SECTION C - GENERAL ECONOMICS - CHAPTER 6

Learning Objectives At the end of this unit, you will be able to: (cid:2) understand the meaning of budget deficit and fiscal deficit. (cid:2) know how budget and fiscal deficits have progressed over the years. 6.0 MEANING OF BUDGET AND FISCAL DEFICITS The Government of India, every year prepares budget which shows the expected receipts and expenditures of the government in the coming financial year. Receipts of the government come from taxes (both direct and indirect), profits from various financial institutions, government commercial undertakings, interest from loans given to other governments, local bodies, etc. and expenditure of the government are on developmental projects such as construction of roads, railways, production of energy and non-developmental expenditure on a large number of activities such as defence, subsidies, police, law and order, etc. If receipts are equal to expenditure, the budget is said to be balanced one. If receipts are higher than the expenditure, the budget is said to be surplus one and if receipts are lower than the expenditure, the budget is said to be deficit one. Budget deficit is thus the difference between total receipts and total expenditure (revenue plus capital). If borrowings and other liabilities are added to the budget deficit, we get fiscal deficit. Fiscal deficit, thus measures that part of government expenditure which is financed by borrowings. Consider the following example to understand both the concepts: Calculation of Budget Deficit and Fiscal Deficit 1990-91 2004-05 Rs. Rs. (crore) (crore) 1. Revenue Receipts 54,950 3,51,200 2. Capital Receipts of which 39,010 1,63,144 (a) Loan recoveries + other receipts 5,710 12,000 (b) Borrowings & other liabilities 33,300 1,51,144 3. Total Receipts (1+2) 93,960 5,14,344 4. Revenue expenditure 73,510 1,15,982 5. Capital expenditure 31,800 67,832 6. Total expenditure (4+5) 1,05,310 5,14,344 7. Budgetary Deficit (3-6) 11,350 Nil 8. Fiscal deficit 44,650 1,51,144 [1 + 2(a) - 6 = 7 + 2(b)] GENERAL ECONOMICS 319 Copyright -The Institute of Chartered Accountants of India SELECT ASPECTS OF INDIAN ECONOMY Budget deficit is Total receipt – Total expenditure So here, For 1990-91, Rs. 93,960 crore – Rs. 1,05,310 crore = Rs. 11,350 crore For 2004-05, Rs. 5,14,344 crore – Rs. 5,14,344 crore = Nil Fiscal deficit is (a) the difference between total expenditure and total revenue receipts and capital receipts but excluding borrowings and other liabilities. or (b) it is the sum of budget deficit plus borrowings and other liabilities. So here, for 1990-91, Fiscal deficit is 1st Method: Total expenditure = Rs. 1,05,310 crore (-) Total revenue receipts (no.1) = Rs. 54,950 crore (-) Capital receipts [no.2(a)] = Rs. 5,710 crore Or Rs. 1,05,310 crore – Rs. 60,660 crore Or Rs. 44,650 crore 2nd Method: Budget deficit (item 7) + borrowings and other liabilities (item 2(b)) = Rs. (11,350 + 33,300) crore = Rs. 44,650 crore For 2004-05, Fiscal deficit is 1st Method = Rs. 5,14,344 crore – Rs. [3,51,200 + 12,000] crore = Rs. 1,51,144 crore. 2nd Method = Nil + Rs. 1,51,144 crore = Rs. 1,51,144 crore 6.1 TRENDS IN INDIA’S BUDGET AND FISCAL DEFICITS Budgetary deficit which shows the difference between total revenue and total expenditure does not give a true picture of the financial health of the economy. It treats government borrowing from the market or raising the funds from the public such as national savings schemes, post office saving deposits, provident fund collections etc. as receipts. Originally, budget deficit was calculated to show RBI lending to the government. In 1997, the practice of RBI lending to government through ad hoc Treasury Bills was given up. Thus the concept lost its relevance and now it is no longer shown in the budgetary statement. The government now taps 91 days treasury bills from the market and shows it as part of the capital receipts under the heading “borrowings and other liabilities”. 320 COMMON PROFICIENCY TEST Copyright -The Institute of Chartered Accountants of India Fiscal deficit is a more comprehensive measure of the imbalances. It focuses on/measures the total resource gap and as such fully reflects the impact of the fiscal operations of the indebtedness of government. It is the measure of excess expenditure over the government’s own income. Fiscal deficit in India have grown rapidly. In the fifteen year period of 1975-90, the fiscal deficit of the Central Government rose alarmingly from 4.1 per cent of GDP to 7.9 per cent of GDP. The then present fiscal malaise had been caused by unchecked growth of non planned revenue expenditure. Non plan revenue expenditure particularly on defense, interest payments and food and fertiliser subsidies rose sharply during 1980s. In 1991, major steps were taken to correct the fiscal imbalances. Many expenditures were cut and controlled (e.g. subsidies). Fiscal deficit was reduced to 4.7 per cent in 1991-92 and to 4.1 per cent in 1996-97. Since 1997-98, fiscal deficit has again started increasing. It stood at 5.6 per cent in 2000-01. To restore fiscal discipline, the Fiscal Responsibility and Budget Management (FRBM) Bill was introduced in 2000 and FRBM Act