Practice Important Reading Comprehension Questions for IAS Prelims 2020 GS Paper-II (CSAT). Candidates can practice and buck up their speed of solving Reading Comprehension Questions here. We have provided 8 Reading Comprehension Sets alongwith their answers and explanations.
Directions for Questions 1 to 40: Read the following passages carefully and answer the questions that follow:
Passage – 1
A demonetization that delegitimizes a certain currency, or even certain denominations of it, would extinguish wealth held in that form. What we have seen, however, is a less extreme case. In this one, holders of Rs.500 or Rs.1000 notes can exchange them or pay these into their bank accounts. This does not extinguish wealth as much as it will bring the hoards into the taxman’s radar when their owners draw upon them to make payments. For, as these will be bank transactions there would be a record of them. So, existing black money cannot be used to generate more of the same. To this extent the scheme cannot be faulted. Of course, it cannot be assumed that what is in a bank will necessarily be declared to the income tax authorities, but it will certainly come under scrutiny in a way that it was not when stashed under the mattress.
What are some reasons why we may welcome such a move? First, the concealment of income with a view to avoid tax is a crime. So, in a constitutional democracy such as ours those who avoid tax deserve to be punished. Second, in order to evade the law, those with unaccounted wealth proceed to corrupt others, most importantly representatives of the state. This criminalizes the system further. If democracy is a way of actualizing the public will, such criminalization of the machinery of government works against the ideal. So, the practice of tax evasion needs to be rooted. To that extent this move of the government may be welcomed.
But how significant is it likely to be in the punishment it metes out to tax evaders and in its ability to control the generation of unaccounted wealth in the future? The quantitative significance of this move depends upon the extent to which unaccounted, or ‘black’, wealth is held in the form of high-value currency notes of the specified denomination. If unaccounted money by Indians is held in the form of foreign bank accounts, the present scheme can do nothing about it. This speculation would suggest that if unaccounted money is not held as Rs.500 or Rs.1000 notes, the move is pretty much useless. There is, however, the separate issue of counterfeit currency. If there is a significant volume of counterfeit currency circulating in the form of Rs.500 or Rs.1000 notes, the demonetization will also extinguish unaccounted money from this source. If counterfeit currency is actually used to de-stabilize the Indian Union, as has been claimed, deflating this route enhances its security. This would count as another reason to welcome the move.
Now to the question of whether the demonetization will eliminate the black economy of the future. It should be obvious that it cannot by itself. For this we would need a policy that checks the generation of black incomes at source. It would be a good surmise that much of the unaccounted money is generated in the purchase and sale of gold and of property. The markets for gold and property are highly concentrated, with relatively few sellers exerting considerable control over supply. Monopoly power combined with the cultural significance of both a home and gold ornaments in India empowers these sellers to insist that they are paid in cash, leaving many ordinary people in this country to have to abet criminal activity. However, the very fact of property firms, lesser builders and jewelers being highly visible and small in number makes it that much easier for the long arm of the law to control them. For this to take place though, action by the tax authorities alone will not suffice. It would require the Central government to step in and legislate that all transactions in gold and property go through banks. There could be hue and cry following this of course, but you can’t govern crime by being sensitive to the grief of criminals.
1. Which of the following is one of the main objectives of demonetization of Rs. 500 and Rs.1000 notes?
a) To stop the circulation of money in the economy.
b) To identify the population living below poverty line.
c) To bring the hoarders of money into the taxman’s radar.
d) To increase the inflation in the economy.
Answer: c)
Explanation: The first paragraph clearly indicates that demonetization of Rs. 500 and Rs.1000 notes will bring the hoards into the taxman’s radar.
2. The author of the passage is referring to what with the phrase ‘stashed under the mattress’:
a) Plastic money
b) Black money
c) White money
d) Liquid money
Answer: b)
Explanation: The author is referring to the illegal money hoarded by the people and stashed under their mattress.
3. Which of the following is incorrect regarding demonetization in India?
a) It will help in identifying the tax invaders holding the black money.
b) Unaccounted wealth will be scrutinized.
c) Black money will be redistributed in the economy in various forms.
d) Income tax authorities will not be authorized to look into the bank account details of the hoarder of black money.
Answer: d)
Explanation: Clearly, option d) is incorrect as does not support the main purpose of demonetization which is eradication of black money in India.
4. According to the author of the passage, the demonetization move is only helpful when:
a) Black money is kept in the bank accounts outside India.
b) Black money is kept in the form of gold.
c) Black money is kept in the form of high-value currency notes of the specified denomination.
d) Black money is kept in the demat accounts.
Answer: c)
Explanation: The thirds paragraph clearly states that ‘the quantitative significance of this move depends upon the extent to which unaccounted, or ‘black’, wealth is held in the form of high-value currency notes of the specified denomination’.
5. Other than the issue of black money, which of the following issue is being addressed by the demonetization step?
a) Increase in the population in India.
b) Increase in the circulation of counterfeit currency in India.
c) Increase in the unemployment in India.
d) Increase in the demand and supply of currency in India.
