Expected Questions on Economics 2018 Part 1 (Set - 1) (Download PDF)

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1 Examrace Examrace 289K Login & Manage Expected Questions on Economics 2018 Part 1 (Set - 1) (Download PDF) (May 9, 2018) RBI s Demonetization Data Report - Almost all demonetized notes returned to the central bank. Banks received Rs lakh crore out of the total Rs lakh crore. Total currency in circulation is about Rs. 2 lakh crore short of the pre - demonetisation period. Does not include the old notes with District Central Cooperative Banks. Find this video at: Expected Questions on Economics UPSC IAS Prelims (Part 1) (In English) Meaning of demonetization: Demonetization is the act of stripping a currency unit of its status as legal tender. Occurs whenever there is a change of national currency. Centre Set Up Panel to Suggest on New Jobs Government constituted new task force led by NITI Aayog. Vice - chairman Rajiv Kumar to recommend measures to increase employment by promoting labour - intensive exports. Reason for set up a new panel: India facing severe underemployment and not only unemployment. Majority of the Indian workers are still employed in: low productivity low - wage jobs in small, micro and own - account enterprises. An urgent and sustained expansion of the organized sector. Focus on Impactful Smart City Projects: Centre Conceptualization of Smart City differs from city to city and country to country. Depending on the level of development, willingness to change and reform, resources and aspirations of the city residents. 1 of 10

2 These projects are expected to have visible and transformative impact. However, there is no clear definition of what impactful means. Ministry has now decided to award World Bank and Agence Francaise de Developpement (AFD) funds on competitive basis. Need of Labour Reforms in India About 85 to 90 % of Indian workforce employed in informal sector on which labor laws are not applicable. NITI Aayog said that the government should reform labour laws. Make them more flexible to make it easier to do business in the country. Report was jointly prepared by NITI Aayog and IDFC Institute. Labour related issues facing India: Huge Informal Sector Surplus Labour Force Unskilled Labour Lack of Absorption of Skilled Labour Imperfections and Work Culture Militant Unionism Unemployment Lack of Labour Reforms Laws dealing with labour in India: Industrial Disputes Act (1947) Contract Labour (Regulation and Abolition) Act (1970) Trade Union Act (1926) NITI Aayog s Report on Ease of Doing Business in India Niti Aayog recently launched the Ease of doing business report. Report based on an enterprise survey of 3, 500 manufacturing firms across the nation. Survey conducted, along with the IDFC Institute. 2 of 10

3 To assess the business regulations and enabling environment across India from firm s perspective. Methodology of the present Enterprise Survey differs from that of the World Bank s Doing Business Survey. Report sharply delineates the manufacturing sector s problems. What are the other major finding this report? Take less time in obtaining approvals Improved competitive federalism Enterprises in high growth states Current Status of Indian Economy India ranked at 130 th position among the 190 countries. Manufacturing growth slowed to 1.2 % in June quarter. Construction activity revived marginally. Private consumption slowed from March quarter. Investment demand turned positive in the June quarter. Second volume of the Economic Survey reported that deflationary impulses is weighing on the economy. Challenges faced by Indian economy: Vulnerability of rupee Macroeconomic stability under pressure Increasing divergence between consumption and investment: Demonetization GST conundrum The problem of Jobless growth Inflation Low level of technology etc. Reasons and Implications of Rising Oil Prices Prices of petrol and diesel have both been made market - determined. 3 of 10

