Daily Current Affairs (MCQ) | Date 16.02.22

Q1. According to the Budget 2022-23, the ‘Effective Capital Expenditure’ of the Central Government includes

a. Sale of government assets
b. Proceeds from disinvestment
c. Grants-in-Aid to States for creation of capital assets
d. Capital expenditure done in foreign countries as developmental aid

Answer : c

Why is the Question ?

Considering the above imperative, the outlay for capital expenditure in the Union Budget is once again being stepped up sharply by 35.4 percent from ` 5.54 lakh crore in the current year to ` 7.50 lakh crore in 2022-23. This has increased to more than 2.2 times the expenditure of 2019-20. This outlay in 2022-23 will be 2.9 percent of GDP.
With this investment taken together with the provision made for creation of capital assets through Grants-in-Aid to States, the ‘Effective Capital Expenditure’ of the Central Government is estimated at ` 10.68 lakh crore in 2022-23, which will be about 4.1 percent of GDP.

Q2. Which of the following is the stated purpose of Sovereign Green Bonds as announced by the government in Budget 2022-23?

a. To promote afforestation in the country
b. Reducing the carbon intensity of the economy
c. To provide capital subsidy for solar power plants
d. To raise money for financing green agriculture

Answer : b

Why is the Question ?

As a part of the government’s overall market borrowings in 2022- 23, sovereign Green Bonds will be issued for mobilising resources for green infrastructure. The proceeds will be deployed in public sector projects which help in reducing the carbon intensity of the economy.

Q3. Which of the following statements is correct regarding finances under the ‘Scheme for Financial Assistance to States for Capital Investment’?

a. These are part of tax distribution between centre and state as per article 270 of the Indian constitution
b. These are statutory grants given under article 275 on the recommendation of the Finance Commission
c. These fifty-year interest free loans are over and above the normal borrowings allowed to the states
d. These transfers are based on the conditional discretionary grants of the centre

Answer : c

Why is the Question ?

Financial Assistance to States for Capital Investment Reflecting the true spirit of cooperative federalism, the Central Government is committed to bolstering the hands of the states in enhancing their capital investment towards creating productive assets and generating remunerative employment. The ‘Scheme for Financial Assistance to States for Capital Investment’ has been extremely well received by the states. In deference to the requests received during my meeting with Chief Ministers and state Finance Ministers, the outlay for this scheme is being enhanced from ` 10,000 crore in the Budget Estimates to ` 15,000 crore in the Revised Estimates for the current year.
For 2022-23, the allocation is ` 1 lakh crore to assist the states in catalysing overall investments in the economy. These fifty-year interest free loans are over and above the normal borrowings allowed to the states.

Q4. Consider the following four engines of economic growth

1. Private Final Consumption Expenditure (PFCE)
2. Gross Fixed Capital Formation (GFCF)
3. Government Final Consumption Expenditure (GFCE)
4. Net Exports (NX)

Arrange the above in terms of their contribution to India’s GDP starting with the lowest contributing to Highest one

a. 2, 1, 4, 3

b. 3, 1, 2, 4
c. 1, 2, 3, 4
d. 2, 3, 4, 1

Answer : c

Why is the Question ?

What do the sub-components of GDP tell us about the state of the economy?
The GDP data show what is happening to the four engines of economic growth in any economy. In India’s context, the biggest engine is consumption (C) demand from private individuals. This demand typically accounts for 56% of all GDP; technically called “Private Final Consumption Expenditure” or PFCE. The secondbiggest engine is the investment (I) demand generated by private sector businesses. This accounts for 32% of all GDP in India; technically called Gross Fixed Capital Formation or GFCF. The third engine is the demand for goods and services generated by the government (G). This demand accounts for 11% of India’s GDP, and is called “Government Final Consumption Expenditure (GFCE)”. The fourth engine is the demand created by “Net Exports” (NX). This is arrived at by subtracting the demand Indians have for foreign goods (that is, India’s imports) from the demand that foreigners have for Indian goods and services (that is, India’s exports). Since India typically imports more than it exports, it is the smallest engine of GDP growth; it is often negative.
So, GDP = C + I + G + NX
As the Table on GDP data shows, private demand, the biggest engine of growth, in Q1 of the current year was down to almost exactly the level where it was in 2017-18.

