Economic Survey 2015-16 Questions: Challenge for the Indian Economy (Prelims 2016 )

Here, we have provided Multiple Choice Questions based on the very first chapter of Economic Survey 2015-16: The Chakravyuha Challenge of the Indian Economy.

Q1. Consider the following statements regarding Indian economy's remarkable progress in increasing entry into the market economy:
I.    Industrial licensing has been dismantled
II.    Public sector monopolies have been diluted
III.    Foreign direct investment has been considerably liberalised

Which of the following statement(s) is/are correct?
A.    Only I
B.    I and II
C.    I and III
D.    All of the above

Answer: D

Explanation: Since the early 1980s, the Indian economy has made remarkable progress in increasing entry into the market economy for instance, the industrial licensing has been dismantled, public sector monopolies have been diluted, some public sector assets have been privatised, foreign direct investment has been considerably liberalised, a process that has been accelerated under various government, and trade barriers have been reduced. Indeed, the narrative of reforms has been one of promoting entry by eliminating the barriers to it.

Q2. It is true that Indian economy has moved from socialism with restricted entry to “marketism” without exit form the former. The lack of exit from socialism creates at least three types of costs, which of the following cost is not associated with this:
A.    Fiscal Cost
B.    Opportunity Cost
C.    Economic Cost
D.    Political Cost

Answer: B

Explanation: Fiscal Cost is an increasing function of the taxes that will have to make up for the lost revenue, and/or the general equilibrium effects of greater deficits, via the greater interest costs and reduced private sector investment activity that result if the government borrows to finance the foregone revenue. Economic losses result from resources and factors of production not being employed in their most productive uses. The lack of exit can also have considerable political costs for governments attempting to reform the economy. The benefits of impeded exit often flow to the rich and influential in the form of support for "sick" firms.

Q3. Canalisation of imports means:
A.    Exports and imports only through the agencies designated by the Central Government.
B.    Exports and imports only through the agencies designated by the WTO.
C.    Exports and imports only from the country which are already member of WTO.
D.    The activities of exports and imports are to be done only through canals and sea ways.

Answer: A

Explanation: "Canalisation" of exports and imports means exports and imports only through the agencies designated by the Central Government.

Q4. The Smartcards program was a tremendous success. Which of the following statements is correct?
A.    Smart card program reducing payment delays by 19 per cent, increasing MGNREGA wages by 24 per cent and reducing leakages by 35 per cent.
B.    The return on investing in Smartcards infrastructure was less than the cost of implementation.
C.    90 per cent of beneficiaries also preferred the Smartcards system.
D.    Smart Card programme is called as a classic case of the imbalance of power between concentrated losses and diffuse benefits.

Answer: B

Explanation: The Smartcards program was a tremendous success, reducing payment delays by 19 per cent, increasing MGNREGA wages by 24 per cent and reducing leakages by 35 per cent. The return on investing in Smartcards infrastructure was thus seven times the cost of implementation. 90 per cent of beneficiaries also preferred the Smartcards system (Muralidharan et. al. 2015)8 . And yet, the perception was created that the program was mostly negative. This was a classic case of the imbalance of power between concentrated losses and diffuse benefits.

Q5. What are the reasons that even after LPG, Indian economy is not moving away from Socialistic economy?
A.    Institutions
B.    Interests
C.    ideas/ideology
D.    All of the above

Answer: D

Explanation: It is useful to understand the exit problem of Indian economy from Socilistic economy, in terms of analytical categories because it aids in the search for solutions. In India, the exit problem arises because of three types of reasons, what might be called the three I’s: interests, institutions, and ideas/ ideology.

Q6. Who among the following had given one of the famous phrases “licence-quota-permit Raj”?
A.    Amartya Sen
B.    Rajagopalachari
C.    Mahalanobis
D.    Jawaharlal Nehru

Answer: B

Explanation: Structural impediments to India’s economic progress have often been framed in relation to the problem of entry as evoked in the famous phrase--“licence-quota-permit Raj”--of C. Rajagopalachari, India’s original economic liberal.

Q7. A market economy requires:
I.     unrestricted entry of new firms, new ideas, and new technologies so that the forces of competition can guide capital and labour resources to their most productive and dynamic uses. 
II.   easy exit so that resources are forced or enticed away from inefficient and unsustainable uses.
III.  Restricted entry of new firms, new ideas, and new technologies so that the forces of competition can guide capital and labour resources to their most productive and dynamic uses.

Which of the following statement(s) is/are correct?
A.    Only I
B.    I and II
C.    I and III
D.    All of the above

Answer: B

Explanation: A market economy requires unrestricted entry of new firms, new ideas, and new technologies so that the forces of competition can guide capital and labour resources to their most productive and dynamic uses. But it also requires exit so that resources are forced or enticed away from inefficient and unsustainable uses.

Q8. Which of the followings high-powered committee set up by the finance ministry to redraw the contours of the country’s public private partnership (PPP) model has recommended ending the one-size-fits-all approach in dealing with project-specific risks, and advocated independent regulators?
A.    Kelkar Committee
B.    Rangrajan Committee
C.    Gadgil Committee
D.    Hazari Committee

Answer: A

Explanation: The committee observed that given the urgency of India’s demographic transition and the experience the country has already gathered in managing PPPs, the government must now tweak the model by incorporating lessons learnt so far and making it more sophisticated.

Q9. Sometimes, the vested interest problem is aggravated by a certain imbalance or asymmetry that confers greater power on concentrated producer interests in relation to diffused consumer interests. Such imbalance or asymmetry was first identified by which of the following economists?
A.    Alfred Marshal
B.    David Ricardo
C.    Vilfredo Pareto
D.    Amartya Sen

Answer: C

Explanation: In context of current situation of Indian economy, interests regarded as the most powerful reason for lack of exit is the power of vested interests. Often, this vested interest problem is aggravated by a certain imbalance or asymmetry (first identified by the Italian economist Pareto) that confers greater power on concentrated producer interests in relation to diffused consumer interests.

Q10. Consider the following statements regarding CACP:
I.    CACP stands for Commission of Agricultural Costs & Prices came into existence in January 1965.
II.    For CACP, it is mandated to recommend minimum support prices (MSPs) to incentivize the cultivators to adopt modern technology, and raise productivity and overall grain production in line with the emerging demand patterns in the country.
III.    CACP submits its recommendations to the government in the form of Price Policy Reports every year, separately for five groups of commodities namely Kharif crops, Rabi crops, Sugarcane, Raw Jute and Copra.

Which of the following statement(s) is/are correct?
A.    Only I
B.    I and II
C.    I and III
D.    All of the above

Answer: D

Explanation: The Commission of Agricultural Costs & Prices (CACP since 1985, earlier named as Agricultural Prices Commission) came into existence in January 1965. Currently, the Commission comprises a Chairman, Member Secretary, one Member (Official) and two Members (Non-Official). The non-official members are representatives of the farming community and usually have an active association with the farming community.