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Passage 1Any government that runs on a huge fiscal deficit has to, at some point, finance that deficit by creating money through borrowings. When the government does that, there is more money chasing the same number of goods and services in the economy. The result is a hike in prices, or inflation. At 5.1%, India's fiscal deficit is dangerously high, controlling which should have been the government's highest priority. Raising diesel prices by 14% such that the subsidy bill on the fuel falls will help bring this deficit under control. To put that issue in perspective, at Rs.47,800 crore oil subsidies for the first quarter of the current financial year have already exceeded the full year's budgeted figure.For consumers already reeling under a double digit onslaught of food prices, the hike in the diesel prices will hurt, no doubt. Part of this increase can be neutralized, by cutting excise duties on the fuel, for instance. But for successive governments that have been unable to curb spending on vote buying schemes- some of them crucial - or on an inflated and unproductive bureaucracy, the other option is to increase taxes and return to the sky high rates of the coercive 1970s, a regime that is best behind us.This brings us to the next issue: economic growth. With a high fiscal deficit that keeps inflation high, there is no way the RBI will cut interest rates. Even though most ofthe inflationary expectations are coming from goods outside India's control- crude oil imports, a falling rupee and a globally rising food and commodity prices- RBI's stance has been to keep policy rates high so that thousands cut down on discretionary grounds. In the process, home loan EMIs have been rising and along with inflation on one side, scissoring household targets.Making matters more complex is the fact that today the sovereign has very little control over its finances. Like it or nor, India cant and will not grow at 9% if the rest of the world is contracting, thereby closing business opportunities- there, the UPA government is right. "The political power of the sovereign goes down with every move towards globalization," Kaushik Basu said. "Economics has become an instrument of global, political and even military strategy." To illustrate, Indian farmers and businesses get affected by WTO negotiations, Indian workers by ILO negotiations, Indian fiscal policy by G20 communities, Indian markets by QE3.Q.Which of the following would help explain the relationship between the interest rates and a high fiscal deficit?a)The funding of government requirements through market borrowings induces a rise in interest rates that contributes to the rise in interest rates that contributes to the rise in fiscal deficit.b)The absence of an a apparent fiscal impact on interest rate is essentially the result of higher liquidity in the system.c)Empirical results show that there is no relationship between gross fiscal deficit and the real interest rated)None of the aboveCorrect answer is option 'D'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Passage 1Any government that runs on a huge fiscal deficit has to, at some point, finance that deficit by creating money through borrowings. When the government does that, there is more money chasing the same number of goods and services in the economy. The result is a hike in prices, or inflation. At 5.1%, India's fiscal deficit is dangerously high, controlling which should have been the government's highest priority. Raising diesel prices by 14% such that the subsidy bill on the fuel falls will help bring this deficit under control. To put that issue in perspective, at Rs.47,800 crore oil subsidies for the first quarter of the current financial year have already exceeded the full year's budgeted figure.For consumers already reeling under a double digit onslaught of food prices, the hike in the diesel prices will hurt, no doubt. Part of this increase can be neutralized, by cutting excise duties on the fuel, for instance. But for successive governments that have been unable to curb spending on vote buying schemes- some of them crucial - or on an inflated and unproductive bureaucracy, the other option is to increase taxes and return to the sky high rates of the coercive 1970s, a regime that is best behind us.This brings us to the next issue: economic growth. With a high fiscal deficit that keeps inflation high, there is no way the RBI will cut interest rates. Even though most ofthe inflationary expectations are coming from goods outside India's control- crude oil imports, a falling rupee and a globally rising food and commodity prices- RBI's stance has been to keep policy rates high so that thousands cut down on discretionary grounds. In the process, home loan EMIs have been rising and along with inflation on one side, scissoring household targets.Making matters more complex is the fact that today the sovereign has very little control over its finances. Like it or nor, India cant and will not grow at 9% if the rest of the world is contracting, thereby closing business opportunities- there, the UPA government is right. "The political power of the sovereign goes down with every move towards globalization," Kaushik Basu said. "Economics has become an instrument of global, political and even military strategy." To illustrate, Indian farmers and businesses get affected by WTO negotiations, Indian workers by ILO negotiations, Indian fiscal policy by G20 communities, Indian markets by QE3.Q.Which of the following would help explain the relationship between the interest rates and a high fiscal deficit?a)The funding of government requirements through market borrowings induces a rise in interest rates that contributes to the rise in interest rates that contributes to the rise in fiscal deficit.b)The absence of an a apparent fiscal impact on interest rate is essentially the result of higher liquidity in the system.c)Empirical results show that there is no relationship between gross fiscal deficit and the real interest rated)None of the aboveCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Passage 1Any government that runs on a huge fiscal deficit