Daily Quiz: UPSC Prelims Marathon: June 7

Explanation– According to OECD, Fiscal consolidation is a policy aimed at reducing government deficits and debt accumulation. It means taking steps to fix the fiscal deficit problem in its root and prevent heavy fiscal deficits situation from occurring in future. Some steps are:

Cutting down subsidies.

Stop leakages in subsidies.

Reform the tax structure (implement GST).

Improve the performance of PSUs.

Recover black money

Policy reforms and creating environment conducive for economy.

Controlling wasteful expenditures

Explanation- In late 1980s and early 1990s, Indian economy faced  the problem of large fiscal deficit and its effects on to the external sector. Govt was not able to pay for large borrowings. This crisis ultimately scaled up to the economic crisis of 1991. Consequently, Economic reforms were introduced in 1991 and fiscal consolidation emerged as one of the key areas of reforms. Initially it gave good results but fiscal consolidation faltered after 1997-98. The fiscal deficit started rising after 1997-98.

The Government then introduced FRBM Act,2003 to check the fiscal situation. This act was brought in to institutionalise the financial discipline, introduce transparent fiscal management systems in the country, introduce a more equitable and manageable distribution of the country’s debts over the years, to aim for fiscal stability for India in the long run.

Main purpose of the act was elimination of the revenue deficit and building revenue surplus thereafter. It also aimed for reducing fiscal deficit to 3% of GDP till 2008. As statement 1 is saying elimination of revenue deficit and fiscal deficit, it is wrong. It only talked about elimination of revenue deficit. Zero fiscal deficit is bad for the country.

This law also gives flexibility to the Reserve Bank of India to undertake monetary policy to tackle inflation and take corrective measures in order to give an impetus to the economic environment. Statement 2 is correct.

Explanation– IIP measures the growth of various sectors in the economy by measuring the industrial activity of the country. It does not show volume of activity and only shows the magnitude which represents the status of production in the industrial sector for a given period of time as compared to a reference period of time. IIP is released every month by the CSO.

Explanation- Gross capital formation increase means increase in the net investment. None of the statements can certainly say that their increase will result in the increase of the Gross Capital Formation.

Explanation– Developing countries enjoy special benefits in WTO. 2/3rd of the WTO Members are developing countries. There is no agreed definition of what is a “developed” or a “developing” Member in the WTO. It is up to each Member to decide if it is to be considered “developing Member” or not. This is known as self selection. However, other Members can challenge the decision of a Member to be considered as a developing Member.