# Economy Paper Analysis:UPSC Civil Service Examination Prelims- 2018

## Introduction

In this article series we are going to analyze the CSE Prelims – 2018. Here we will not going to give you the direct Answer key, but each question is (or will be) analyzed in detail. The intended audience for this article is any UPSC serious aspirant who doesn’t want just the answer key but try to understand the psychic of examiner behind question setting and the lessons which can be learned for further preparation.

## Question Nature : Static vs. Dynamic

It is not easy to segregate question here. Many a time there is overlapping between static and dynamic part. At the first look the segregation of questions seems to be looked something like this. But this may be changes as we go through the analysis different section of papers on basis of topics.

*This is first instant segregation, which may be changed as we proceed with analysis

By looking at above figure it may be inferred that this time paper is more of Static in Nature. But this is not the true picture. Many of questions which are from static part can be said to be derived from Dynamic part. For example there is question regarding “election of president….”  Exact Question is pasted here

With reference to the election of the president of India, consider the following statement:

1. The value of the vote of each of MLA varies from state to state.

2. The value of the vote of MPs of Lok Sabha is more than the value of MPs of the Rajya sabha.

Which of the statement given above is/are correct ?

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2

However this question has been put into static category. But this question can be said to be derived from Last year event which was election of President in July 2017.

Now question by question analysis will be provided in different article. But one lesson can be driven from here :

“Dynamic is important but you have to cover the static part of that Dynamic as well”

## Section-Wise Segregation

Section Wise segregation of questions is represented here:

*This is first instant segregation, which may be changed as we proceed with analysis

It can be seen from here that highest number of questions are from Economy section (including Banking)  where both the dynamic and static part is playing almost equal role. This time Science and Technology is also having good weight-age.  Now we will deliberate on section wise analysis of Prelims paper

## Economy Section

Here some questions Economy section has been discussed. After Discussion we try to draw some lesson from each question which can be used for future preparation.

### Question (EQ1)

Which one of the following best describe the term “Merchant Discount Rate” sometime seen in news ?

a) The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to that bank.

b) The amount paid back by banks to their customers when they use debit card for financial transaction for purchasing goods or services.

c) The charge to a merchant by a bank for accepting payments from his customers through the bank’s debit cards.

d) The incentive given by the Government to merchants for promoting digital payments by their customers through Point of Sale (PoS) machine and debit cards.

This question was regarding Merchant Discount Rate. If aspirant is following the Monitory policy there, it is referred many a times. In the Fifth Bi-monthly Monetary Policy Statement, 2017-18, revised framework for Merchant Discount Rate (MDR) for Debit Card Transactions was announced. So if you gone through this you should go through its background. However this question is static in nature (asking about definition), but derived from dynamic.  So, it has been put under S/D ( static but derived from Dynamic)

Category: Economy

Nature: S/D ( Static Derived from Dynamic)

Difficulty Level: Easy

Lesson: Go through the background of the Current News

### Question (EQ2)

With reference to India’s decision to levy an equalization tax of 6% on online non-resident entities. which of the following statements is/are correct?

1. It is introduced as a part of the Income Tax Act.

2. Non-resident entities that offer advertisement services in India can claim a tax credit in their home country under the “Double taxation Avoidance Agreements”

Select the correct answer using the code given below :

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2

This is Question was about the Equalization Tax which was introduced in Budget Speech in Mar, 2016 also famous as “ Goggle Tax” ( so old news), but before the budget session in Feb 2018  any newspaper reader will find this as a discussion point of increasing the tax revenue for govt. It is tax on the revenue earned by non-India based internet company (e. google, face book ) through advertisement  But just the knowledge of what does it mean is not enough to answer this question. A little deeper study is required.

However, little common sense can be worked here. If the advantage of Double taxation Avoidance is allowed then no internet company will pat the tax in India as they must be paying the tax in their own company. So introduction of this tax will be of now use for Indian Govt. So statement (2) is in-correct

Further, any tax introduced through Income Tax Act, will enjoy the benefit of Double Taxation Avoidance. So this was introduced as Finance Bill, so that people can not take the advantage of Double Taxation Avoidance.

Category: Economy

Nature: S

Difficulty Level: Difficult

Lesson: 2 years old news also have their weigh- age, especially if something related to this under discussion in newspapers. Also intelligent use of common sense can help a lot.

### Question (EQ3)

Consider the following statements:

1. The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt to GDP ratio of 60% for the general (combined) government by 2023, comprising 40% for the Central Government and 20% for the State Governments.

2. The Central Government has domestic liabilities of 21% of GDP as compared to that of 49% of GDP of the State Governments.

3 As per the Constitution of India, it is mandatory for a State to take the Central Government’s consent for raising any loan if the former owes any outstanding liabilities to the latter.