was passed in 2003. The Act aims at reducing gross fiscal deficit by 0.5 per cent of the GDP in each financial year (beginning on April 1, 2000). As a result of the efforts taken, the fiscal deficit as a proportion of GDP has started declining. During 2003-04, it was 4.5 per cent, during 2004-05 and 2005-06 it was 4.1 per cent, during 2006-07 and 2007-08 it was 3.5 per cent and 2.7 per cent respectively. World wide financial crisis affected Indian economy also. The extraordinary situation that emerged due to crisis had led to a sharp shrinkage in the demand for exports. Domestic demand also shrank leading to a downturn in industry and services sectors. The situation demanded a fiscal response. The measures taken included increase in the plan expenditure, reduction in indirect taxes, sector specific measures for textiles, housing, infrastructure, automobiles, micro and small sectors and exports etc. These, together with debt relief package for farmers and outlay due to Sixth Pay Commission recommendations led to an upsurge in the fiscal deficit to 6.2% of GDP compared with 2.7% for 2007-08. SUMMARY Budget deficit is the difference between total receipts and total expenditure. If borrowings and other liabilities are added to budget deficit, we get fiscal deficits. Since budget deficit does not show the true picture of government liabilities and hence a true picture of the financial health of the economy, the practice of showing budget deficit in the budget was given up in 1997. Budgets now show fiscal deficits to show the overall shortfalls in the public revenues. Over the years, fiscal deficits have grown rapidly and have become the cause of concern. To meet the challenge, many reforms have been carried out but still the problem of high fiscal deficit remains. GENERAL ECONOMICS 321 Copyright -The Institute of Chartered Accountants of India CCCCCHHHHHAAAAAPPPPPTTTTTEEEEERRRRR ––––– 66666 SELECT ASPECTS OF INDIAN ECONOMY Unit 7 Balance of Payments Copyright -The Institute of Chartered Accountants of India Learning Objectives At the end of this unit, you will be able to: (cid:2) understand the meaning of Balance of Payments. (cid:2) know the difference between Balance of Payments and Balance of Trade. (cid:2) know of the developments in Balance of Payments situation in India since Independence. 7.0 MEANING OF BALANCE OF PAYMENTS AND BALANCE OF TRADE The Balance of Payments (BOP) is one of the oldest and most important statistical statements for any country. It is a systematic record of all economic transactions between the residents of one country and the residents of the rest of the world in a year. Since we merely record all receipts and payments in international transactions using double entry system, the balance of payments always balance in an accounting sense. Balance of Trade : Balance of Trade may be defined as the difference between the value of goods sold to foreigners by the residents and firms of the home country and the value of goods purchased by them from foreigners. If value of exports of goods is equal to the value of imports of goods, we say that there is balance of trade equilibrium and if the latter exceeds the former, then we say that there is balance of trade deficit. But if the former exceeds the latter, i.e., if value of exports of goods is more than the value of imports of goods, we say there is surplus balance of trade. Balance of Current Account : Balance of current account is a broader concept than the balance of trade. It includes balance of services and balance of unilateral transfers (i.e., unrequited transfers) besides including balance of trade. Balance of services records all the services exported and imported by a country in a year. Unlike goods which are visible and tangible, services are invisible and are not tangible. The services transactions basically include: (i) transportation, banking and insurance receipts and payments from and to the foreign countries, (ii) tourism, travel services and tourist purchases of goods and services received from foreign visitors to home country and paid out in foreign countries by home country citizens, (iii) expense of diplomatic and military personnel from overseas as well as receipts from similar personnel from overseas who are stationed in the home country, and (iv) interest, profits, dividends and royalties received and paid from and to the foreigners. Balance of services is the sum of all invisible service receipts and payments which could be zero, positive or negative. Balance of unrequited transfers includes all gifts, donations, grants and reparation, receipts and payments to foreign countries. All these balances, i.e., balance of trade, balance of services and balance of unrequited transfers constitute balance of current account. It could again be positive, negative or zero depending upon the values of these balances. It is worth noting that balance of payments on current account covers all receipts on account of earnings (as opposed to borrowings) and all the payments arising out of spending (as opposed to lending). This is in sharp contrast to balance of payments on capital account. GENERAL ECONOMICS 323 Copyright -The Institute of Chartered