has to, at some point, finance that deficit by creating money through borrowings. When the government does that, there is more money chasing the same number of goods and services in the economy. The result is a hike in prices, or inflation. At 5.1%, India's fiscal deficit is dangerously high, controlling which should have been the government's highest priority. Raising diesel prices by 14% such that the subsidy bill on the fuel falls will help bring this deficit under control. To put that issue in perspective, at Rs.47,800 crore oil subsidies for the first quarter of the current financial year have already exceeded the full year's budgeted figure.For consumers already reeling under a double digit onslaught of food prices, the hike in the diesel prices will hurt, no doubt. Part of this increase can be neutralized, by cutting excise duties on the fuel, for instance. But for successive governments that have been unable to curb spending on vote buying schemes- some of them crucial - or on an inflated and unproductive bureaucracy, the other option is to increase taxes and return to the sky high rates of the coercive 1970s, a regime that is best behind us.This brings us to the next issue: economic growth. With a high fiscal deficit that keeps inflation high, there is no way the RBI will cut interest rates. Even though most ofthe inflationary expectations are coming from goods outside India's control- crude oil imports, a falling rupee and a globally rising food and commodity prices- RBI's stance has been to keep policy rates high so that thousands cut down on discretionary grounds. In the process, home loan EMIs have been rising and along with inflation on one side, scissoring household targets.Making matters more complex is the fact that today the sovereign has very little control over its finances. Like it or nor, India cant and will not grow at 9% if the rest of the world is contracting, thereby closing business opportunities- there, the UPA government is right. "The political power of the sovereign goes down with every move towards globalization," Kaushik Basu said. "Economics has become an instrument of global, political and even military strategy." To illustrate, Indian farmers and businesses get affected by WTO negotiations, Indian workers by ILO negotiations, Indian fiscal policy by G20 communities, Indian markets by QE3.Q.Which of the following would help explain the relationship between the interest rates and a high fiscal deficit?a)The funding of government requirements through market borrowings induces a rise in interest rates that contributes to the rise in interest rates that contributes to the rise in fiscal deficit.b)The absence of an a apparent fiscal impact on interest rate is essentially the result of higher liquidity in the system.c)Empirical results show that there is no relationship between gross fiscal deficit and the real interest rated)None of the aboveCorrect answer is option 'D'. Can you explain this answer?.

Solutions for Passage 1Any government that runs on a huge fiscal deficit has to, at some point, finance that deficit by creating money through borrowings. When the government does that, there is more money chasing the same number of goods and services in the economy. The result is a hike in prices, or inflation. At 5.1%, India's fiscal deficit is dangerously high, controlling which should have been the government's highest priority. Raising diesel prices by 14% such that the subsidy bill on the fuel falls will help bring this deficit under control. To put that issue in perspective, at Rs.47,800 crore oil subsidies for the first quarter of the current financial year have already exceeded the full year's budgeted figure.For consumers already reeling under a double digit onslaught of food prices, the hike in the diesel prices will hurt, no doubt. Part of this increase can be neutralized, by cutting excise duties on the fuel, for instance. But for successive governments that have been unable to curb spending on vote buying schemes- some of them crucial - or on an inflated and unproductive bureaucracy, the other option is to increase taxes and return to the sky high rates of the coercive 1970s, a regime that is best behind us.This brings us to the next issue: economic growth. With a high fiscal deficit that keeps inflation high, there is no way the RBI will cut interest rates. Even though most ofthe inflationary expectations are coming from goods outside India's control- crude oil imports, a falling rupee and a globally rising food and commodity prices- RBI's stance has been to keep policy rates high so that thousands cut down on discretionary grounds. In the process, home loan EMIs have been rising and along with inflation on one side, scissoring household targets.Making matters more complex is the fact that today the sovereign has very little control over its finances. Like it or nor, India cant and will not grow at 9% if the rest of the world is contracting, thereby closing business opportunities- there, the UPA government is right. "The political power of the sovereign goes down with every move towards globalization," Kaushik Basu said. "Economics has become an instrument of global, political and even military strategy." To illustrate, Indian farmers and businesses get affected by WTO negotiations, Indian workers by ILO negotiations, Indian fiscal policy by G20 communities, Indian markets by QE3.Q.Which of the following would help explain the relationship between the interest rates and a high fiscal deficit?a)The funding of government requirements through market borrowings induces a rise in interest rates that contributes to the rise in interest rates that contributes to the rise in fiscal deficit.b)The absence of an a apparent fiscal impact on interest rate is essentially the result of higher liquidity in the system.c)Empirical results show that there is no relationship between gross fiscal deficit and the real interest rated)None of the aboveCorrect answer is option 'D'. Can you explain this answer? in English & in Hindi are available as part of our courses for UPSC. Download more important topics, notes, lectures and mock test series for UPSC Exam by signing up for free.

