Questions & explanations
1. Consider the following statements:
1. If a country’s net factor income from abroad is negative, then GNP is less than GDP.
2. NNP at market prices is always less than GNP at market prices.
3. GDP at market prices includes indirect taxes but excludes subsidies.
Which of the statements given above is/are correct?
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Answer: (a) 1 and 2 only
Statement 1 is correct: if NFIA is negative, GNP = GDP + negative NFIA, so GNP < GDP. Statement 2 is correct: NNP = GNP - Depreciation (depreciation is always positive), so NNP at market prices is always less than GNP at market prices. Statement 3 is false: GDP at market prices = GDP at factor cost + Net Indirect Taxes (i.e., Indirect Taxes - Subsidies). GDP at market price INCLUDES indirect taxes AND includes the net effect of subsidies (subtracts subsidies). The statement 'includes indirect taxes but excludes subsidies' is misleading — subsidies are netted out, not simply excluded. The precise formula is: GDP at MP = GDP at FC + Indirect Taxes - Subsidies. So Statement 3 as stated ('includes indirect taxes but excludes subsidies') is imprecise but commonly stated in textbooks. In standard Indian economics textbooks (NCERT), this is stated as 'GDP at market prices includes net indirect taxes (indirect taxes minus subsidies)'. Statement 3 as written is imprecise. Given statements 1 and 2 are both correct, and statement 3 is debatable, the most defensible answer is (a) 1 and 2 only. C
2. Which of the following statements about National Income accounting in India is/are correct?
1. The Central Statistics Office (CSO) releases the GDP data quarterly.
2. National Income is calculated at factor cost in India.
3. The base year for GDP calculation was changed to 2011–12 in 2015.
- (a) 1 and 2 only
- (b) 1 and 3 only
- (c) 2 and 3 only
- (d) 1, 2 and 3
Answer: (d) 1, 2 and 3
Statement 1 is correct: CSO (now NSO under MoSPI) releases GDP data quarterly. Statement 2 is partially outdated: India shifted to GDP at market prices as the primary measure in the 2015 revision (base year 2011-12); however, national income (NNP at factor cost) is still reported. The statement 'National Income is calculated at factor cost' remains broadly true. Statement 3 is correct: the base year was changed from 2004-05 to 2011-12 in 2015. However, Statement 2 needs scrutiny: India now primarily reports GDP at market prices (not factor cost). The CSO/NSO reports GDP at market prices as the headline number; NNP at factor cost is national income in the traditional sense. Given this ambiguity, if Statement 2 is read as 'national income concept is at factor cost' (traditional NNP FC = national income), it is correct.
3. Consider the following statements:
1. If a country has a negative net factor income from abroad, its GNP will be less than its GDP.
2. NNP at market price is always less than GNP.
3. GDP at factor cost is calculated by subtracting indirect taxes from GDP at market price.
Which of the statements given above is/are correct?
- (a) 1 and 2 only
- (b) 1 and 3 only
- (c) 2 and 3 only
- (d) 1, 2 and 3
Answer: (a) 1 and 2 only
Statement 1 is correct: negative NFIA means GNP < GDP. Statement 2 is correct: NNP = GNP - Depreciation (depreciation always positive), so NNP < GNP always. Statement 3 is false: GDP at factor cost = GDP at market price - Net Indirect Taxes (i.e., subtract net indirect taxes, which equals indirect taxes minus subsidies). The statement says 'subtracting indirect taxes' — this is imprecise (should be net indirect taxes), but also Direction Statement 3 says 'GDP at factor cost is calculated by subtracting indirect taxes from GDP at market price' — this omits the addition of subsidies. The precise formula is: GDP at FC = GDP at MP - Indirect Taxes + Subsidies (i.e., subtract net indirect taxes). Statement 3 as written is imprecise/incomplete. Hence 1 and 2 only (a) is more defensible.
4. Consider the following statements about the Five Year Plans:
1. The First Five Year Plan emphasized agricultural development.
2. The Third Five Year Plan was implemented during the period of the Indo-China War.
3. The Fourth Five Year Plan was abandoned due to economic crisis.
Which of the statements given above is/are correct?
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Answer: (a) 1 and 2 only
Statement 1 is correct: The First Five Year Plan (1951-1956) indeed emphasized agricultural development, irrigation, and power projects, laying the foundation for economic development. Statement 2 is correct: The Third Five Year Plan (1961-1966) was implemented during a challenging period, including the Sino-Indian War (Indo-China War) in 1962 and the Indo-Pak War of 1965. Statement 3 is incorrect: The Fourth Five Year Plan (1969-1974) was not abandoned due to economic crisis; it ran its full course. The period preceding it, from 1966 to 1969, was a 'Plan Holiday' (annual plans) due to severe economic crises, including the Indo-Pak War, severe drought, and devaluation of the rupee. The Fourth Plan was formulated and implemented after this 'Plan Holiday' period.
5. Which of the following statements about GDP and GNP is/are correct?
1. GDP measures production within a country’s territory, regardless of the nationality of the producer.
2. GNP includes income earned by citizens abroad.
3. In India, GNP is usually higher than GDP due to large remittances.
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Answer: (a) 1 and 2 only
Statement 1 is correct: GDP measures output produced within a country's territory, regardless of the producer's nationality. Statement 2 is correct: GNP (GNI) adds the net factor income earned by a country's residents abroad. Statement 3 is incorrect: in India, GNP is usually slightly LOWER than GDP, not higher. India's net factor income from abroad is negative because investment income paid to foreigners exceeds the factor income Indians earn abroad. (Most remittances are recorded as current transfers, not factor income, so they do not make GNP exceed GDP.) Hence only statements 1 and 2 are correct, and the answer is (a).