4 This is in line with international product prices. Government between November 2014 and January 2016 raised excise duty on petrol and diesel on nine occasion. In India, the share of taxes in the retail selling prices of petrol and diesel (as on July 16) were 55.5 % and 47.3 % respectively. In 2017, the new dynamic daily pricing was introduced. B. N. Srikrishna Committee on Bilateral Investment Treaty (BIT) Dispute Management Strategy To prepare a road map to make India a hub of international arbitration. Recommendations are largely on the issue of managing and resolving BIT disputes. BIT is the dispute resolution mechanism. This process is called investor - state dispute settlement. Key recommendation of Srikrishna Committee: Committee recommended on issues of managing and resolving BIT disputes. Creation of an inter - ministerial committee (IMC) Hiring external lawyers having expertise in BIT. Creating a designated fund to fight BIT dispute. Appointing counsels qualified in BITs. Boosting the capacity of Central and State governments. Designation of the Department of Economic Affairs (DEA) as nodal agency for receiving correspondences in existing BITs. Creation of a database of arbitrators having relevant expertise and experience. To create a post of international law adviser (ILA) with the rank of additional solicitor general. New Financial Resolution Regime Introduced Financial and Resolution and Deposit Insurance Bill, 2017 seen as an effective and updated mechanism for resolving bankruptcy in financial firms. Positive affirmation of the lessons learned during the global financial crisis and its aftermath. How will the Resolution Cooperation work? 4 of 10

5 RC has been tasked with handling situations of distress in financial institutions. Health of a financial institution will be graded on a five point. RC s role in case of a healthy financial institution will be extremely limited. Confined to exchange of supervisory information. RC will take over and oversee its orderly demise. RC has been armed with various resolution tools. For instant, only pre-defined liabilities can be bailed in. Bridge service provider is essentially a temporary institution. Run - off is a specialized tool for insurance companies. RC will be bound by a number of guiding principles and safeguards. Indo-Japan Bullet Train Project The Mumbai Ahmadabad Bullet train deal presents opportunities to boost up the India - Japan bilateral relations. In December 2015, India signed an agreement with Japan. In India, a national High Speed Rail Corporation (HSRC) has been set up. What importance does this project hold for India? Expected to revolutionize Indian Railways. Expected to become an engine of economic transformation in India. To trigger several other manufacturing projects under the Make in India initiative. Expected to increase India - Japan collaboration for infrastructure development in India. Expected to lead to development in areas adjacent to train stations. Expected to mitigate excessive economic concentration in large cities. Crackdown on Shell Companies Ministry of Corporate Affairs (MoCA) identified 1.06 lakh directors of shell companies for disqualification under the relevant provisions of the Companies Act, Why is it done? To break the network of shell companies. Fight against black money/money laundering activities. 5 of 10

6 Move is pursuant to the MoCA s action of cancellation of registration of around 2.10 lakh defaulting companies. It is done to restrict operations of bank accounts of such companies. Problems associated with shell companies: Used to deposit large amount of cash during the period of demonetization. Used to hide assets and money. Support much of the fraud and embezzlement in India. SEBI s New Rules for Enhancing Market Efficiency Securities and Exchange Board of India (SEBI) released a new set of rules: To improve market efficiency Enhance the governance, accountability and functioning of credit rating agencies A credit rating agency is an entity which assesses the ability and willingness of the issuer company. Rating only provides an additional input to the investor. Credit rating agencies are regulated by SEBI. New set of rules: Drafted to improve market efficiency. Enhance governance, accountability and functioning of credit rating agencies. Provisions to restrict cross shareholding. Another mandates at least five years experience for promoters of rating agencies. Disclosure norms to improve investor awareness about the operations of rating agencies. Why the new rules were necessary? Repeated failures not affected the business of rating agencies. Due to the lack of alternative service providers who can help out investors. Individual creditors had to trust the ratings of the existing rating agencies. Indian credit rating market is an oligopolistic one due to the high barriers to entry. 6 of 10

