Test: Economic Survey 2021 (Volume I)- 2

Interest-Growth Rate Differential (IGRD): The difference between the average interest rate that governments pay on their debt and the nominal growth rate of the economy is known as ‘Interest-Growth Differential’. Hence, option (a) is correct.

Cyclicality of the fiscal policy

• The cyclicality of the fiscal policy refers to a change in direction of government expenditure and taxes based on economic conditions.
• These pertain to decisions by policymakers based on the fluctuations in economic growth. There are two types of cyclical fiscal policies - counter-cyclical and procyclical.

Pro-cyclical Fiscal Policy Stance

• In a pro-cyclical fiscal policy, the government reinforces the business cycle by being expansionary during good times and contractionary during recessions.
• Pursuing a pro-cyclical fiscal policy is generally regarded as dangerous. It could raise macroeconomic volatility, depress investment in real and human capital, hamper growth and harm the poor.
• In Recession
  (i) The government takes the route of Expansionary Fiscal Policy i.e. the government expenditure is decreased and taxes are increased. This decreases the consumption potential of the economy and deepens the recession.
• In Economic Boom
  (i) The government takes the route of contractionary Fiscal Policy i.e. the government expenditure is increased and taxes are decreased. Hence, statement 2 is NOT correct.
  (ii) This increases the consumption potential of the economy and amplifies the economic boom. Hence, statement 1 is correct.

• Lorenz Curve: A Lorenz curve is a graphical representation of income inequality or wealth inequality developed by American economist Max Lorenz in 1905. The graph plots percentiles of the population on the horizontal axis according to income or wealth. Hence, option (d) is correct.
• Phillips Curve: The Phillips curve is an economic concept developed by A. W. Phillips. He stated that inflation and unemployment have a stable and inverse relationship. The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.
• Kuznets Curve: The Kuznets curve expresses a hypothesis advanced by economist Simon Kuznets in the 1950s and 1960s. According to this hypothesis, as an economy develops, market forces first increase and then decrease economic inequality.
• Laffer Curve: The Laffer Curve is a theory developed by supply-side economist Arthur Laffer to show the relationship between tax rates and the amount of tax revenue collected by governments.

Rule of Law Index 2020

• The World Justice Project has released the Rule of Law Index and ranked India in the 69th position. Hence, statement 1 is correct.
• India’s performance along various indicators:
  
• India’s performance has improved significantly in following due process in administrative proceedings, with its rank improving from 72 in 2015 (out of 102 countries) to 45 in 2020 (out of 128 countries). Hence, statement 2 is correct.
• In contrast, it has deteriorated over time on certain other parameters.

Solow-Swan Model

• Robert Solow and Trevor Swan first introduced the neoclassical growth theory in 1956.
  (i) The theory states that economic growth is the result of three factors—labor, capital, and technology. Hence, option (a) is correct.
• The Solow Model highlights that output per worker mainly depends on savings, population growth and technological progress.
• While an economy has limited resources in terms of capital and labor, the contribution from technology to growth is boundless.

Bare Necessities Index

• Bare Necessities Index (BNI) has been constructed at the rural, urban and all India level for the year 2012 and 2018. (Except Telangana, as Telangana did not exist in 2012).
• The index is constructed using 26 indicators on five dimensions viz., water, sanitation, housing, micro-environment, and other facilities. Hence, statement 1 is NOT correct.
• A BNI based on large annual household survey data of the National Sample Office (NSO).

Pradhan Mantri Sahaj Bijli Har Ghar Yojana (PM Saubhagya)
Objectives of the scheme

• The government had launched Saubhagya Yojana in October 2017 with the objective to achieve universal household electrification by providing electricity connections to all willing un-electrified households in rural areas and all willing poor households in urban areas in the country by March 2019. Hence, statement 2 is NOT correct.

Targets and Achievements

• All States have declared electrification of all households on the Saubhagya portal, except 18,734 households in Left Wing Extremists (LWE) affected areas of Chhattisgarh as of 31.03.2019. Hence, statement 1 is NOT correct.
• Electricity connections to 262.84 lakh households have been released from 11.10.2017 to 31.03.2019.
• Subsequently, seven States reported that 19.09 lakh un-electrified households identified before 31.03.2019, which were earlier un-willing but have expressed willingness to get electricity connection. States have been asked to electrify these households under Saubhagya.

Ricardian equivalence

• The theory that consumers are forward looking and anticipate that government borrowing today will mean a tax increase in the future to repay the debt, and will adjust consumption accordingly so that it will have the same effect on the economy as a tax increase today. Hence, option (a) is correct.

• A K-shaped recovery occurs after a recession when certain parts of the economy resumes growth while others lag behind indefinitely
• In a K-shaped recovery different sections of an economy recover at starkly different rates.
• Rich households have seen their incomes largely protected, and savings rates increased during the lockdown, the scope of future consumption. But households at the bottom are likely to have witnessed permanent hits to jobs and incomes. Hence, statement 1 is correct.
• V-shaped recovery: It is the next-best scenario after Z-shaped recovery in which the economy quickly recoups lost ground and gets back to the normal growth trend-line.
  (i) In this, incomes and jobs are not permanently lost, and the economic growth recovers sharply and returns to the path it was following before the disruption. Hence, statement 2 is NOT correct.

• The e-Sanjeevani is a platform independent, browser-based application facilitating both doctor-to-doctor and patient-to-doctor tele-consultations.
• It is a doctor to doctor telemedicine system, being implemented under the Ayushman Bharat Health and Wellness Centre (AB-HWCs) programme. Hence, option (c) is correct.

• The Consolidated Sinking Fund in India was established by the Reserve Bank in 1999–2000 to enable states to repay their debt easily. At present 23 states have set up consolidated sinking funds. Hence, statement 2 is NOT correct.
• This fund of state governments is managed by the Reserve Bank of India. Hence, statement 1 is correct.
• The fund gets contributions from State governments in the range of 1-3 percent of their outstanding market loans each year.
• The Covid-19 pandemic is causing stress on the State’s finance and the State would like to utilise resources like the sinking fund for meeting demand regarding outstanding liabilities.

• The Defense Acquisition Procedure 2020 contains policies and procedures for procurement and acquisition from the capital budget of the MoD in order to modernise the Armed Forces including the Coast Guard. Hence, statement 1 is correct.
• Objective: Turning India into a global manufacturing hub.

For Ease of Doing Business:

• Time Bound Defence Procurement Process and Faster Decision Making
• Revised Offset Guidelines: Preference will be given to manufacture of complete defence products over components and various multipliers have been added to give incentivisation in discharge of offsets.
  (i) Further, there will be no offset clause in government-to-government, single vendor and Intergovernmental Agreements (IGA). Hence, statement 2 is NOT correct.
  (ii) Offsets are a portion of a contracted price with a foreign supplier that must be re-invested in the Indian defence sector, or against which the government can purchase technology.

• The Logistics Performance Index (LPI), developed by the World Bank Group, is an interactive benchmarking tool created to help countries identify the challenges and opportunities they face in their performance on trade logistics and what they can do to improve their performance. Hence, option (b) is correct.

• The Central government has increased the foreign direct investment (FDI) limit in the defence sector from 49 to 74 per cent under automatic route and beyond 74 per cent through the government route. Hence, statement 1 is correct.
  
• Singapore continued to be the top source of FDI for India in April-Dec 2020-21. Hence, statement 2 is NOT correct.

The high level group (HLG) formed for the health sector by the 15^th Finance Commission has recommended to shift the subject of ‘health’ to the Concurrent List of the Indian Constitution from the State List. Hence, option (a) is correct.