct option is a. Both Assertion and Reason are correct and Reason is the correct explanation for Assertion.
  • Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies, which can include bonds, treasury bills and other government securities.
  • After the economic crisis of 1990-91, the high level committe on Balance of Payment headed by C Rangarajan and Y.V. Reddy recommended that India should have a forex reserve for 12 months import requirements. According to recent data from Reserve bank of India (RBI), India's Foreign Exchange (Forex) reserves has increased to USD 655.817 billion.
  • Also, India's foreign currency assets (FCA), the biggest component of the forex reserves, rose to USD 576.337 billion.
  • While the Gold reserves increased to USD 56.982 billion.
  • According to RBI, at present India has forex reserve to cover around 11 months of projected imports.

42. The prices at which the government purchases food grains for maintaining the public distribution system and for building up buffer-stock is known as: [2001]

Correct Answer: (c) issue prices
Solution:
  • The Public distribution system (PDS) is an Indian food Security System established under the Ministry of Consumer Affairs, Food, and Public Distribution.
  • PDS evolved as a system of management of scarcity through distribution of food grains at affordable prices.
  • PDS is operated under the joint responsibility of the Central and the State Governments.
  • The Central Government, through Food Corporation of India (FCI), has assumed the responsibility for procurement, storage, transportation and bulk allocation of food grains to the State Governments.
  • The operational responsibilities including allocation within the State, identification of eligible families, issue of Ration Cards and supervision of the functioning of Fair Price Shops (FPSs) etc., rest with the State Governments

43. With reference to Power Sector in India, consider the following statements: [2002]

1. Rural electrification has been treated as a Basic Minimum Service under the Prime Minister's Gramodaya Yojana

2. 100 percent Foreign Direct Investment in power is allowed without upper limit

3. The Union Ministry of Power has signed a Memoranda of Understanding with 14 States

Which of these statements is/are correct?

Correct Answer: (b) 1&2
Solution:Pradhan Mantri Gramodaya Yojana was launched in order to achieve the objective of sustainable human development at the village level. It has 6 components viz., primary health, Primary education, rural shelter, rural drinking water, nutrition and Rural electrification. Upto 100% FDI is allowed in respect of projects relating to electricity generation, transmission and distribution, other than atomic reactor power plants.

44. With reference to the Indian Public Finance, consider the following statements: [2002]

1. External liabilities reported in the Union Budget are based on historical exchange rates

2. The continued high borrowing has kept the real interest rates high in the economy

3. The upward trend in the ratio of Fiscal Deficit of GDP a recent years has an adverse effect on private investment

4. Interest payments is the single largest component of the non-plan revenue expenditure of the Union Government

Which of these statements are correct?

Correct Answer: (c) 2, 3 & 4
Solution:Public Finance in India also comes under the purview of a branch of economics which determines and assesses the policies of the Indian government stipulated in the annual finance budget. It identifies that types and consequences of tax measures and expenditure on citizens, institutions, and the entire economy. The upward trend in the ratio of Fiscal Deficit of GDP a recent years has an adverse effect on private investment. The continued high borrowing has kept the real interest rates high in the economy. Public finance identifies that types and consequences of tax measures and expenditure on citizens, institutions, and the entire economy.

45. Consider the following statements: [2002]

Full convertibility of the rupee may mean:

1. Its free float with the international currencies

2. Its direct exchange with any other international currency at any prescribed place inside and outside the country

3. It acts just like any other international currency

Which of these statements are correct?

Correct Answer: (d) 1, 2 & 3
Solution:Capital account convertibility means free conversion of cross-border capital flows, implying that anybody can convert domestic currency into hard currency at the market rate and take the hard currency out of the country.

Indirect Tax

  • Indirect Tax refers to the type of tax for which the Impact of Tax and Incidence of Tax fall on different persons or entities.
  • Indirect Taxes are, generally, imposed on goods and services.

    • They differ from direct taxes because they are not levied on a person who pays directly to the government. Instead, they are levied on products/services and are collected by the person selling the product.

  • Indirect Taxes in India are administered by the Central Board of Indirect Taxes and Customs (CBIC), which is a part of the Department of Revenue (under the Ministry of Finance).

  • Some prominent examples of Indirect Taxes in India include:

    • Excise Duty

    • Customs Duty

    • Sales Tax

    • Service Tax

    • Goods and Services Tax (GST)

    • Octroi and Entry Tax

    • Toll Tax

    • Stamp Duty

46. Consider the following statements: [2003]

In India, stamp duties on financial transactions are:

1. levied and collected by the State Government

2. appropriated by the Union Government

Which of these statements is/are correct?

Correct Answer: (d) Neither 1 nor 2
Solution:Stamp duty is a form of tax that is levied on documents. It is levied by the union or the central government and collected and appropriated by the state governments. (Entry 91 in the union list; entry 63 in the state list of Seventh Schedule of Constitution of India.

