Read
the passage carefully and answer the questions given below it. Certain words/phrases
are given in bold to help you locate them while answering some of the
questions.
India’s
external debt profile appears similar to that of other major market economies.
But its short term external debt stock is now higher than countries such as
Brazil and Russia (in terms of percentage of GDP), according to Taimur Baig and
Kaushik Datta, economists at Deutsche Bank. India’s share of short term debt relative
to the stock of total external debt is also higher than other emerging market economies,
with the exception of Turkey, they say.
Though
short term debt was contained in FY 14, it was largely due to a slowdown
in imports and may again rise once there is a rebound in growth and imports
pick up. Some economists point out that since GDP is expressed in dollar terms,
a weak rupee translates into a lower GDP number and hence, a lower ratio could
be misleading.
However,
the composition of long term debt which is reckoned to be durable and ‘safe’
is also worrisome. While the share of almost risk free sovereign, multilateral
and bilateral credit has reduced significantly over the years, it is private corporate
sector debt and ‘retail’ component in terms of NRI deposits that has swelled
over the years. Proceeds from the FCNR (B) swap and overseas borrowing schemes
were, in fact, the main contributors to the $31.2 bn increase in external debt
in FY 14, which were facilitated by the Reserve Bank to stabilise the Indian currency.
“NRI
deposits do not pose material risks (as they are generally rolled over). But
the increase in the share of external commercial borrowings exposes the domestic
corporate sector significantly to external shocks, including adverse exchange
rate movements,” says Samiran Chakrabarty, Chief India Economist, Standard Chartered Bank. Every year about $20 bn is scheduled for repayment. The amount
may not seem alarming, but the risk arises if there is a global liquidity squeeze.
The
recent trouble in Iraq has added another dimension to external sector woes,
which is that the reduction in trade deficit in FY 14 may reverse again. “Already
struggling with a record low growth, high inflation, a weak currency, low manufacturing
growth and possibility of sub-normal monsoon, the threat of oil supply shock
and the resultant increase in prices add to the risks faced by the country,
which could hamper India’s envisaged improvement in economic growth in
FY 15,” say Madan Sabnavis and Kavita Chacko of Care Ratings. If crude price risks
persist, the current account deficit, which was contained in 2013-14, could deteriorate
further and also add to pressure on the rupee. Care Ratings has projected a CAD
for the year at 2.5% of GDP, assuming stable crude oil prices and a re covery
in industrial production. Higher persistent crude prices would upset this calculation.
1.
Which of the following statements is contrary to the facts mentioned in the given
passage?
a)
In FY 14, short term debt was contained due to slowdown in imports.
b)
Short term debt is directly proportional to t he quantum of imports.
c)
A weak rupee translates into a lower GDP number
d)
Private corporate sector debt has decreased over the years
2.
What is/are the reasons of the author being apprehensive about India’s improvement
in economic growth in FY 15?
a)
The recent Iraq crisis may lead to reduction in trade deficit in the current financial
year
b)
The possibility of sub-normal monsoon
c)
High inflation and low manufacturing growth
d)
All of the above
3.
Choose the word/group of words which is most similar in meaning to the word/group
of words printed in bold as used in the passage.
Contained
a)
Neglected b) Accomodated c) Controlled
d)
Excluded
4.
Choose the word/group of words which is most similar in meaning to the word/group
of words printed in bold as used in the passage.
Reckoned
a)
Nullified b) Abandoned c) Started
d)
Considered
5.
Choose the word/group of words which is most similar in meaning to the word/group
of words printed in bold as used in the passage.
Envisaged
a)
Anticipated b) Amazed c) Doubted
d)
Discarded
6.
Choose the word/group of words which is most opposite in meaning of the word/group
of words printed in bold as used in the passage.
Proceeds
a)
Profit b) Outgo c) Income
d)
Interests
7.
Choose the word/group of words which is most opposite in meaning of the word/group
of words printed in bold as used in the passage.
Squeeze
a)
Congestion b) Crunch c) Restraint
d)
Release
Read
the passage carefully and answer the questions given below it. Certain words/phrases
are given in bold to help you locate them while answering some of the
questions.
The
first budget of the new administration needed to focus on two key macro
problems – a path to fiscal consolidation and a clear signal for structural reforms
– to boost the long run growth trajectory of the economy. The budget delivers
on both counts.
On
the fiscal deficit, the new government has continued from where the previous
administration left in laying out a path and a commitment to reducing the deficit
to 3% of GDP by FY 17. On the structural reform path, there was a clear focus
on boosting labour intensive manufacturing and growth.
