(1) “Make in India will affect India’s Production Possibility Curve.” Comment.
Ans. :: In the short run, unemployed resources will be utilized. As a result, the actual production
will move inside to on the Curve
In the long run, the stock of resources available within the economy will go up. As a
result, PPC will shift rightward
(2) “Govt. cuts down price of sugar: expects to get electoral gains.” Comment.
Ans:: This may be a disappointment for the government for the following reasons:
- Producers may cut down the production of sugar. Sugar cane farmers will face a disaster.
- Producers may not sell sugar in free market. Sugar may enter black market in a big way.
(3) “Growing seasonal unemployment in higher tourist spots”. Give reasons.
Ans :: Tourist spots located in higher mountain ranges fail to get guests during the winter season.
If they continue to operate, they fail to recover even their variable costs. By closing down, they
suffer losses only on sunk costs.
(4) “Many PSUs in red: close down.” Give reasons.
Ans :: PSUs may be faced with a situation where they have excessive manpower in relation to requirements. This results in negative marginal product. This causes losses. But the PSUs are mandated to provide employment. Because of pressure from the trade unions and the government, they are not allowed to close down.
(5) “CCI acts to check on carte,” Why?
Ans. :: (a) A cartel is formed to cut down competition between the rival producers.
(b) This effectively means that rival producers have reached agreement on pricing and output
(c) This always adversely affects the consumers.
(6) “ Competition commission of India pulls up communication czars.”
(ii) What could be the result ?
(i) CCI is entrusted with the responsibility of promoting competition at the market place. Reports
have been coming in that communication majors are acting like cartels, resulting in monopoly
(ii) If CCI can effectively assets itself, tele tariffs should come down.
(7) “ Check it out, your dream luxury car may be cheaper by Rs. 10 lakh. ”
(i) Why these discounts ? (ii) Will these discounts last ?
Ans. :: (i) The reason of deep discounts is there for luxury cars. Manufacturers are offering
discounts up to Rs. 10 lakh to entice buyers, aiming to improve their overall annual performance.
The most fabulous deals are happening right now, making it probably the right time to invest in
a luxury machine.
(ii) Primary motive is to increase customer traffic and boost year-end sales to add significant
numbers to the overall annual performance.
The luxury-car market is expected to perform better than last year as sales from the top two -
Audi and Mercedes-Bens-indicate.
Automotive financers who work closely with companies say this year the uncertainty over continuation of excise rebate is adding to anxiety and could lead to higher retails for the luxury cars.
While any withdrawal of lower excise duty would hurt the auto industry, the luxury segment would
be the worst hit.
(8) “Aviation ministry suggests cap on maximum airfare for economy class” .How will it
affect aviation industry ?
Ans. In the wake of Spicejet Ltd’s financial crisis, the ministry of civil aviation has suggested a cap on the maximum airfare for economy class “at a reasonable price” of around Rs.20,000 a ticket and the minimum price can be arrived at by “adding appropriate profit margin” to the break-even price.
There is a need to fix a cap on the maximum airfare of economy class at rs.20,000, “beyond which the airlines should not be allowed to charge, exploiting the passenger’s urgency for travel due to various reasons”. It also suggested steps to be taken to fix the minimum airfare charged by each airline.
This will ensure that no airline in future will go into losses. Not all agree that these measures will save the Indian airline sector.
No government can control pricing-they don’s subsidise airfares, nor do they help the airlines with costs. In fact, the opposite happens with ridiculously high taxes on fuel and airports.
(9) “”Delhi property prices fall 30% in a year on inventory pileup”. Why this fall?
Ans. Secondary market prices of properties in posh South Delhi localities have fallen 25%- 30% over the last one year as a pileup of inventory and need for money turn many investors into desperate sellers.
Compared with peak prices, the discount is as much as 40%, say brokers. Property brokers and consultants say there are several distress deals available in the market today.
Buyers clearly have the upper hand, and are negotiating favourable payment terms of up to six months from the standard three months so far.