Here you can find the meaning of Passage 1Any government that runs on a huge fiscal deficit has to, at some point, finance that deficit by creating money through borrowings. When the government does that, there is more money chasing the same number of goods and services in the economy. The result is a hike in prices, or inflation. At 5.1%, India's fiscal deficit is dangerously high, controlling which should have been the government's highest priority. Raising diesel prices by 14% such that the subsidy bill on the fuel falls will help bring this deficit under control. To put that issue in perspective, at Rs.47,800 crore oil subsidies for the first quarter of the current financial year have already exceeded the full year's budgeted figure.For consumers already reeling under a double digit onslaught of food prices, the hike in the diesel prices will hurt, no doubt. Part of this increase can be neutralized, by cutting excise duties on the fuel, for instance. But for successive governments that have been unable to curb spending on vote buying schemes- some of them crucial - or on an inflated and unproductive bureaucracy, the other option is to increase taxes and return to the sky high rates of the coercive 1970s, a regime that is best behind us.This brings us to the next issue: economic growth. With a high fiscal deficit that keeps inflation high, there is no way the RBI will cut interest rates. Even though most ofthe inflationary expectations are coming from goods outside India's control- crude oil imports, a falling rupee and a globally rising food and commodity prices- RBI's stance has been to keep policy rates high so that thousands cut down on discretionary grounds. In the process, home loan EMIs have been rising and along with inflation on one side, scissoring household targets.Making matters more complex is the fact that today the sovereign has very little control over its finances. Like it or nor, India cant and will not grow at 9% if the rest of the world is contracting, thereby closing business opportunities- there, the UPA government is right. "The political power of the sovereign goes down with every move towards globalization," Kaushik Basu said. "Economics has become an instrument of global, political and even military strategy." To illustrate, Indian farmers and businesses get affected by WTO negotiations, Indian workers by ILO negotiations, Indian fiscal policy by G20 communities, Indian markets by QE3.Q.Which of the following would help explain the relationship between the interest rates and a high fiscal deficit?a)The funding of government requirements through market borrowings induces a rise in interest rates that contributes to the rise in interest rates that contributes to the rise in fiscal deficit.b)The absence of an a apparent fiscal impact on interest rate is essentially the result of higher liquidity in the system.c)Empirical results show that there is no relationship between gross fiscal deficit and the real interest rated)None of the aboveCorrect answer is option 'D'. Can you explain this answer? defined & explained in the simplest way possible. Besides giving the explanation of Passage 1Any government that runs on a huge fiscal deficit has to, at some point, finance that deficit by creating money through borrowings. When the government does that, there is more money chasing the same number of goods and services in the economy. The result is a hike in prices, or inflation. At 5.1%, India's fiscal deficit is dangerously high, controlling which should have been the government's highest priority. Raising diesel prices by 14% such that the subsidy bill on the fuel falls will help bring this deficit under control. To put that issue in perspective, at Rs.47,800 crore oil subsidies for the first quarter of the current financial year have already exceeded the full year's budgeted figure.For consumers already reeling under a double digit onslaught of food prices, the hike in the diesel prices will hurt, no doubt. Part of this increase can be neutralized, by cutting excise duties on the fuel, for instance. But for successive governments that have been unable to curb spending on vote buying schemes- some of them crucial - or on an inflated and unproductive bureaucracy, the other option is to increase taxes and return to the sky high rates of the coercive 1970s, a regime that is best behind us.This brings us to the next issue: economic growth. With a high fiscal deficit that keeps inflation high, there is no way the RBI will cut interest rates. Even though most ofthe inflationary expectations are coming from goods outside India's control- crude oil imports, a falling rupee and a globally rising food and commodity prices- RBI's stance has been to keep policy rates high so that thousands cut down on discretionary grounds. In the process, home loan EMIs have been rising and along with inflation on one side, scissoring household targets.Making matters more complex is the fact that today the sovereign has very little control over its finances. Like it or nor, India cant and will not grow at 9% if the rest of the world is contracting, thereby closing business