Budget and Economic Survey Test - 4

• The Economic Survey of India is an annual document released by the Ministry of Finance. It is usually presented in Parliament a day before the Union Budget.
• It is prepared by the  Economics Division of the Department of Economic Affairs (DEA)  under the guidance of the Chief Economic Advisor. Hence, statement 1 is not correct.
• Statements mandated under the FRBM Act (Fiscal Responsibility and Budget Management Act) 2003:  (a) Macro-Economic Framework Statement (b) Fiscal Policy Strategy Statement (c) Medium Term Fiscal Policy Statement. Hence, statement 2 is not correct.

• Most bonds pay a fixed interest rate that becomes more attractive if interest rates fall, driving up demand and the price of the bond.
• Conversely, if interest rates rise, investors will no longer prefer the lower fixed interest rate paid by a bond, resulting in a decline in its price.
• Thus, bonds have an inverse relationship to interest rates. When the cost of borrowing money rises  (when interest rates rise), bond prices usually fall, and vice-versa. Further, Decrease in Bond prices causes the yield to increase. Hence, option C is correct.

• Despite the downward revision, the growth estimate for FY23 is higher than for almost all major economies and even slightly above the average growth of the Indian economy in the decade leading up to the pandemic.
• IMF estimates India to be  one of the top two fast-growing significant economies  in 2022. Despite strong global headwinds and tighter domestic monetary policy, if India is still  expected to grow between 6.5 and 7.0% , and that too without the advantage of a base effect,  it is a reflection of India ’s underlying economic resilience. Hence, statement 3 is not correct.
• The  rebound in consumption  has also been supported by the  release of “pent-up ”demand , a phenomenon not again unique to India but nonetheless exhibiting a local phenomenon influenced by a rise in the share of consumption in disposable income. Hence, statement 1 is correct.
• Capex thrust  in the last two budgets of the Government of India was not an isolated initiative meant only to address the infrastructure gaps in the country. It was part of a strategic package aimed at crowding-in private investment into an economic landscape broadened by the vacation of non-strategic PSEs (disinvestment) and idling public sector assets. Hence, statement 2 is correct.

• A hawkish stance indicates that the central bank ’s top priority is to keep the inflation low.
• During such a phase, the central bank is willing to hike interest rates to curb money supply and thus reduce the demand.
• A hawkish policy also indicates tight monetary policy.
• When the central bank increases rates or 'tightens 'the monetary policy, banks too increase their rate of interest on loans to end borrowers which, in turn, curbs demand in the financial system. Hence, option B is correct.

• According to the CMIE (Centre for Monitoring Indian Economy), the labour force consists of people who are 15 years or older, and belong to either of the following two categories:
  • Are Employed
  • Are unemployed and are willing to work  and are actively looking for a job.
• These two categories have people “demanding ”jobs. This demand is what LFPR refers to. Hence, option C is correct.

• A current account deficit occurs when the total value of goods and services a country imports exceeds the total value of goods and services it exports. Increasing imports and decreasing exports contribute to rising Current Account Deficit. Hence, statement 1 and 3 are correct.
• The balance of exports and imports of goods is referred to as the trade balance. Trade Balance is a part of ‘Current Account Balance ’. According to an earlier report of 2021, High Oil Imports, High Gold Imports are the major driving force, widening the CAD. Whereas FDI inflows promote exports  thus it does not contribute to Current Account deficit. Hence, statement 2 is not correct.

• The reforms were  undertaken before 2014 primarily catered to product and capital market space.  They were necessary and continued post-2014 as well.
• The government, however, imparted a new dimension to these reforms in the last eight years.  With an underlying emphasis on enhancing the ease of living and doing business and improving economic efficiency, the reforms are well placed to lift the economy ’s potential growth.
• The  broad principles behind the reforms were creating  public goods, adopting trust-based governance, co-partnering with the private sector for development, and improving agricultural productivity.
• This approach reflects a paradigm shift in the growth and development strategy of the government, with the  emphasis shifted towards building partnerships amongst various stakeholders in the development process,  where each contributes to and reaps the development benefits  (Sabka Saath, Sabka Vikaas).

Hence, option C is correct.

India ’s Digital Economy:

• Besides the push to physical infrastructure, the  government ’s emphasis on developing public digital infrastructure during the last few years  has been a game changer in enhancing the economic potential of individuals and businesses.
• A recently published article in the RBI ’s Monthly Bulletin  estimates that India ’s core digital economy has grown at 2.4 times the overall economic growth between 2014 and 2019.
• With its strong forward linkages to the non-digital sectors, digitalisation strengthens potential economic growth through various channels  such as higher financial inclusion, greater formalisation, increased efficiencies and enhanced opportunities.

Hence, option C is correct.

• One prominent reason behind the higher revenue buoyancy is the  introduction of technology-backed tax governance reforms  for simplifying tax processes, enhancing compliance, and improving fraud detection systems.
• The faceless assessment and appeal systems no longer require a physical interface between taxpayers and the Income Tax department. Moreover, multiple consistency checks possible with integrated digital systems reduce tax evasion.
  • As an illustration, the GST return filing mechanism results in better income reporting,  leading to higher direct tax collections.
• In this regard, the decision to share data and information between CBDT and CBIC on an automatic and regular basis is a  promising reform, and it would result in efficiency gains in the tax system.
  • These reforms augur well for  future economic growth and future resource mobilisation in the economy.

• As investments made by companies went sour, it impaired their ability to repay bank loans. Hence, banks ’non-performing assets began to rise.
  • That set-in motion a long period of  repair of the financial and non-financial sector balance sheets in the second half of the last decade.
• The government and the RBI took several policy initiatives to help the financial sector  recoup the balance sheet stress during the 2010s.
• Some of these such as the amendment to the SARFAESI Act 2002 , implementation of the Insolvency and Bankruptcy Code (IBC), launch of ‘Asset Quality Review ’(AQR), introduction of prompt corrective action (PCA) framework, recapitalisation of Public Sector Banks (PSB), and merger of PSBs among others, helped in cleaning up the balance sheets of banks/corporates.
• Hence, option D is correct.