Which of the statements given above is/are correct?

a) 1 only

b) 2 and 3 only

c) 1 and 3 only

d) 1, 2 and 3

Point (1):  FRBM committee has given its review report in Jan 2017. For more detail click here. It was in news during last year regarding its implementation. Any serious candidate defiantly went through this, so point related to FRBM is considered to be easy. So though elimination method you can easily strike out option (b).

Point (2): In review report a fiscal consolidation roadmap has been recommended under which target should be Debt to GDP ratio (point 1 talking about that).  You may be knowing Govt foreign liability is very small (~10% of total liability, Source Economic Survey). Has been the Point 2 is correct, then  N K Singh committee is giving the target of 40% when it is 21% already. As every time we talk about the reducing the debt so it seems to wrong. This makes point no. 2 incorrect.

Looking at one instant it seems that decoding point (2) is difficult. But as the this point can be easily analyzed form NK Singh  committee and little common sense, so this points should also be put under easy category.

Point(3): It is having the static nature. As per out constitution Art. 293 , this statement is correct. So Point 3 can be put under difficult category.

So overall we can say that this is question is normal difficulty level.

Category: Economy

Sub category: Fiscal Policy, Polity

Nature: Dynamic

Difficulty Level: Normal

Lesson: Any report which comes in news during your previous year of exam should be read (not full but the summary from PRS etc.). In data related question sometime common sense can give you the right answer.

### Question (EQ4)

Consider the following statements:

1. The quantity of imported edible oils is more than the domestic production of edible oils in the last ﬁve years.

2. The Government does not impose any customs duty on all the imported edible oils as a special case.

Which of the statements given above is/are correct?

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2

Point 1: It is more of static in nature. However, last year there was bumper crop of oil, so it was in news for some time. Click here to get news. However it is not easy to remember everything, but if something happen special to that it is advisable to remember that.  Putting it under medium category.

Point 2: In-fact in this budget Custom duty on Edible oil as increased (mentioned in Annexure of Budget Speech). It can be considered difficult, but if you look at the budget speech which is verbatim here

……..In this budget, I am making a calibrated departure from the underlying policy in the last two decades, wherein the trend largely was to reduce the customs duty. There is substantial potential for domestic value addition in certain sectors, like food processing, electronics, auto components, footwear and furniture. To further incentivise the domestic value addition and Make in India in some such sectors, I propose to increase customs duty on certain items………….

Now through common sense which is edible oil is out of food processing industry and careful reading of budget you can easily infer that point (2) is wrong even if you may not read exact data related to the custom duty on edible oil

Category: Economy

Sub category: Agriculture, Fiscal Policy,

Nature: Dynamic

Difficulty Level: Normal

Lesson: Anything special happen(like bummer crop)note it down, even if it is not so famous topic. Whatever you are read, read it carefully and apply common sense.

### Question (EQ5)

Which one of the following links all the ATMs in India ?

a) Indian Banks’ Association

b) National Securities Depository Limited

c) National Payments Corporation of India

d) Reserve Bank of India

Category: Economy

Nature: Static

Difficulty Level: Easy

### Question (EQ6)

Which one of the following statements correctly describes the meaning of legal tender money ?

a) The money which is tendered in courts of law to defray the fee of legal cases

b) The money which a creditor  is under compulsion to accept in settlement of his claims

c) The bank money in the form of cheques drafts, bills of exchange, etc.

d) The metallic money in circulation in a country

With demonetization (in last to last year) and then after that during the whole year  effects of demonization was discussed a lot in media, there this term legal tender was discussed a lot. So for a serious candidate it should be very easy.

­­ Category: Economy

Nature: Static

Difficulty Level: Easy

### Question (EQ7)

If a commodity is provided free to the public by the Government, then

a) the opportunity cost is zero.

b) the opportunity cost is ignored.

c) the opportunity cost is transferred from the consumers of the product to the tax-paying public.

d) the opportunity cost is transferred from the consumers of the. Product to the Government.

This question requires the good fundamental of economy. And it should be understood from the perspective of FRBM. Why the government wants to decrease the Fiscal deficit? Actually by increasing money out flow with increase in inflow ( which will happen in case govt. start to provide stuff free of cost) will result in increase in deficit and to fund that deficit govt. has to either increase taxes or borrowing,

Category: Economy

Sub category: Fiscal Policy

Nature: Static

Difficulty Level: Normal

Lesson: Background of basic economy should be understood.

### Question (EQ8)

Increase in absolute and per capita real GNP do not connote a higher level of economic development, if

a) industrial output fails to keep pace with agricultural output.

b) agricultural output fails to keep pace with industrial output.

c) poverty and unemployment increases.

d) imports grow faster than exports.

Economic Development means increase in welfare of people. If GNP is increasing but unemployment/poverty increases (i.e. jobless and unequal growth) welfare is not increasing.

Category: Economy

Sub category: Growth and Development

Nature: Static

Difficulty Level: Easy