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

Total Questions: 62

11. With reference to India, consider the following statements: [2010]

1. The Wholesale Price Index (WPI) in India is available on a monthly basis only.

2. As compared to Consumer Price Index for Industrial Workers (CPIIW), the WPI gives less weight to food articles.

Which of the statements given above is/are correct?

Correct Answer: (b) 2 only
Solution:After the Abhijit Sen committee's proposals in 2004-05, the government had approved the proposal to release or wholesale price based inflation data on a monthly basis, instead of every week. The base year was changed to 2004-05 from 1993-94. However data on primary and fuel items was continued to release on a weekly basis. Consumer Price Index food group has a weight of 39.1 percent as compared to the combined weight of 24.4 percent (food articles and Manufactured food products) in wholesale Price Index food basket.

12. In the context of Indian economy, consider the following pairs: [2010]

Term Most Appropriate description
1. Melt downFall in stock prices
2. RecessionFall in growth rate
3. Slow downFall in GDP

Which of the pairs given above is/are correctly matched?

Correct Answer: (b) 2 & 3 only
Solution:Recession is a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. Slow down is a period of slow economic growth, especially one that follows a period of robust growth Melt down follows normally a black swan event and quickly results is financial assets loosing in vlaue, often resulting in liquidity crisis. The stock market in India suffered melt down from Sensex 20,000 in mid 2008 to 10,000 in mid 2009.

13. In the context of governance, consider the following: [2010]

1. Encouraging Foreign Direct Investment inflows

2. Privatization of higher educational Institutions

3. Down-sizing of bureaucracy

4. Selling/offloading the shares of Public Sector Undertakings

Which of the above can be used as measures to control the fiscal deficit in India?

Correct Answer: (b) 2,3 & 4
Solution:Over the past few decades, it has been the private sector that has really driven capacity-creation in Indian higher education. Serious thinking on downsizing bureaucracy had begun in the early 1990s. A sub-group set up by the Planning Commission had suggested in 1993 that the Union government should weed out at least 2,000 senior-level positions in various ministries.

Following are the functions of the Planning Commission of India: To make an assessment of the resources of the country and to see which resources are deficient. To formulate plans for the most effective and balanced utilization of country's resources. To indicate the factors which are hampering economic development.

14. With reference to' Indian economy, consider the following statements: [2010]

1. The Gross Domestic Product (GDP) has increased by four times in the last 10 years.

2. The percentage share of Public Sector in GDP has declined in the last 10 years.

Which of the statements, given above is/ are correct?

Correct Answer: (b) 2 only
Solution:The correct answer is (b).
  • Gross Domestic Product (GDP) represents the final value of goods and services produced within a country's borders in a specific period, typically a year. The GDP growth rate is a crucial indicator of economic performance, reflecting health, growth, and development.
  • GDP is calculated using three main methods: production, expenditure, and income approaches, and can be expressed as nominal, real, or per capita GDP. Despite its significance, GDP has limitations, such as ignoring environmental degradation, inequality, and overall well-being.
  • India's GDP has doubled in the last decade, growing by approximately 105% from about $2.1 trillion in 2015 to $4.3 trillion in 2025. This growth has shown significant year-on-year fluctuations, including a sharp contraction in 2020–21 due to the pandemic.
  • Public Sector Undertakings (PSUs) alone contributed approximately 13-14% to India's GDP, according to the Ministry of Finance. The share of the public sector in GDP has shown a declining trend in more recent periods after peaking in the mid-1990s.

15. India is regarded as a country with "Demographic Dividend". This is due to: [2011-1]

Correct Answer: (b) Its high population in the age group of 15-64 years.
Solution:

The demographic dividend is a rise in the rate of economic growth due to a rising share of working age people in a population. This usually occurs late in the demographic transition when the fertility rate falls and the youth dependency rate declines.
India stands at a demographic crossroads. With over 50% of its 1.4 billion population under 25, India has one of the world's youngest populations. This demographic bulge represents both a historic opportunity and a formidable challenge.
Effectively leveraging this youthful demography could propel the economy into a higher growth trajectory. However, failure to productively utilise this human capital may result in socio-economic risks. As India transitions towards a knowledge economy, harnessing this 'demographic dividend' through appropriate investments and policy reforms will be critical.