Accountants of India SELECT ASPECTS OF INDIAN ECONOMY Balance of Payment on capital account : Balance of payments on capital account includes balances of private direct investments, private portfolio investments and government loans to foreign governments. Balance of capital account basically deals with debts and claims of the country in question or we say it deals with borrowings or lending of the country in question. Balance of Payments : Overall balance of payments is the sum of balance of current account and balance of capital account. It includes all international monetary transactions of the reporting country vis-à-vis the rest of the world. The balance of payments must always balance in a book-keeping sense. This is because for any surplus (or deficit) in the overall balance of payments there must be a corresponding debit (or credit) entry in the net changes in external reserves. In other words, if there is a surplus it adds to external reserves of the country and if there is a deficit, it reduces down the external reserves of the country. 7.1 TRENDS IN BALANCE OF PAYMENTS OF INDIA A country, like India, which is on the path of development generally, experiences a deficit in balance of payments situation. This is because such a country requires imported machines, technology and capital equipments in order to successfully launch and carry out the programme of industrialisation. Also, since initially it has only primary goods to offer as exports, it generally has an unfavourable balance of payments position. As pace of development picks up it has to have ‘maintenance imports’ although it has now more sophisticated goods to offer for exports. But the situation remains the same i.e., deficit balance of payments. This has exactly happened in India. Over the period of planning India’s balance of payments has generally remained unfavourable. However, deficit in balance of payments sharply increased after the Fifth Plan. During the whole of the Fifth Plan, India experienced surplus in the balance of payments due to a sharp increase in the export surpl.us on account of invisible remittances (money sent by a foreign worker to his home country) From 1979-80 onwards, India started experiencing very adverse balance of payments. This happened because growing trade deficits, which till then were offset by net receipts could not be made good by them in spite of the fact that the rising trends in the net receipts on account of invisibles noticed in the past few years continued in 1980-81 to 1985-86. Apart from external assistance, India had to meet this huge deficit in the current account through withdrawals and borrowings from IMF. It also used up a part of its foreign exchange reserves. The Sixth Plan characterised the balance of payments position as ‘acute’. During the Sixth Plan, the trade deficit was 3.3 per cent of GDP and current account deficit was 1.4 per cent of GDP. Exports performance substantially improved in the Seventh Plan with average volume growth exceeding 7 per cent. However, the balance of payments continued to be under strain on account of a combination of several medium and short term adverse factors. There was no significant growth in indigenous oil production while domestic demand for petroleum products went on rising. There was a steep rise in debt services payments. The share of net invisible earnings in financing trade deficit declined from 63 per cent during the Sixth Plan to 29.5 per cent during the Seventh Plan. The average current account deficit as a per cent of GDP increased to 2.4 per cent in the Seventh Plan. The large and sustained current account deficit in the BOP had to be financed by substantial inflow of capital in the form of loans from various sources, commercial borrowings and inflow of funds from NRIs. In early 1990-91, the already poor BOP position worsened because of Gulf war and further deterioration in invisible remittances. 324 COMMON PROFICIENCY TEST Copyright -The Institute of Chartered Accountants of India An immediate response to the BOP crisis was introduction of several restrictions on import in 1990-91. In 1992-93, many important changes such as a new system of exchange rate management, liberalisation of import licensing and tariff reductions were introduced. Data of 1992-93 show that there has been significant revival of imports and exports during the year with the result that the current account deficit came down to 2.1 per cent of GDP in 1992-93. In the year 1993-94, India saw a remarkable turnaround from a foreign exchange constrained control regime to a more open, market driven and liberalised economy. This has been facilitated by the structural changes in the country’s balance of payments. The trade liberalisation and a shift to a market-determined exchange rate regime have had a significant positive impact on the country’s balance of payments. Exports recorded a growth of 20 per cent in dollar terms. The surplus on the invisible account doubled. The current account deficit shrank, and the capital account was strengthened by sharp increase in direct foreign investments and portfolio investments. Not only this, foreign currency reserves which were just $1205 million in 1990 