This is the most important variable and the most worrisome one as well. That’s because unless demand from private individuals increases, businesses will not be enthused to invest more. It is no surprise to find that the second-biggest engine — investments or GFCF — is languishing at 2018-19 levels.
The government’s strategy has been to revive growth by stimulating private sector investments. To this end, the government has given tax breaks and other incentives to existing companies owners and new entrepreneurs. But unless private consumption demand rises, this strategy is unlikely to bear fruit. It is also noteworthy that government expenditures (GFCE) have actually fallen below last year’s levels. This could be a drag on future growth. At a time when all other sectors are struggling to create demand, the government is expected to resort to what is called a “counter-cyclical” fiscal policy and spend more than usual.
What do the GVA data say about the economy?
1. They tell us which specific sectors are doing well and which are struggling to add value.
2. The first check is whether the GVA of a sector in Q1 was more than in 2019-20. As things stand, only two sectors — Agriculture etc. and Electricity and other utilities — have managed to grow more than they did in 2019-20.
3. But the most worrisome bit is that the GVA of ‘Trade, Hotels, Transport, Communication & Services related to Broadcasting’ and ‘Construction’ is less than what it was even in 2017-18. These are two sectors that created lots of jobs for both unskilled and skilled workers in the past, and their weakness implies weak higher unemployment levels.
The former in particular is the sector that has most of the contact services. From a policy perspective, a recovery here requires fuller levels of vaccination.

Q5. Consider the following statements about Gross Value Added (GVA) and Gross domestic product (GDP)

1. GDP is the monetary value of final goods and services — that is, those that are bought by the final user — produced in a country
2. GVA tracks the total output in the economy by looking at the total supply

Which of the above statements is/are correct?

a. 1 only
b. 2 only
c. Both 1 and 2
d. Neither 1 nor 2

Answer : c

Why is the Question ?

Each such release provides data for two variables — one tracks the total demand in the economy and the other the total supply. The first is GDP, which is the total monetary value of final goods and services — that is, those that are bought by the final user — produced in a country in a given period of time (in this case a quarter). In other words, it measures the value of total output in the economy by tracking the total demand.
The other is Gross Value Added or GVA. It looks at how much value was added (in money terms) in different productive sectors of the economy. As such, it tracks the total output in the economy by looking at the total supply.

On the face of it, the total output should be the same but every economy has a government, which imposes taxes and also provides subsidies.

As such, GDP is “derived” by taking the GVA data and adding the taxes on different products and then subtracting all the subsidies on products. In other words,

GDP = (GVA) + (Taxes earned by the government) — (Subsidies provided by the government)
As explained, the difference between these two absolute values will provide a sense of the role the government played. As a thumb rule, if the government earned more from taxes than what it spent on subsidies, GDP will be higher than GVA. If, on the other hand, the government provided subsidies in excess of its tax revenues, the absolute level of GVA would be higher than the absolute level of GDP.

Economy grows 20.1% in Q1, lags pre-pandemic level
1. India’s Gross Domestic Product (GDP) grew by 20.1% in the first quarter of 2021-22, compared with the 24.4% contraction recorded in the corresponding quarter a year ago, but economic activity remained well below the prepandemic levels, thanks to the second wave of COVID-19.
2. Gross Value Added (GVA) in the economy during the April to June period rose 18.8%, as per the National Statistical Office (NSO), from a 22.2% dip in the first quarter of 2020- 21.
3. GVA from agriculture, forestry and fishing, the only sector to grow amid last year’s national lockdown, picked up the pace to grow 4.5% in Q1 this year from 3.5% in Q1 2020-21.
4. The government said the NSO numbers reaffirmed its prediction of an “imminent V-shaped recovery”.
Concern:
1. The share of consumption in GDP was lower this time which indicates that the second wave and lockdowns impacted households more than the first wave.
2. The growth rates in 2021-22 in some cases are unduly high due to the low base.
3. The main disappointment comes from the contribution of the government sector, both from the demand and output sides as the government final consumption expenditure (GFCE) contracted by 4.8% in Q1 this year — the only demand segment to show a fall.

4. This is a clear indication that the government has been far too cautious in increasing its expenditures to contain the fiscal deficit.
5. Economists were worried about a decline in public capital and revenue spending in July indicated by data released separately by the Controller General of Accounts.