The
excise duty cuts for food processing and footwear industries, creation of SEZs,
single window clearance, tax deductions for investments, reforms to the Apprenticeship
Act and Rs.10,000 Crore as venture capital for SMEs were all small steps in
that direction. While the fiscal path is admirable, it also may be too aggressive.
It may be difficult to get a 20% increase in tax revenues in a year when growth
is likely to remain below 6%.
The
assumption of service tax revenues growing by 40% may be a tad optimistic.
Further, the 3G telecom privatisation proceeds of Rs.45,000 Crore also look
ambitious. To achieve the government’s medium term targets will not be easy. First,
we would have preferred a more realistic and gradual approach to consolidation.
Taking an extra year to reach the 3% deficit target (i.e. by FY 18 instead of
FY 17) might be more realistic, and would not compromise macro stability.
Second, there is an urgent need for a return to fiscal rules and the FRBM Act,
with due sanctions, as the Economic Survey argues. Without it, and despite the medium
term path laid out in the budget, there may be an incentive to pause on fiscal
consolidation, as happened in FY 09 and was witnessed through FY 12. More than
80 countries follow some sort of a fiscal rule and have found them very useful
in imposing fiscal descipline.
Third,
if consolidation is based on increasing the tax base, then further erosions could
be avoided. In this regard, the increase in income tax exemption limits further
reduces an already small tax base. Only 3% of Indians (35 mn) pay income tax
compared with more than 20% of Chinese and over 45% of Americans. The strategy
that China followed was to not raise income tax thresholds with rising incomes
to increase the base further. If the government consistently raises the threshold
limits, it would be difficult to expand the tax base.
Fourth,
tax administration could be improved by having an independent revenue service,
with its own budget and autonomy in hiring staff. As the government implements
its revenue strategy, autonomy and reforms in administration could be
potentially very helpful.
Fifth,
a road map for reducing subsidies, particularly the large fertilizer subsidy,
can give greater credence to the consolidation path.
The
budget marks a very good beginning in terms of signalling a commitment to
fiscal discipline and structural regorms. While the strategy seems to improve
GDP growth and, thereby, reduce fiscal deficit through revenue byoyancy,
such a strategy is fraught with risks.
We
think that to meet the consolidation path requires a clear set of rules, measures
to broadbase the tax system and a road map to reduce subsidies. This budget
lays out the overall vision.
8.
Which of the following statements is not based on the facts mentioned in the
given passage?
a)
It will be difficult to get a 20% increase in income tax revenue if the growth
remains below 6%.
b)
It will be difficult to achieve government’s medium term targets.
c)
The new government has committed to reducing the fiscal deficit to 3% of GDP by
FY 17.
d)
Among India, China and America, the highest number of tax payers live in
America.
9.
What is being done by the government for structural reform?
a)
Special attention was paid on the growth of labour intensive manufacturing.
b)
Excise duty cut for food processing and footwear industries was allowed
c)
SEZs are to be created
d)
All of the above
10.
What is/are the prerequisite(s) to meet the consolidation path? Give your answer
in the context of the given passage.
a)
More and more people should be brought under the net of income tax.
b)
A blue print should be prepared to reduce subsidies.
c)
An independent, autonomous body with an authority to inspect the functioning of
income tax department should be brought into existence.
d)
Only a) and b)
11.
Choose the word/group of words which is most similar in meaning to the word/group
of words printed in bold as used in the passage.
Erosion
a)
Destruction b) Deterioration c) Strengthening
d)
Consumption
12.
Choose the word/group of words which is most similar in meaning to the
word/group
of words printed in bold as used in the passage.
Buoyancy
a)
Elasticity b) Snap c) Rigidity
d)
Feslience
13.
Choose the word/group of words which is most similar in meaning to the
word/group
of words printed in bold as used in the passage.
Fraught
a)
Empty b) Devoid c) Lack d) Abound
14.
Choose the word/group of words which is most opposite in meaning of the word/group
of words printed in bold as used in the passage.
Consistently
a)
Steadily b) Customarily c) Never
d)
Congruously
15.
Choose the word/group of words which is most opposite in meaning of the word/group
of words printed in bold as used in the passage.
Credence
a)
Distrust b) Assurance c) Belief
d)
Credit
ANSWERS:
1.
Option D
2.
Option D
3.
Option C
4.
Option D
5.
Option A
6.
Option B
7.
Option D
8.
Option D
9.
Option D
10.
Option D
11.
Option B
12.
Option D
13.
Option D
14.
Option C
15.
Option A
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