opportunities- there, the UPA government is right. "The political power of the sovereign goes down with every move towards globalization," Kaushik Basu said. "Economics has become an instrument of global, political and even military strategy." To illustrate, Indian farmers and businesses get affected by WTO negotiations, Indian workers by ILO negotiations, Indian fiscal policy by G20 communities, Indian markets by QE3.Q.Which of the following would help explain the relationship between the interest rates and a high fiscal deficit?a)The funding of government requirements through market borrowings induces a rise in interest rates that contributes to the rise in interest rates that contributes to the rise in fiscal deficit.b)The absence of an a apparent fiscal impact on interest rate is essentially the result of higher liquidity in the system.c)Empirical results show that there is no relationship between gross fiscal deficit and the real interest rated)None of the aboveCorrect answer is option 'D'. Can you explain this answer?, a detailed solution for Passage 1Any government that runs on a huge fiscal deficit has to, at some point, finance that deficit by creating money through borrowings. When the government does that, there is more money chasing the same number of goods and services in the economy. The result is a hike in prices, or inflation. At 5.1%, India's fiscal deficit is dangerously high, controlling which should have been the government's highest priority. Raising diesel prices by 14% such that the subsidy bill on the fuel falls will help bring this deficit under control. To put that issue in perspective, at Rs.47,800 crore oil subsidies for the first quarter of the current financial year have already exceeded the full year's budgeted figure.For consumers already reeling under a double digit onslaught of food prices, the hike in the diesel prices will hurt, no doubt. Part of this increase can be neutralized, by cutting excise duties on the fuel, for instance. But for successive governments that have been unable to curb spending on vote buying schemes- some of them crucial - or on an inflated and unproductive bureaucracy, the other option is to increase taxes and return to the sky high rates of the coercive 1970s, a regime that is best behind us.This brings us to the next issue: economic growth. With a high fiscal deficit that keeps inflation high, there is no way the RBI will cut interest rates. Even though most ofthe inflationary expectations are coming from goods outside India's control- crude oil imports, a falling rupee and a globally rising food and commodity prices- RBI's stance has been to keep policy rates high so that thousands cut down on discretionary grounds. In the process, home loan EMIs have been rising and along with inflation on one side, scissoring household targets.Making matters more complex is the fact that today the sovereign has very little control over its finances. Like it or nor, India cant and will not grow at 9% if the rest of the world is contracting, thereby closing business opportunities- there, the UPA government is right. "The political power of the sovereign goes down with every move towards globalization," Kaushik Basu said. "Economics has become an instrument of global, political and even military strategy." To illustrate, Indian farmers and businesses get affected by WTO negotiations, Indian workers by ILO negotiations, Indian fiscal policy by G20 communities, Indian markets by QE3.Q.Which of the following would help explain the relationship between the interest rates and a high fiscal deficit?a)The funding of government requirements through market borrowings induces a rise in interest rates that contributes to the rise in interest rates that contributes to the rise in fiscal deficit.b)The absence of an a apparent fiscal impact on interest rate is essentially the result of higher liquidity in the system.c)Empirical results show that there is no relationship between gross fiscal deficit and the real interest rated)None of the aboveCorrect answer is option 'D'. Can you explain this answer? has been provided alongside types of Passage 1Any government that runs on a huge fiscal deficit has to, at some point, finance that deficit by creating money through borrowings. When the government does that, there is more money chasing the same number of goods and services in the economy. The result is a hike in prices, or inflation. At 5.1%, India's fiscal deficit is dangerously high, controlling which should have been the government's highest priority. Raising diesel prices by 14% such that the subsidy bill on the fuel falls will help bring this deficit under control. To put that issue in perspective, at Rs.47,800 crore oil subsidies for the first quarter of the current financial year have already exceeded the full year's budgeted figure.For consumers already reeling under a double digit onslaught of food prices, the hike in the diesel prices will hurt, no doubt. Part of this increase can be neutralized, by cutting excise duties on the fuel, for instance. But for successive governments that have been unable to curb spending on vote buying