reached the level of $19,386 million in 1994. The balance of payments position further consolidated in 1994-95. The build up in foreign currency reserves which reached a level of $19.6 billion at the end of January 1995, the economy thus moved to a more stable and sustainable balance of payments position. The balance of payments situation remained comfortable in 1995-96, 1996-97 and 1997-98. In 1998-99, despite the continuing slow down of exports and a marked deceleration in capital flows, the BOP situation was not unmanageable. Exports during 1999-2000 showed a welcome recovery. Similarly, imports also picked up. The current account deficit in the year 2000-01 was 0.5 per cent of GDP. It was 1.1 per cent in 1999-2000. This improvement in current account deficit was made possible largely because of the dynamism in export performance, sustained buoyancy in invisible receipts and subdued non-oil import demand. The BOP position remained comfortable during 2001-02. In the Tenth plan total exports grew at about 24 per cent per annum. This was largely due to the impressive growth of petroleum products which grew at more than 50 per cent during the Plan. Manufactured goods recorded an impressive growth of about 20 per cent per annum and exports of agricultural and allied products also rose at a healthy rate of more than 16 per cent. North America (occupying first place) continued to be an important destination of India’s exports. During the Tenth Plan nearly 16 per cent of India’s exports went to North America. European Union countries (27 in number) had a combined share of more than 21 per cent in India’s exports during the Tenth Plan. The share of Asia and ASEAN countries steadily increased during the Tenth Plan and the region accounted for nearly half of India’s exports during the Plan. Imports recorded a compound annual growth rate of around 30 per cent during the Tenth Plan. The high growth was mainly due to increase in oil prices. The crude oil and petroleum products taken together were the single most important category of imports during the Plan. This group accounted for nearly 30 per cent of the total value of imports by India during the Plan. The share of machinery and project goods registered a significant increase during the plan increasing from 11.3 per cent in 2002-03 to 18 per cent in 2006-07. Asian countries remained our main supplier of imports during the Plan. Their share increased from around 30 per cent in 2002-03 to more than 57 per cent in 2006-07. GENERAL ECONOMICS 325 Copyright -The Institute of Chartered Accountants of India SELECT ASPECTS OF INDIAN ECONOMY The merchandise trade deficit widened sharply during the Tenth Plan mainly on account of the growing oil import bill. We had a current account surplus for three successive years (2001-04). Buoyant invisible flows, particularly private transfers comprising remittances, along with software services exports, have been instrumental in creating and sustaining current account surpluses for India for the above period. However, since 2003-04 trade deficit has widended sharply, particularly in 2004-06, because of higher outgo on import of petroleum, oil and lubricants. As a result, current account surpluses have once again turned into deficits inspite of the fact that invisibles flows have continued to swell. For the years 2004-05, 2005-06 and 2006-07 the current account deficits were (-) 0.4 per cent and (-) 1.1 per cent and (-) 1 per cent respectively. In the Eleventh Plan exports are projected to grow at about 20 per cent per year in US dollar terms, the imports are projected to grow at 23 per cent, current account deficit could range between 1.2 per cent to 2 per cent and trade deficit could reach 16 per cent at the end of the Plan. During the first year of the Eleventh Plan, export increased by around 30 per cent, imports increased by 35 per cent, current account balance was (-) 1.5 per cent of GDP and trade balance was (-) 7.8 per cent of GDP. The year 2008-09 was marked by adverse development in the external sector of the economy, particularly during the second half of the year, reflecting the impact of global financial crisis. Exports grew by 17.5 per cent and imports by 30.6 per cent during April - December 2008-09. Despite higher invisible surplus, the trade deficit widened mainly because of higher growth of imports and slower growth of exports. The current account deficit ratio to GDP reached 4.1 per cent during April-December 2008-09. Foreign direct investment (FDI) has grown significantly on net (inward minus outward) basis. The year to year growth (net) was 154 per cent in 2006-07 and 100 per cent in 2007-08. During April-December 2008, net FDI remained buoyant at US $ 15.4 billion as compared to US $ 6.9 billion in April-December 2007. Considering global FDI inflows in various countries, India ranked ninth. Foreign exchange reserves declined from US $ 309.7 billion in 2007-08 to US $ 252 billion in 2008-09. The United States of America continued to be the principal destination accounting for 12 per cent of India’s total exports in 2008-09, followed by UAE(10.8 per cent), China(5.1 per cent), Singapore (4.8 per cent), Hong Kong (3.7 per cent) and UK (3.6 per cent). In 2008-09, Asia and ASEAN continued to be the major source of India’s imports accounting for more than 61 per cent of total imports. Thus, we find that there has been a significant improvement in the structure of India’s balance of payments since the economic crisis of 1991. Comparing the pre-crisis with the post-crisis data we find that exports grew at an annual average of 7.6 per cent during 1980 to 1992 and at an annual average of 10 per cent 1992-93 to 2000-2001. Similarly, imports grew at 13.7 per cent per annum during 1992-93 to 2000-2001 compared with just 8.5 per cent growth rate during 1980-1992. Moreover, the current account deficit, as percentage of GDP has declined 326 COMMON PROFICIENCY TEST Copyright -The Institute of Chartered Accountants of India from 1.9 per cent during pre-crisis period to around 1 per cent during post-crisis period and during 2001-04 we even had surplus in the current account. Since then also, the external sector has shown resilience despite slow down in the global economy. SUMMARY No country is self-sufficient today. It has to depend upon other countries for its imports and exports. For evaluating its performance on the international front it prepares ‘Balance of Trade’ and ‘Balance of Payments’ statements. Balance of trade is the statement showing balance of merchandise trade only. In Balance of payments we have other transactions such as capital transactions, balance on account of service transactions, gold transactions, etc. A country could be having a surplus in balance of trade and a deficit in balance of payments simultaneously. While analysing India’s balance of payments situation we find that it started deteriorating since 1979-80. This happened because growing trade deficits which till Fifth Plan were offset by net receipts could not be made good by them in spite of the fact that the rising trend in the net receipts continued till early 80’s. The current account deficit which was 1.3 per cent of GDP in the Sixth Plan stood at 2.2 per cent during the Seventh Plan. This large and sustained current account deficit had to be financed by substantial inflow of capital in the form of loans, commercial borrowings and inflow of funds from NRIs. The Gulf crisis further deteriorated our balance of payments position. Our reserves touched very low levels. In order to combat all these problems and to boost exports and curb imports changes were made from time to time in our foreign trade policy. Many schemes were started and incentives were given for improving exports. Devaluation (reducing the value of local currency vis-a-vis other currencies) of rupee was carried out, loan was sought from the IMF and new trade policy was announced. As a result, we now have quite comfortable balance of payments situation. GENERAL ECONOMICS 327 Copyright -The Institute of Chartered Accountants of India CCCCCHHHHHAAAAAPPPPPTTTTTEEEEERRRRR ––––– 66666 SELECT ASPECTS OF INDIAN ECONOMY Unit 8 External Debt Copyright -The Institute of Chartered Accountants of India Learning Objectives At the end of this unit, you will be able to: (cid:2) understand the types of external assistance received by India. (cid:2) know the changes that have taken place over the years in the structure of external assistance received by India. 8.0 EXTERNAL DEBTS IN INDIA Since no country is self-sufficient, it has to rely on other countries and international organizations for financial assistance. This is especially true for a developing country which is on the path of development. It needs funds for its various developmental projects. India is no exception. Ever since Independence it has relied on other countries for external assistance. External assistance to India has been in two forms – grants and loans. While grants do not involve any repayment obligation, loans carry an obligation to pay interest and repay the principal. About 90 per cent of the external assistance received by India has been in the form of loans. These loans have been from different sources like World Bank, International Monetary Fund (IMF), International Development Association, U.S.A., U.K., Japan, etc. A large part of the loan, especially from multilateral and bilateral agencies has high degree of concessionability i.e., grant element of at least 25 per cent. The share of concessional debt in total debt now is about 20 per cent. At one time (1980-81) it was as high as 75 per cent. India’s external debt amounted to Rs 13,470 crore at the end of March 1981. As liberal use of borrowing has been made ever since then, the external debt stood at more than Rs 4,80,000 crore at end March 2002 and nearly 9,00,000 crore at end March 2008. As per cent of GDP, India’s external debt was 11.7 per cent at end March 1991; it became 21 per cent at end March 2002 but reduced to 19 per cent at end March 2008. Debt service ratio i.e. the ratio of gross debt service payments (principal and interest) to external current receipts was as high as 35.3 in 1990-91; it declined to 13.7 per cent in 2001-02 and further to 5.4 in 2007-08. In terms of indebtedness classification, the World Bank has categorized India as a less indebted country since 1999. Among the top 15 debtor