16. Which one of the following is not a feature of "Value Added Tax"? [2011-1]

Correct Answer: (d) It is basically a subject of the central government and the state governments are only a facilitator for its successful implementation.
Solution:VAT, being a 'tax on sale or purchase of goods within a State' is a State Subject by virtue of Entry 54 of State List of the Seventh Schedule of the Constitution of India. Since VAT/Sales tax is a State subject, the Central Government has been playing the role of a facilitator for successful implementation of VAT.

Overview of Value Added Tax

  • The amount of VAT is decided by the end-market price. Its main purpose is to tax only the value added by a business on top of the services and goods it can purchase from the market
  • At each stage of production, the product gets successively more valuable at each stage (e.g. chocolate bars starting as cocoa beans). When an end consumer makes a purchase, they are not only paying for the VAT of the entire product at hand (e.g., a cup of coffee) but for the entire process of production (e.g., the purchase of the cocoa beans, transportation, processing, etc.), since VAT is always included in the prices.

17. Karl Marx explained the process of class struggle with the help of which one of the following theories? [2011-1]

Correct Answer: (d) Dialectical materialism
Solution:Darwin's "struggle for existence" m natural history is analogous to the class struggle in "human History". So option (c) stands incorrect. The sketch of dialectical materialism given by Karl Marx explains that Dialectical principle is of universal application and all the development is "struggle of opposites" or "conflict of opposites". Thus option d stands correct in this question.
  • Dialectical materialism applies the principles of dialectics to the analysis of historical materialism, examining the development of societies and their social structures through the lens of contradictions and their resolution.
  • Class Struggle- Marx argued that class struggle is the driving force of historical development. In each historical epoch, the contradictions between the ruling class, which controls the means of production, and the oppressed class lead to social conflict and eventually revolution.
  • Social Transformation- As the contradictions within a given social order become increasingly untenable, a new synthesis arises in the form of a revolutionary change. This transformation establishes a new mode of production, as well as new social relations and institutions.

18. All revenues received by the Union Government by way of taxes and other receipts for the conduct of Government business are credited to the ? [2011-1]

Correct Answer: (c) Consolidated Fund of India
Solution:Under Article 266 (1) of the Constitution of India, all revenues (example tax revenue from personal income tax, corporate income tax, customs and excise duties as well as non-tax revenue such as licence fees, dividends and profits from public sector undertakings etc.) received by the Union government as well as all loans raised by issue of treasury bills, internal and external loans and all moneys received by the Union Government in repayment of loans shall form a consolidated fund.

19. A rapid increase in the rate of inflation is sometimes attributed to the "base effect". What is "base effect"? [2011-1]

Correct Answer: (c) It is the impact of the price levels of previous year on the calculation of inflation rate
Solution:The Base effect refers to the tendency of a small change from a low initial amount to the current amount which is translated into a large percentage and appears as large. It is usually used in context of inflation. It indicates the change in the inflation rate in the current period with respect to the base period.
  • If the inflation rate was low in the corresponding period of the last year, then even a small increase in the price index will give a high rate of inflation in the current year.
  • When comparing two data points, choosing a reference point will be crucial as the base effect can highly distort or mislead the interpretation of numbers.
  • The base effect could also result in major differences in percentage comparisons. If we chose a reference point that is too low, there could be an overestimation and if the base is too high, it could result in gross underestimation of the situation.

20. In the context of Indian economy, consider the following statements: [2011-1]

1. The growth rate of GDP has steadily increased in the last five years.

2. The growth rate in per capita income has steadily increased in the last five years.

Which of the statements given above is/are correct?

Correct Answer: (d) Neither 1 nor 2
Solution:
Data categories and components Units 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
"GDP and Related indicators GDP (Current market Prices)"Rupay crore3692485429367249864265582623655027107877947ΛΕ
Growth Rate%13.916.316.11217.320.3
"GDP (factor cost 2004-05 prices) Growth Rate Saving Rate""Rupay crore% % of GDP""3254216 9.5 33.5""3566011 9.6 34.6""3898958 9.3 36.9""4162509PE 6.8 32.2""44937430E 8.0 33.7""4879232 8.6 na
Capital Formation (Rate)% of GDP34.736.738.134.536.5na
"Per Cap. Net National Income (Factor cost at current prices)"Rupay271233119835820406054649254527