schemes- some of them crucial - or on an inflated and unproductive bureaucracy, the other option is to increase taxes and return to the sky high rates of the coercive 1970s, a regime that is best behind us.This brings us to the next issue: economic growth. With a high fiscal deficit that keeps inflation high, there is no way the RBI will cut interest rates. Even though most ofthe inflationary expectations are coming from goods outside India's control- crude oil imports, a falling rupee and a globally rising food and commodity prices- RBI's stance has been to keep policy rates high so that thousands cut down on discretionary grounds. In the process, home loan EMIs have been rising and along with inflation on one side, scissoring household targets.Making matters more complex is the fact that today the sovereign has very little control over its finances. Like it or nor, India cant and will not grow at 9% if the rest of the world is contracting, thereby closing business opportunities- there, the UPA government is right. "The political power of the sovereign goes down with every move towards globalization," Kaushik Basu said. "Economics has become an instrument of global, political and even military strategy." To illustrate, Indian farmers and businesses get affected by WTO negotiations, Indian workers by ILO negotiations, Indian fiscal policy by G20 communities, Indian markets by QE3.Q.Which of the following would help explain the relationship between the interest rates and a high fiscal deficit?a)The funding of government requirements through market borrowings induces a rise in interest rates that contributes to the rise in interest rates that contributes to the rise in fiscal deficit.b)The absence of an a apparent fiscal impact on interest rate is essentially the result of higher liquidity in the system.c)Empirical results show that there is no relationship between gross fiscal deficit and the real interest rated)None of the aboveCorrect answer is option 'D'. Can you explain this answer? theory, EduRev gives you an ample number of questions to practice Passage 1Any government that runs on a huge fiscal deficit has to, at some point, finance that deficit by creating money through borrowings. When the government does that, there is more money chasing the same number of goods and services in the economy. The result is a hike in prices, or inflation. At 5.1%, India's fiscal deficit is dangerously high, controlling which should have been the government's highest priority. Raising diesel prices by 14% such that the subsidy bill on the fuel falls will help bring this deficit under control. To put that issue in perspective, at Rs.47,800 crore oil subsidies for the first quarter of the current financial year have already exceeded the full year's budgeted figure.For consumers already reeling under a double digit onslaught of food prices, the hike in the diesel prices will hurt, no doubt. Part of this increase can be neutralized, by cutting excise duties on the fuel, for instance. But for successive governments that have been unable to curb spending on vote buying schemes- some of them crucial - or on an inflated and unproductive bureaucracy, the other option is to increase taxes and return to the sky high rates of the coercive 1970s, a regime that is best behind us.This brings us to the next issue: economic growth. With a high fiscal deficit that keeps inflation high, there is no way the RBI will cut interest rates. Even though most ofthe inflationary expectations are coming from goods outside India's control- crude oil imports, a falling rupee and a globally rising food and commodity prices- RBI's stance has been to keep policy rates high so that thousands cut down on discretionary grounds. In the process, home loan EMIs have been rising and along with inflation on one side, scissoring household targets.Making matters more complex is the fact that today the sovereign has very little control over its finances. Like it or nor, India cant and will not grow at 9% if the rest of the world is contracting, thereby closing business opportunities- there, the UPA government is right. "The political power of the sovereign goes down with every move towards globalization," Kaushik Basu said. "Economics has become an instrument of global, political and even military strategy." To illustrate, Indian farmers and businesses get affected by WTO negotiations, Indian workers by ILO negotiations, Indian fiscal policy by G20 communities, Indian markets by QE3.Q.Which of the following would help explain the relationship between the interest rates and a high fiscal deficit?a)The funding of government requirements through market borrowings induces a rise in interest rates that contributes to the rise in interest rates that contributes to the rise in fiscal deficit.b)The absence of an a apparent fiscal impact on interest rate is essentially the result of higher liquidity in the system.c)Empirical results show that there is no relationship between gross fiscal deficit and the real interest rated)None of the aboveCorrect answer is option 'D'. Can you explain this answer? tests, examples and also practice UPSC tests.