countries of the world, India improved its rank from third debtor after Brazil and Mexico in 1991 to ninth in 2001 after Brazil, China, Mexico, Russian Federation, Argentina, Indonesia, Turkey and Korea Republic and further to sixth after Russian Federation, China, Turkey, Brazil and Poland in 2008. It needs to be also recognized that the debt service ratio (ratio of principal and interest to total exports) for India remains high by international standards. Besides, India’s exports of goods as a percentage of GDP works out to be around 14 per cent. This ratio which represents the potential capacity of the nation to service external debt, being relatively low, makes India vulnerable to external shocks. This, therefore, underscores the need for sustaining the growth in exports and invisibles. GENERAL ECONOMICS 329 Copyright -The Institute of Chartered Accountants of India SELECT ASPECTS OF INDIAN ECONOMY SUMMARY Like any developing economy, India has had been facing financial crunch. Therefore, it relies on other countries and international organisations for financial assistance. Financial assistance has been in two forms – grants and loans. Till 1980-81, the percentage of grants in total external assistance to India had been quite high. But now, the percentage of commercial loans in total assistance is increasing. India needs to push up its exports so its capability of repaying the loans strengthens. MULTIPLE CHOICE QUESTIONS 1. What is India’s rank in world population? a. First. b. Second. c. Third. d. Fourth. 2. The annual addition to India’s population is almost equal to the total population of a. Bangladesh. b. Australia. c. Japan. d. China. 3. In which state is the sex ratio most favourable to women? a. Andhra Pradesh. b. Uttar Pradesh. c. Kerala. d. Karnataka. 4. Which year is known as year of great divide for India’s population? a. 1991. b. 2001. c. 1981. d. 1921. 5. In which state/union territory is the literacy rate highest? a. Delhi. b. Chandigarh. c. Karnataka. d. Kerala. 330 COMMON PROFICIENCY TEST Copyright -The Institute of Chartered Accountants of India 6. India’s passing through _________ stage of demographic transition. a. Fourth. b. Third. c. First. d. Second. 7. In the theory of demographic transition in the last stage, a. Birth rate rises, death rate rises. b. Birth rate rises, death rate falls. c. Birth rate falls, death rate rises. d. Birth rate falls, death rate falls. 8. Which of the following statements is correct? a. India’s population is second largest in the world. b. India is still passing through first stage of demographic transition. c. More people in a country always mean more economic trouble for the country. d. None of the above. 9. India’s present population is a. Between 50-60 crore. b. Between 60-70 crore. c. Between 70-80 crore. d. Above 100 crore. 10. India accommodates nearly ______________ per cent of world’s population. a. 10. b. 50. c. 17. d. 45. 11. Over the years, birth rate in India has __________ and death rate has _____________. a. Fallen, fallen. b. Risen, fallen. c. Risen, risen. d. Fallen, risen. GENERAL ECONOMICS 331 Copyright -The Institute of Chartered Accountants of India SELECT ASPECTS OF INDIAN ECONOMY 12. The birth rate in India is high because of a. Predominance of agriculture. b. Slow urbanisation. c. High incidence of poverty. d. All of the above. 13. Which of the following statements is correct? a. Gini coefficients are often used for measuring poverty in relative sense. b. When poverty is related to the distribution of income or consumption expenditure, it is absolute poverty. c. In India, we mainly use the concept of relative poverty for measuring poverty. d. None of the above. 14. Identify the incorrect statement. a. The problems of poverty and unemployment are inter-related. b. The problem of poverty has been solved in India. c. Growing population has also contributed to the problem of poverty in India. d. None of the above. 15. SJSRY stands for a. Swaran Jayanti Shahari Rozgar Yojana. b. Shahari Jeewan Sudhar Rashtriya Yojana. c. Sampoorna Jeewan Shahari Rozgar Yojana. d. None of the above. 16. EAS stands for a. Easy Assistance Scheme. b. Endless Assistance Scheme. c. Employment Assurance Scheme. d. Employment Assessment Scheme. 17. A situation of employment in which a person is apparently employed but his contribution to the production is almost nil is called ________ unemployment. a. Structural. b. Chronic. c. Disguised. d. Cyclical. 332 COMMON PROFICIENCY TEST Copyright -The Institute of Chartered Accountants of India 18. ______________ unemployment may result when some workers are temporarily out of work while changing job. a. Cyclical. b. Voluntary. c. Frictional. d. Seasonal. 19. According to __________________ measure, a person is said to be employed for the week even if he is employed only for a day during the week. a. Usual status. b. Current weekly status. c. Current daily status. d. Current yearly status. 20. ___________________ measure estimates the number of persons who may be said to be chronically unemployed. a. Usual status. b. Current weekly status. c. Current daily status. d. Current yearly status. 