Sellers were asking for unreasonable prices during the peak. Now both sellers and buyers are becoming more rational because of which deals are starting to happen
(10) “Fall in crude prices: a savior for finance minister”. Give two arguments in support.
(a) Fall in crude prices will reduce the cost of production of petroleum products. This will help
producers to cut prices of the final products. This will promote economic growth.
(b) subsidy burden on budget will get reduced.
(11) “A new headache for Govt. Fall in crude prices”. Give two arguments in support.
(a) Government revenue by way of import duty will fall.
(b) Income of OPEC countries will fall. They are big importers of Indian goods. Indian exporters
and manufacturers will suffer from a slump in these countries.
(12) “RBI intervenes to control depreciation of the rupee”. Why? Give two reasons.
Ans :: (a) The cost of imported goods in terms of rupee goes up. All intermediate goods begin
to cost more. As a result, prices of final goods go up. Inflationary tendencies get build up.
(b) The rupee value of India’s external debt goes up. This poses problems for the country’s
Balance of Payments.
(13) “RBI announces a rate cut: Industry cheers”.
(a) What is the rate being referred to?
(b) Why is industry happy?
(a) Repo rate has emerged as the policy rate for the RBI (earlier the RBI used to rely on Bank Rate).
(b) A cut in repo rate means that the rate of interest at which commercial banks borrow from the
RBI has come down. This benefit is passed on to the borrowers.
(14) “Slump in global oil prices”.
(a) How will it affect India?
(b) What will be the adverse consequences?
(a) India is a big importer or crude oil. A fall in oil prices means India will save a large amount of dollars. This will improve the CAD.
(b) UAE is a big importer of Indian goods. With fall in oil prices, the revenue earned by UAE will fall. As a result, demand for Indian goods will suffer.
(15) “Govt. finds way tgo plug fiscal deficit: Resorts to heavy cut in social expenditure”. Is it desirable” Give reasons.
Ans. This is a regressive and short-sighted move.
(a) The government should improve the tax collection machinery so that it can mop up more revenue without raising the tax rate.
(b) Cut in social expenditure means neglect of human resources. Human resource development will suffer. This will adversely affect long-term growth of the economy.
(16) “Govt. approves 100% FDI in medical devices ”.
(a) Why this relaxation in FDI rules ?
(b) How is domestic industry affected by this ?
(a) The proposal to relax the policy has been mooted by the commerce and industry ministry. Since medical devices fell under the pharmaceutical category so far, they were subjected to FDI limits and other conditions such as mandatory government nods under DCA.
(b) Currently, India imports at least 70% of medical devices used in the country. As part of the ‘Make in India’ campaign, the government has relaxed the policy, hoping to attract investments and boost domestic manufacturing. Local manufacturers are concerned about the misuse of the relaxation in FDI rules.
(17) “Govt. committed to cut fiscal deficit”.
(a) Is this stubborn attitude of the government right ?
(b) what the government intends to do ?
(a) Govt. in on a slippery wicket here. Although growing fiscal deficit is definitely not acceptable, it is not desirable to cut it by any means. It may adversely affect growth by causing a liquidity crisis.
(b) A cut in fiscal deficit is desirable if the government streamlines its tax administration. This should result in more tax revenue.
But if a major cut is made either in the social sector expenditure or capital expenditure or capital expenditure, it will adversely affect long-term interest.
(18) “ Rate cut to promote growth : RBI does not agree ”
(a) Give one argument in support of rate cut.
(b) Why does the RBI not agree ?
Ans. (a) A rate cut will result in a fall in rate of interest. This will benefit investors and result in fast growth.
(b) RBI believes that at this stage any cut in repo rate will only prove inflationary, and not growth engine.
(19) “ Govt. lauds its own policies for 14% growth in nominal national income ”.
(a) Is the government right ?
(b) What is the flaw ?
(a) No. Change in nominal national income is not a correct indicator of growth.
(b) Charge in real national income measures growth of the economy.
A 14% growth can be disaggregated as follows:
8% due to inflation + 6% real growth
= 14% growth in nominal national income.