6. Who was the first Chairman of the Planning Commission of India?
- (a) Jawaharlal Nehru
- (b) Sardar Vallabhbhai Patel
- (c) Dr. B.R. Ambedkar
- (d) C.D. Deshmukh
Answer: (a) Jawaharlal Nehru
Jawaharlal Nehru was the first Chairman of the Planning Commission, set up in 1950 by a government resolution, and he shaped India's early economic planning. The Prime Minister was the ex-officio Chairman. Wrong options: (b) Sardar Vallabhbhai Patel was not the Deputy Chairman of the Planning Commission; he died in December 1950, and the office of Deputy Chairman was held by others such as Gulzarilal Nanda. (c) Dr. B.R. Ambedkar drafted the Constitution but had no role in the Planning Commission. (d) C.D. Deshmukh was a Finance Minister and former RBI Governor, not the Chairman of the Planning Commission.
7. Which of the following is NOT included in the calculation of Gross National Product (GNP)?
- (a) Income earned by Indian citizens working abroad
- (b) Profits earned by a multinational company's Indian subsidiary
- (c) Wages paid to Indian workers in a foreign embassy located in India
- (d) Investment by a foreign company in a new factory in India
Answer: (b) Profits earned by a multinational company's Indian subsidiary
GNP measures income earned by a country's nationals, while GDP measures output within a country's borders. Option (d) - investment by a foreign company in a new factory in India - is production located in India and counts in India's GDP, but it is not income earned by Indian nationals, so it is the item NOT included in GNP. (a) Income of Indians working abroad is included in GNP. (b) The Indian subsidiary's output is within India (GDP), and the resident-owned share of its income is part of GNP. (c) Wages paid to Indian workers within India are domestic factor income and form part of GNP.
8. Consider the following statements about NITI Aayog's documents:
1. The 7-Year Strategy is also called the 'National Development Agenda'.
2. The 15-Year Vision provides a long-term roadmap for India's development.
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) Both 1 and 2
Statement 1 is not established: NITI Aayog's 7-Year Strategy is called the 'National Development Agenda' in some documents, but this nomenclature is not the official title consistently used — its official name is the '7-Year Strategy' or 'Strategy for New India @75'. Whether 'National Development Agenda' is the official label is contested; in most official NITI Aayog usage it is 'Strategy for New India @75'. Statement 2 is correct: the 15-Year Vision Document provides the long-term roadmap. Given the uncertainty about Statement 1's formal title, the safe answer is (b) — 2 only.
9. With reference to the evolution of economic planning in India, consider the following statements:
1. The Planning Commission was a constitutional body established under Article 308 of the Indian Constitution.
2. NITI Aayog was created through an executive order and not by an Act of Parliament.
3. The Planning Commission had the authority to allocate funds to states based on their Five Year Plan proposals.
Which of the statements given above is/are correct?
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 only
- (d) 2 only
Answer: (b) 2 and 3 only
Statement 1 is incorrect: the Planning Commission was not a constitutional body (no Article 308 basis); it was set up by a 1950 government resolution. Statement 2 is correct: NITI Aayog was created by an executive resolution, not an Act of Parliament. Statement 3 is correct: the Planning Commission did allocate/disburse Plan (central) assistance to states under the Gadgil formula based on their plans - indeed its discretionary fund-allocation role was a major criticism that NITI Aayog does not inherit. Hence statements 2 and 3 are correct, and the answer is (b) 2 and 3 only.
10. Consider the following statements about the SDG India Index: 1. It is released by NITI Aayog. 2. It ranks states and Union Territories on their progress towards the Sustainable Development Goals. 3. The index uses a single composite score for each state. Which of the statements given above is/are correct?
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Answer: (a) 1 and 2 only
Statements 1 and 2 are correct: the SDG India Index is released by NITI Aayog and ranks states and UTs on SDG progress. Statement 3 is incorrect: the index produces a composite score BUT also goal-wise scores for each state, not just a single composite; moreover even the composite is computed from multiple goal scores. The index does provide a composite (overall) score, but statement 3 as written (saying only a 'single composite score') oversimplifies and is considered incorrect in the standard UPSC treatment. 'a' (1 and 2 only) is the defensible answer.
11. Consider the following statements about indexation in India: 1. Indexation benefits are available for long-term capital gains on assets like real estate. 2. The Cost Inflation Index (CII) is used to adjust the purchase price of an asset for inflation. Which of the above is/are correct?
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Answer: (c) Both 1 and 2
Statement 2 is correct: the Cost Inflation Index (CII), published by CBDT, is used to adjust the purchase price of assets for inflation when computing the indexed cost of acquisition for long-term capital gains. Statement 1 is now incorrect: the Finance Act (No. 2) 2024 removed the indexation benefit for long-term capital gains on sale of immovable property (land and buildings) effective from July 23, 2024. As of current law, indexation on real estate LTCG is no longer available. Only Statement 2 is correct, making the answer (b), not (c) as stored.
12. Which of the following statements about national income measures is/are correct?
1. If depreciation is zero, NNP equals GNP.
2. GDP at market prices includes indirect taxes but excludes subsidies.
3. Net National Product at market prices is always greater than Net National Product at factor cost.
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 only
- (d) 1, 2 and 3
Answer: (a) 1 and 2 only
Statement 1 is correct: NNP = GNP - Depreciation. If depreciation is zero, NNP = GNP. Statement 2 is correct: GDP at market prices includes indirect taxes and excludes subsidies. Statement 3 is incorrect because Net National Product at market prices = NNP at factor cost + Net indirect taxes (i.e., indirect taxes minus subsidies), so it is greater than NNP at factor cost only if net indirect taxes are positive. But the statement says 'always greater', which is not true if net indirect taxes are zero or negative.