21. When due to introduction of new machinery, some workers tend to be replaced by machines, their unemployment is termed as ________________. a. Structural. b. Technological. c. Mechanical. d. Seasonal. 22. Every ___________person in the world is an Indian. a. Second. b. Third. c. Sixth. d. Tenth. 23. _____________________ measure generally gives the lowest estimate of unemployment especially for poor economy. a. Usual status. b. CWS. GENERAL ECONOMICS 333 Copyright -The Institute of Chartered Accountants of India SELECT ASPECTS OF INDIAN ECONOMY c. CDS. d. CMS. 24. Most of the unemployment in India is ________________. a. Voluntary b. Structural c. Frictional d. Technical 25. According to the Planning Commission, using Mixed Recall period (MRP) ______________ per cent people were below poverty line in 2004-05. a. Rs. 26.2 b. Rs. 25.2 c. Rs. 27.8 d. Rs. 21.8 26. Work force refers to that part of: a. Labour force which is employed. b. Population which is unemployed. c. Population which is forced to work. d. Labour force which is unemployed. 27. According to the 61st NSSO survey (July 2004 - June 2005): a. The unemployment rates went down between 1993-94 to 2004. b. The unemployment rates went up between 1993-94 to 2004. c. The unemployment rates remained same between 1993-94 to 2004. d. None of the above. 28. According to the 61st NSSO survey (July 2004 - June 2005): a. unemployment rates on the basis of current daily status were same as those on the basis of usual status. b. unemployment rates on the basis of current daily status were higher than those on the basis of usual status. c. unemployment rates on the basis of current daily status were lower than those on the basis of usual status. d. none of the above. 334 COMMON PROFICIENCY TEST Copyright -The Institute of Chartered Accountants of India 29. At present, nearly ____________ per cent of the energy consumed is obtained from non- commercial traditional sources. a. 45. b. 51. c. 27. d. 10. 30. The highest user of commercial energy is a. agriculture. b. transport. c. household. d. industry. 31. In terms of generation of power ____________________ ‘s contribution, is the maximum. a. hydel. b. nuclear. c. thermal. d. others. 32. NTPC stands for a. National Thermal Power Corporation. b. National Tidal Power Corporation. c. National Theological Power Corporation. d. National Talent and Potential Corporation. 33. ______________________ measures the operational efficiency of a thermal plant. a. Power load factor. b. Power leakage factor. c. Plant load factor. d. Plant leakage factor. 34. According to the latest data (2008-09) PLF is lowest in a. southern region. b. northern region. c. western region. d. north eastern region. GENERAL ECONOMICS 335 Copyright -The Institute of Chartered Accountants of India SELECT ASPECTS OF INDIAN ECONOMY 35. Considering State Electricity Boards (SEBs) central sector and private sector, PLF is highest in____________. a. private sector. b. SEBs. c. central sector. d. both for SEBs and private sector. 36. Electricity generated from radio active elements is called a. thermal electricity. b. atomic energy. c. hydel electricity. d. tidal energy. 37. Which of the following statements is correct? a. The demand and the supply of fuel are almost equal. b. Our import bill on account of oil has been decreasing since 1990. c. Oil prices have been decreasing since 1973. d. Transmission and distribution losses of power companies are very high. 38. Which of the following statements is incorrect? a. The Indian road network is one of the longest networks in the world. b. The rural road network connects around 65 per cent of all weather roads. c. Most of the State Road Transport Corporations are running on profits. d. The National highways carry more than 40 per cent of the total road traffic. 39. In terms of overseas shipping tonnage, India ranks ______________ (2007). a. 10th. b. 15th. c. 25th. d. 20th. 40. Of the major 12 ports, ____________ is the top traffic handler. a. Paradip. b. Cochin. c. Vishakhapatnam. d. Mumbai. 336 COMMON PROFICIENCY TEST Copyright -The Institute of Chartered Accountants of India 41. Sahara Jet and Kingfisher are examples of a. private schools. b. private airlines. c. private ships. d. private railways. 42. Our postal network is _________________ in the world. a. the largest network. b. fifth smallest. c. tenth largest. d. tenth smallest. 43. On an average, one post office in India serves ________. a. 100 persons. b. 1000 persons. c. 7174 persons. d. 5800 persons. 44. There are about __________ phones per hundred population in India. a. 35.65. b. 12.85. c. 13.83. d. 15.15. 45. Who is regulatory authority for telecom in India? a. SEBI. b. TRAI. c. MTNL. d. BSNL. 46. Over the years, the incidence of malaria (cases in million) has ________________. a. reduced b. increased. c. remained the same. d. doubled. GENERAL ECONOMICS 337 Copyright -The Institute of Chartered Accountants of India SELECT ASPECTS OF INDIAN ECONOMY 47. Over the years, the number of polio cases has a. increased. b. reduced. c. remained the same. d. doubled. 48. NLM stands for a. National Leprosy Mission. b. National Logistic Mission. c. National Literacy Mission. d. National Law Mission. 