A stamp duty is essentially a govt tax, which is levied to register documents, like an agreement or transaction paper between two or more parties, with the registrar.

  • Amount: Usually, the amount specified is fixed based on the document's nature or is charged at a certain percentage of the agreement value stated in the document.
  • Levied on: Stamp duties can be levied on bills of exchange, cheques, promissory notes, bills of lading, letters of credit, policies of insurance, transfer of shares, debentures, proxies and receipts.
  • Stamp duties are accepted as valid evidence in a court of law.

47. Which one among the following States has the highest female literacy rate as per the Census 20012 ? [2003]

Correct Answer: (a) Chhattisgarh
Solution:As per the census of 2001, Chhattisgarh has the highest female literacy of 51.85, Orissa has 50.51%, Madhya Pradesh 50.29 and Rajasthan has 43.85%.
Status of female education in India
  • 2011 census data: Male literacy rate stood at 82.14%, whereas for females, it was lower at 65.46%.
  • Estimates indicate that in rural India, only one out of every 100 girls reach class 12, and 40% of girls drop out before completing the fifth standard.
  • Over the last decade, rural women have shown the highest increase in literacy rates, with a rise of 26%.
  • Female gross enrolment ratio at the elementary level is 94.32%, slightly higher than 89.28% for boys.
  • Similarly, at the secondary level, girls have an enrolment ratio of 81.32%, compared to 78% for boys, and at the higher secondary level, girls achieve a ratio of 59.7% versus 57.54% for boys.
  • According to the "World Employment and Social Outlook Trends for Women 2018 report", more women today are educated and actively participating in the labour market than ever before.

48. Which of the following is not a recommendation of the task force on direct taxes under the chairmanship of Dr. Vijay L. Kelkar in the year 2002? [2004]

Correct Answer: (b) Increase in the exemption limit of personal income to Rs. 1.20 lakh for widows
Solution:Increase in exemption limit to Rs I lakh to for the general categories of taxpayers. A higher exemption limit of Rs 1.50 lakh for widows and senior citizens was one of the recommendation of the task, force on direct taxes under the chairmanship of Dr. Vijay. Kelkar in the year 2002.
  • Direct Tax refers to the type of tax that is borne by a person/entity on whom it is levied.
  • Thus, in this case, the Impact of Tax and the Incidence of Tax fall on the same person or entity.

    • In other words, the burden of a Direct Tax cannot be shifted to another person or entity.

  • Direct Taxes in India is administered by the Central Board of Direct Taxes (CBDT), which is a part of the Department of Revenue (under the Ministry of Finance).
  • Some prominent examples of Direct Taxes in India include:

    • Income Tax (IT)

    • Corporate Tax

    • Minimum Alternate Tax (MAT)

    • Alternate Minimum Tax (AMT)

    • Capital Gains Tax (CGT)

    • Securities Transaction Tax (STT)

    • Dividend Distribution Tax (DDT)

    • Wealth Tax

    • Banking Cash Transaction Tax (BCTT)

    • Digital Tax – Google Tax or GAFA Tax or Equalization Levy

49. As per 1991 Census, which one of the following groups of Union Territories had the highest literacy rate? [2004]

Correct Answer: (d) Pondicherry and Delhi
Solution:As per 1991 census, Pondicherry and Delhi had the literacy rates of 75.3 and 74.7 respectively.
Reasons of low literacy in India

  • Educational Utility: In rural areas, education may not be perceived as valuable due to limited economic opportunities, leading to lower enrollment rates.

    • Additionally, the availability of schools nearby is often limited, further restricting access to education.

  • Caste disparities: Discrimination against lower castes has resulted in high dropout rates and low enrollment rates.
  • Female Literacy: A significant proportion of illiterate individuals in India are women, contributing to the overall low literacy rate.
  • Lack of Basic Facilities: The absence of essential facilities like drinking water, toilets, and electricity in schools deter attendance, particularly for girls.

50. Consider the following statements: [2004]

As per 2001 Census

1. the two States with the lowest sex ratio are Haryana and Punjab

2. the two States with the lowest population per sq. km. of area are Meghalaya and Mizoram

3. Kerala has both the highest literacy rate and sex ratio

Which of the statements given above is/are correct?

Correct Answer: (d) 1 & 3
Solution:As per census 2001, child sex ratio in Haryana was 861, in Punjab 876 and in Sikkim 875. Hence, Haryana and Sikkim were the two states with lowest sex ratios.

The population per sq. km. of area in Arunachal Pradesh was 13, in Meghalaya was 103 and in Mizoram was 42. Hence, the two states with the lowest population per sq. km of area are Arunachal Pradesh and Mizoram.

Kerala has both the highest literacy rate and sex ratio.