Questions & Answers

1. Which of the following are part of capital receipts for the Government of India.

1)Loans raised by Government from RBI and public
2)Dividend on investments made by Government
3)Disinvestment receipts
4)Borrowings by Government through sale of Treasury Bills
Select the correct code:

a) 1, 3
b) 1, 3, 4
c) 2, 4
d) 1, 2, 3, 4

Solution: b)

• The capital receipts are loans raised by Government from public, called market loans, borrowings by Government from Reserve Bank and other parties through sale of Treasury Bills, loans received from foreign Governments and bodies, disinvestment receipts and recoveries of loans from State and Union Territory Governments and other parties.
• Revenue Budget consists of the revenue receipts of Government (tax revenues and other revenues like interest and dividend on investments made by Government, fees, and other receipts for services rendered by Government) and the expenditure met from these revenues.

2. Which of the following best describes ‘Anti-Dumping’ duty?

a) a protectionist tariff imposed on foreign imports that are priced below fair market value.
b) an import tax imposed on certain goods in order to prevent piracy.
c) tax imposed on the import of the goods pertaining to core industrial sectors.
d) None of the statements a, b and c are correct.

Solution: a)

An anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value. Dumping is a process where a company exports a product at a price lower than the price it normally charges in its own home market.

3. Consider the following statements.

1) Headline inflation is a measure of inflation within an economy, including commodities which tend to be more volatile and prone to inflationary spikes.
2) Headline inflation present an accurate picture of an economy’s inflationary trend since sector-specific inflationary spikes persist.
3) Headline CPI inflation measure is being used by RBI as the target rate of inflation.
Which of the above statements is/are correct?

a) 1 only
b) 1, 2
c) 1, 2, 3
d) 1, 3

Solution: d)

• Headline inflation is a measure of the total inflation within an economy, including commoditiessuch as food and energy prices (e.g., oil and gas), which tend to be much more volatile and prone to inflationary spikes.
• Headline inflation may not present an accurate picture of an economy’s inflationary trend since sector-specific inflationary spikes are unlikely to persist.
• In the RBI’s flexible inflation-targeting (FIT) framework, the headline CPI inflation measure is being used as the target rate of inflation as it reflects the prices of essential consumption goods.

4. Consider the following statements regarding indirect taxes.

1) Indirect tax is a tax levied by the Government on goods and services and not on the profit or revenue of an individual.
2) Indirect taxes are termed regressive taxing mechanism because they are charged at higher rates than direct taxes.
3) Cascading effect of tax is a situation wherein the end-consumer of any goods or service has to bear the burden of the tax to be paid on the previously calculated tax and as a result would suffer an increased price.
Which of the above statements is/are correct?

a) 1, 2
b) 1, 3
c) 2, 3
(d) 1, 2 and 3

Solution: b)

• Indirect Tax is a tax levied by the Government on goods and services and not on the income, profit or revenue of an individual and it can be shifted from one taxpayer to another.
• Indirect taxes are charged the same for all income groups.
• Few indirect taxes: Customs Duty, Central Excise Duty, Service Tax, Sales Tax and Value Added Tax (VAT).
• Cascading effect of tax is a situation wherein the end-consumer of any goods or service has to bear the burden of the tax to be paid on the previously calculated tax and as a result would suffer an increased or inflated price.

5. Consider the following statements regarding Munda Revolt.

It was against the destruction of their system of common land-holdings by the intrusion of traders and moneylenders.
Jagirdars and thikadars supported the Mundas in their revolt.
Which of the above statements is/are correct?

a) 1 only
b) 2 only
c) Both
d) None

Solution: a)

• Munda Revolt For over three decades, the Munda sardars of Chhotanagpur had been struggling against the destruction of their system of common land-holdings by the intrusion of jagirdars, thikadars (revenue farmers) and traders-moneylenders.
• During the last decade of the nineteenth century, the Mundas rose under Birsa Munda in a religious movement or rebellion (“ulgulan”) with an agrarian and political content.
• They aimed to establish a Munda rule in the land by killing thikadars, jagirdars, rajas and halcims. To bring about the liberation, Birsa gathered a force of 6,000 Mundas armed with swords, spears, battle-axes, and bows and arrows. Birsa was, however, captured in 1900 and he died in jail the same year.

6. Which of the following is/are correct about Wood’s Despatch?

1)It emphasized on the European learning.
2)It argued that literature of the East was full of grave errors.
Select the correct answer code:

a) 1 Only
b) 2 Only
c) Both
d) None

Solution: c)

• In 1854, the Court of Directors of the East India Company in London sent an educational despatch to the Governor-General in India. Issued by Charles Wood, the President of the Board of Control of the Company, it has come to be known as Wood’s Despatch.
• Outlining the educational policy that was to be followed in India, it emphasised once again the practical benefits of a system of European learning, as opposed to Oriental knowledge. 
• One of the practical uses the Despatch pointed to was economic. European learning, it said, would enable Indians to recognise the advantages that flow from the expansion of trade and commerce, and make them see the importance of developing the resources of the country. Introducing them to European ways of life, would change their tastes and desires, and create a demand for British goods, for Indians would begin to appreciate and buy things that were produced in Europe.
• Wood’s Despatch also argued that European learning would improve the moral character of Indians. It would make them truthful and honest, and thus supply the Company with civil servants who could be trusted and depended upon.
• The literature of the East was not only full of grave errors, it could also not instil in people a sense of duty and a commitment to work, nor could it develop the skills required for administration.