49. IIM stands for a. Indian Institute of Marketing. b. Indian Institute of Manpower planning. c. Indian Institute of Management. d. International Institute of Management. 50. When too much money chases too few goods, the resulting inflation is called __________. a. deflation. b. demand-pull inflation. c. cost-push inflation. d. stagflation. 51. The combined phenomenon of stagnation and inflation is called ______________. a. demand-pull inflation. b. cost-push inflation. c. money inflation. d. stagflation. 52. When prices are falling continuously, the phenomenon is called _______________. a. inflation. b. stagflation. c. deflation. d. reflation. 338 COMMON PROFICIENCY TEST Copyright -The Institute of Chartered Accountants of India 53. When the government tries to meet the gap of public expenditure and public revenue through borrowing from the banking system, it is called ________________. a. deficit financing. b. debt financing. c. credit financing. d. none of the above. 54. ___________ is the difference between total receipts and total expenditure. a. Fiscal deficit. b. Budget deficit. c. Revenue deficit. d. Capital deficit. 55. If borrowings and other liabilities are added to the budget deficit we get ______________. a. revenue deficit. b. capital deficit. c. primary deficit. d. fiscal deficit. 56. FRBM Act stands for a. Fiscal Revenue and Budget Management. b. Foreign Revenue and Business Management. c. Fiscal Responsibility and Budget Management. d. Foreign Responsibility and Budget Management. 57. _______________________ is a systematic record of all the economic transactions between one country and rest of the world. a. Balance of trade. b. Balance of transactions. c. Budget. d. Balance of payments. 58. EPCG scheme stands for a. Export Package For Capital Goods. b. Export Promotion Capital Goods. c. Excise Promotion Capital Goods. d. Excise Package For Capital Goods. GENERAL ECONOMICS 339 Copyright -The Institute of Chartered Accountants of India SELECT ASPECTS OF INDIAN ECONOMY 59. The share of concessional debt in total external debt of India has a. remained the same. b. doubled. c. reduced. d. increased. 60. About ________________ per cent of the external assistance has been in the form of loans. a. 40. b. 30. c. 10. d. 90. 61. Among all the states, ————— has the lowest birth rate of and ————— has the highest birth rate. a. Kerala, Uttar Predesh b. West Bengal, Uttar Pradesh c. Kerala, West Bengal d. Kerala, Bihar 62. Considering death rate, ————— has the lowest death rate and __________ has the highest death in 2007. a. Kerala, Uttar Pradesh b. West Bengal, Orissa c. Madhya Pradesh, West Bengal d. Kerala, Orissa 63. Which state has the lowest life expectancy at birth? a. Kerala b. Bihar c. Madhya Pradesh d. Uttar Pradesh 64. Maternal Mortality Rate is highest in ——————. a. U.P b. M.P. c. Bihar d. Kerela 340 COMMON PROFICIENCY TEST Copyright -The Institute of Chartered Accountants of India 65. India is the world’s —————— largest energy producer. a. fifth b. second c. seventh d. first 66. India is the world’s ————largest energy consumer. a. second b. seventh c. first d. fifth 67. Almost ——————per cent of India’s global merchandise trade is carried through the sea route. a. 95 b. 65 c. 80 d. 55 68. In the Tenth plan, total exports grew at about ——— per cent per annum. a. 10 b. 15 c. 24 d. 5 69. Imports recorded a compound annual growth rate of around ————per cent during the Tenth Plan. a. 30 b. 20 c. 10 d. 40 70. The ——————— continued to be the principal destination of India’s total exports in 2008-09. a. Japan b. United States of America c. South Korea d.. Russia GENERAL ECONOMICS 341 Copyright -The Institute of Chartered Accountants of India SELECT ASPECTS OF INDIAN ECONOMY 71. In 2008-09, ——————— continued to be the major source of India’s imports. a. Asia and ASEAN b. EU c. North America d. South America 72. In terms of indebtedness classification, the World Bank has categorized India as a ——— ———country since 1999. a. highly indebted b. less indebted c. severely highly indebted d. zero indebted 73. Among the top 15 debtor countries of the world, India is ranked at —————. (2008) a. tenth b. fifteenth c. sixth d. ninth 74. As per cent of GDP, India’s external debt is —— per cent. (2008) a. 10 b. 15 c. 12 d. 19 75. India’s debt service ratio is ——————. (2007-08) a. 11.5 b. 5.4 c. 30.5 d. 10 76. Sex ratio refers to the numbers of females per _________ males a. 100 b. 300 c. 1000 d. Non of the above 342 COMMON PROFICIENCY TEST Copyright -The Institute of Chartered Accountants of India 77. Which state shows are lowest infant mortality rate in India? a. Uttar Pradesh b. Andhra Pradesh c. Kerala d. Tamil Nadu ANSWERS 1. b 2. b 3. c 4. d 5. d 6. d 7. d 8. a 9. d 10. c 11. a 12. d 13. a 14. b 15. a 16. c 17. c 18. c 19. b 20. a 21. b 22. c 23. a 24. b 25. d 26. a 27. b 28. b 29. c 30. d 31. c 32. a 33. c 34. d 35. a 36. b 37. d 38. c 39. d 40. c 41. b 42. a 43. c 44. a 45. b 46. a 47. b 48. c 49. c 50. b 51. d 52. c 53. a 54. b 55. d 56. c 57. d 58. b 59. c 60. d 61. a 62. b 63. c 64. b 65. c 66. d 67. a 68. c 69. a 70. b 71. a 72. b 73. c 74. d 75. b 76. c 77. c GENERAL ECONOMICS 343 Copyright -The Institute of Chartered Accountants of India