PASSAGE FOR COMPREHENSION
The Indian economy continues to
outperform the prognosis of its
critics. This is clearly true of the GDP growth estimates in the third quarter;
quite at variance with what the critics of the demonetisation exercise had
assumed. No doubt there could be correction in the fourth quarter, primarily to
factor the impact of the informal sector. It has never been easy to capture
real time data on economic activity in the informal sector. It is recognised
that apart from leads and lags, the conclusions are derivative using surrogates which detract both from
their timeliness and accuracy. This is not a new problem and past estimates of
GDP numbers have also suffered from multiple ex-post corrections as and when
data becomes unavailable.
Digitisation
dividend:
Hopefully, moving towards greater
digitisation and reducing dependence on cash transactions will accelerate the
pace of financial inclusion and formalisation of the informal economy.
Notwithstanding these, the dark prognosis of a collapse of GDP growth numbers,
widespread unemployment and displacement of job workers coupled with rural
distress now looks clearly misaligned with actual outcomes. The GDP estimates
are supported by two other crucial independent international assessments last
week. The first from the Article IV Consultations 2017 of the International Monetary
Fund (IMF) and the second from the biennial Economic Survey of the Organisation
for Economic Cooperation and Development (OECD). Both these have distinct
commonalities. Both conclude that Indian economic growth is robust, propelled
by consumption demand and accelerated structural reforms. Both favourably
allude to a rule-based framework of aligning macroeconomic policies with global
standards.
The overall macroeconomic framework,
notwithstanding challenges, remains robust and credible. Continued fiscal
consolidation, a modest current account deficit, subdued inflation, enhanced
public and private consumption somewhat offsetting the depressed private
investment support this conclusion. These augur well for continued growth
buoyancy. The downside risks of exogenous shocks from sharp increases in
commodity prices, particularly oil, a sudden global slowdown impacting
remittances and exports or unpredictability relating to the Chinese economy now
look modest. The growth projection of 7.5% (the higher side of the 6.75-7.5%
range forecasted in this year’s Economic Survey) for the next fiscal is however
contingent on resolving several short-term challenges.
Macro
policies:
First, the OECD’s survey raises
concerns about India’s large interest payments due to the high levels of public
debt as compared to other emerging economies. This is in consonance with the
suggestions of the Fiscal Responsibility and Budget Management (FRBM) Review
Committee chaired by me, which projects a declining debt-to-GDP ratio to approximately
60% by 2023. Analysts believe this may be our near optimum debt levels. While
the Committee’s report is not yet in the public domain, there is broad
consensus that the preferred trajectory of debt with enabling fiscal deficit
targets is central to macroeconomic stability. India has come a long way in
discouraging fiscal profligacy. The realisation that we are best served by
improving the quality of public expenditure than enhancing budgetary outlays
reflects responsible leadership. It is increasingly cognisant of the inherent
vulnerabilities of a fragile economy like ours. No doubt fiscal rectitude must
be combined with space to enhance public outlays, particularly in
infrastructure, health and education.
Second, the health of the banking and
financial sector. The twin balance sheet problem of both corporates and banks,
highlighted in the Economic Survey, has a relationship but would need
differentiated actions. Easing one will no doubt ameliorate the other but
policy frameworks are not necessarily symmetrical. The concept of a centralised
Public Sector Asset Rehabilitation Agency (PARA) envisaged as a ‘Band Bank’
spin-off model has gained some traction. It would, however, be naive to believe
that this represents a systemic solution to the ailments of the banking sector.
The classic issues of not confusing between the stock and the flow would need
to be addressed. Besides, it is not easy to overlook moral hazard questions
when it comes to taking an ‘appropriate haircut’ by all stakeholders and
without assigning responsibility for the ills of the past.
Are we assured that they will not
resurface in altered garbs? The governance architecture embedded in several actions and intended autonomy cannot be totally
divorced from the ownership pattern. Creating an enabling political milieu for
deeper reforms is inescapable. Expecting the ruling party alone to invest
excessive political capital in this endeavour will have little traction. At the
same time, a belief that the present trajectory of banking reforms is adequate
to address the deeper malaise of the sector would be misplaced. The
Indradhanush I has distinct positives. The Indradhanush II is in the offing,
post the Asset Quality Review to be completed by March 31.
Rule-based
management:
In this context, creating an
institutional framework or mechanism to seek broader consensus has some
advantages. This also ties up with what the OECD’s Economic Survey and the
IMF’s report describe as a progressive move to a more rule-based management of
the economy. The constitution of the Monetary Policy Committee, GST Council,
Banks Board Bureau, are robust examples. Could we, for instance, consider the
constitution of a Banking Council to facilitate a dialogue with political
parties and stake holders on a new banking
road map? Extensive analytical work by several committees and
commissions like the Narasimham Committee, P.J. Nayak Committee, Gopalakrishna
Committee, to mention a few, have critically examined the past and suggested
future actions. This Council could debate, discuss, and seek to fortify the
ingredients of the ongoing initiatives. In this endeavour, seeking consensus on
a forward banking reform path would be the principal mandate of the Banking and Finance Council. The problem is
somewhat complicated, by the Reserve Bank acting as the principal banking
ombudsman with inherent conflict of interest. In the long run, we need an
alternative mechanism for the banking sector. This will not happen overnight;
far-reaching structural changes need perseverance and tenacity. Fortunately,
this government has the mindset to move away from micromanaging the economy.
The
GST transformation
Finally, for a change, balanced
regional development and combining growth with employment has received
extensive attention in both these reports. No doubt, the GST (Goods and
Services Tax) regime and decisive move towards formalisation of the economy
using technology would reduce disparities.