7 SEBI s proposed move to impose further quality requirements on rating agencies is raise further barriers. Rise in Pulse Production and Fall in Prices In , India witnessed its highest ever domestic production of pulses, but instead of that prices crashed last year. Some facts related to pulse production: Pulses are an interesting and unique commodity group in the Indian agri - food space. Country ranks first not only in their production and consumption, but also their import. Domestic production has ranged from 16.4 MMT to 19.3 MM. Reason behind the record production in : Normal monsoon High market prices Steep Hikes in the minimum Support Prices (MSP). These favorable conditions significantly drove up Kharif acreage to almost 36 % above normal. Production of Kharif pulses increased by nearly 70 % in over that of the previous year. Total production of pulses increased by about 40%. RBI s Contingency Fund: Should Be Built or Not? Centre was in talks with the RBI over the transfer of its surplus. RBI s setting aside Rs. 13, 140 crore for its Contingency Fund (CF). Issue: There are no special risks to the central bank. Government is in talks with the RBI for the transfer of the payout. Question: what level of reserves should a central bank keep to tide over extreme financial disruptions? Contingency fund: A fund for emergencies or unexpected outflows, mainly economic crises. The Contingency Fund of India is established under Article 267 (1) of the Indian Constitution. 7 of 10

8 Why RBI needs to maintain contingency funds? CF is meant for unforeseen contingencies buffer against valuation losses on bond holdings or foreign exchange assets. RBI has got wide area of responsibilities, and hence it is at greater risks. RBI requires recapitalisation, precisely at a time when the fiscal position is under strain. It needs to maintain healthy contingency reserve so that it can lend its support in the event of a bank s failure. The Widening Gap between India s Rich and Poor Income inequality in India is at its highest level since Income inequality: Unequal distribution of household or individual income across the different participants in the economy. Causes of rising income inequality in India: Increased GDP growth Top Tax rates reduced Increasing wage inequality Lower growth rates for low income group Measures have the Government taken up to reduce income inequality: Land Reforms Monopolies and Restrictive Trade Practices Act Poverty Alleviation Programmes Step taken to reduce income inequality: Focused upon job creation rather than income redistribution More tax progressivity Creating productive employment Fiscal instruments More diversified agriculture Ensuring equal opportunities Efficient delivery systems 8 of 10

9 Accountability of service providers Gini Coefficient Statistical measure to gauge the inequality of income or wealth within nations or states. Its value varies from zero to 1. Zero indicating perfect equality One indicating the perfect inequality General rise in the measure indicates that government policies are not inclusive. It may be benefiting the rich as much as the poor. Used to compare income distribution of a country over time as well. Inclusive Growth: Why is It Indispensable for India? To achieve inclusive growth in India, need to shift the workers from informal employment to formal employment. Inclusive growth infers an impartial allocation of resources. Lessens the fast growth rate of poverty in a country. India needs to democratize productivity through inclusive growth to finally reach its full economic potential. Why is inclusive growth important for India? Economic growth results from labour force growth and productivity growth of workers. With 80 % of the labour force stuck in low productivity activities in informal employment. For the Indian economy to reach its growth potential, ways and means must be found to move workers from informal to formal employment. Economy can reach its full potential only when the hundreds of millions of Indian workers can escape the trap of low productivity. GST (Goods and Services Tax) Compensation Cess As a part of GST reform, a new levy called the GST Compensation Cess introduced by the government. In order to compensate the loss of the manufacturing States in the first five years of GST implementation. Cess introduced through the GST (Compensation to States) Act, of 10

10 GST is an indirect tax reform which aims to remove the tax barriers between states and create a single market. Meaning of Cess: A cess is a levy for a specific purpose. Cess is levied on inter and intra - state supply of notified goods such as aerated drinks, coal, tobacco, automobiles and ambiguous category of other supplies. Find this video at: Expected Questions on Economics UPSC IAS Prelims (Part 1) (In Hindi) implies important for Objective Questions/MCQ implies important for Subjective Questions implies covered in Videos or Upcoming Videos - Published/Last Modified on: May 9, 2018 Eco. P Important Topics for Economics N Expected Questions on Economics 2018 Part 1 (Set - 2) -Examrace Team Monthy-updated, fully-solved, large current affairs-2018 question bank(more than 2000 problems): Quickly cover most-important current-affairs questions with pointwise explanations especially designed for IAS, CBSE-NET, Bank-PO and other competetive exams. 10 of 10