Local government entities need greater
empowerment. These go beyond the enhanced devolution of resources based on the
recommendation of the Thirteenth Finance Commission, more importantly of the
Fourteenth Finance Commission. Making grants available in two parts — a basic
grant and performance grant — will make a difference. Enabling local bodies to
impose and realise property taxes and other levies would strengthen their
financial viability. In fact, the Fifteenth Finance Commission, yet to be
constituted, while reviewing the implementation of past recommendations can
consider incentivising States on empowerment and delegation of powers to local
bodies. Seeking to replicate best governance practices in labour and product
markets among the States could also prove beneficial in mitigating inter-State growth divergence. There are other
recommendations in the IMF and OECD reports relating to education, health, and
tax changes, to name a few, which deserve separate treatment.
It would be dangerous if the
decision-making ethos is stymied by growing complacency. The future may look
bright but pursuing and deepening structural reforms is the way forward. The
political leadership is sagacious in
recognising this. After all, as Albert Einstein once said, “We cannot solve our
problems with the same thinking we used when we created them.”
(The Hindu Article: 6th March 2017-03-06)
1.
Which statement/s of following is true regarding the fact that India’s economy is defying the
pessimists, and the time is ripe to deepen structural reforms?
a) There has been continued
fiscal consolidation, a modest current account deficit and subdued inflation,
b) The enhanced public and
private consumption
c) The recommendations in the IMF and OECD
reports relating to education, health, and tax changes needs separate treatment
to mend the system.
d) By adopting an alternative mechanism
for the banking sector
e) All the above
Ans. E
2. How to accelerate the pace of financial
inclusion and formalisation of the informal economy by implementing digitization in Indian economy?
a)
By reducing dependence on cash transactions
b)
To have a rule-based framework in order align macroeconomic
policies with global standards.
c)
Having sharp increases in commodity prices only
d)
Expected growth projection can be accomplished by resolving several
short-term challenges.
e)
By not reducing the burden of cash transactions and keeping them
the same for times to come.
Ans. D
3.
What is the impact of using the concept of
a centralised Public Sector Asset Rehabilitation Agency (PARA) envisaged as a
‘Band Bank’ spin-off model?
a.
Given a systematic solution to the ailing
banking sector
b.
Overlooking of moral hazards can be
ignored
c.
Needs to be looked carefully into the
hazards due to overlooking the morality by giving them responsibility to do it
effectively
d.
Simply by giving an appropriate haircut
and making them responsible for the ill-fated system due to overlooking the
facts of moral hazards
e.
None of these
Ans. C
4. How far balanced
regional development and combining growth with employment has received extensive
attention in the recent reports of the Indian economy?
a)
The formalisation of economy will not reduce disparities
b)
Formalisation of economy will reduce disparities
c)
The GST (Goods and Services Tax) regime and decisive move
towards formalisation of the economy using technology would reduce disparities.
d)
Local government entities do not need greater empowerment.
e)
Not supporting local bodies to impose and realise property taxes
and other levies would strengthen their financial viability.
Ans. C
5. What are the expected outcomes of Fifteenth
Finance Commission to be constituted in Indian economy?
a) Able to delegate powers of local bodies
b) By incentivising States
c) By replicating best governance practices in
labour and product markets among the States
d) By
mitigating inter-State growth divergence
e)All the
above
Ans. E
6. According
to current situation of Indian economy, how the health of the banking and
financial sector can be maintained?
a) Need
differentiated actions to ease twin balance sheet problem of corporate and
banks.
b) Need to
have a proper policy frameworks
c)The
concept of a centralised Public Sector Asset Rehabilitation Agency (PARA)
d) Both a
and c
e) Only c
Ans. D
7. How far
a belief that the present trajectory of banking reforms is adequate to address
the deeper malaise of the sector would be misplaced is correct?
a. With
the existing Indradhanush I with distinct
positives.
b. The
Indradhanush II , where expecting more Asset Quality Review
c. Both Indradhanush I and II will bear positive
results
d. Only a
e. Only b
Ans. C
8. The
suggestions of the fiscal responsibility and budget management review
committee, the DEBT TO GDP RATIO is approximately ____by 2023
a. 40%
b. 30&
c. 10%
d. 60%
e. 80%
Ans. D
9.
Select the appropriate title of
the passage from the given suggestions?
a.
Indian economy is ready to ripe the structural reforms
b.
Indian economy is defying the
pessimists
c.
Indian economy is not ready to
bear fruits from new structures
d.
Indian economy is not prepared
to be optimist
e.
None of the above
Ans. A
10.
Besides all recommendations ofc
IMF AND OECD reports, which does not need
separate treatement?
a. education,
health, and tax changes,
b. Tax
changes
c. Banking
sector
d. Cash
transactions
e. Twin
balance sheet system
Ans. A
Directions (Q. 11-13)
: 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.
11. Prognosis
a) Prediction
b) Arguing
c) Presaging
d) Prognostic
e) Vatacination
Ans. A)
Pediction, as it is used in the sense of forecasting the critics views about
the subject
12. Surrogates
`
Ans.
E. Here surrogates is used in the sense of substitutes taken for the purpose
13. Sagacious
d) clear-sighted
Ans. C)
sagacious is used in the sense of far-sighted of the leaders to resolve the
current issue of Indian economy
Directions (Q. 14-15)
: 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.
14. Embedded
a) detach
b) stand
c) lodge
d) insert
e) delete
Ans. E) Embedded is used in the sense
of adding something in the system therefore antonym will be delete
15 mitigating
a) moderating
b) vindicating
c) confusing
d) exculpatory
e) exonerative
Ans.
C) here mitigating is used in the sense of clarifying therefore it will take
the anytonym as confusing
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