Answer: b)
Explanation: The third paragraph of the passage clearly mentions that if there is a significant volume of counterfeit currency circulating in the form of Rs.500 or Rs.1000 notes, the demonetization will also extinguish unaccounted money from this source.
Passage – 2
Donald Trump’s surprise win in the U.S. presidential elections has lent the dollar new wings. It has soared against most currencies, including the rupee, on the expectation that his economic policies will spur growth and inflation in the world’s largest economy. The prospect of the Federal Reserve raising interest rates provided an up draught that helped the dollar extend a record appreciating streak against the euro last week and pushed the rupee past 68 to a dollar. In Congressional testimony last week, Fed Chair Janet Yellen signaled that the central bank was close to a decision to raise rates again. Some economists predict U.S. GDP growth could see appreciable acceleration in 2017 — with one projection positing even a doubling of the pace by the fourth quarter — if the new administration delivers on some of its promises, including tax cuts, deregulation and infrastructure spending. In fact, with a Republican majority in both the House of Representatives and the Senate, Mr. Trump could benefit from smoother Congressional backing for policy initiatives to boost economic activity. U.S. stocks and bonds have also reflected the optimism over the outlook for U.S. growth and prospects that increased fiscal spending will help reflate the economy, with the S&P 500 Index adding gains for the second straight week and benchmark bond yields climbing in anticipation of faster inflation.
For the rupee, which has slumped 2.3 per cent from its 66.62 a dollar close on November 8, the flight of capital from emerging market assets has inflicted significant pressure that has been exacerbated by the Centre’s decision to withdraw higher denomination currencies. Foreign institutional investors have sold more than $2.5 billion of Indian equity and debt holdings so far this month, compared with the about $1.5 billion they offloaded through October. With the demonetization move infusing a surge of liquidity into the banking system, domestic interest rates are expected to decline, making the rupee less attractive to investors seeking to benefit from an interest rate arbitrage. And with consumption and broader economic activity predicted to take a hit on account of the shortage of cash in the wake of the currency move, GDP growth may slow sharply. That in turn could weaken overseas investor appetite for rupee assets. The task before policymakers, and the monetary policy committee that is set to meet a week before the Federal Open Market Committee’s rate decision, will be to reassure markets and investors that India’s economy remains robust.
6. According to the passage, against most of the currencies the value of US dollar has:
a) Remained constant
b) Decreased slowly
c) Decreased rapidly
d) Increased rapidly
Answer: d)
Explanation: The first paragraph clearly indicates that US Dollar has soared against most currencies, which means it has increased rapidly above the usual level.
7. What does the author mean by saying ‘raising interest rates provided an up draught that helped the dollar extends a record appreciating streak against the euro’?
a) Dollar became weak against the Euro.
b) Dollar became strong against the Euro.
c) Euro became strong against the Dollar.
d) Both dollar and Euro became strong against each other.
Answer: b)
Explanation: The author means to say that because of the prospect of the Federal Reserve raising interest rates the value of Dollar became strong against the Euro.
8. Which of the following factor can result in boosting the economic activities in US?
a) A Republican majority in the House of Representatives.
b) A Republican majority in the Senate.
c) A Republican majority in both the House of Representatives and the Senate.
d) Raising interest rates by Central Bank.
Answer: c)
Explanation: The first paragraph clearly states that ‘with a Republican majority in both the House of Representatives and the Senate, Mr. Trump could benefit from smoother Congressional backing for policy initiatives to boost economic activity’.
9. Which of the following factor reflects an optimistic outlook for the growth of US economy?
a) Decrease in inflation.
b) Increase in stock returns and bond yields.
c) Decrease in stock returns and bond yields.
d) Decrease in fiscal spending.
Answer: b)
Explanation: The last of the first paragraph clearly states that ‘U.S. stocks and bonds have also reflected the optimism over the outlook for U.S. growth and prospects that increased fiscal spending will help reflate the economy, with the S&P 500 Index adding gains for the second straight week and benchmark bond yields climbing in anticipation of faster inflation’.
10. Because of the demonetization move, investors will benefit from which of the following way?
a) Regulatory arbitrage
b) Political arbitrage
c) Interest rate arbitrage
d) Statistical arbitrage
Answer: c)
Explanation: The author is talking about the covered interest arbitrage which is a trading strategy in which an investor uses a forward currency contract to hedge against exchange rate risk.
Passage – 3
The world has come around to the view that democracy is essential for full human development. And only education and skill development can make this possible. Democracy cannot be sustained unless the electorate is well informed, chooses its leadership wisely, and this leadership is intellectually empowered by a multi-dimensional intelligence. The world view of economic development has completely changed: it is no longer believed to be driven by human labor, as Karl Marx said, or by capital, as Alfred Marshall stated, but is knowledge-driven. For application of knowledge, innovations are required, and for more original research, we need many more young minds at the frontier. Knowledge is gender neutral, and hence the 21st century offers a great opportunity to level the gender inequity of the last thousand years in India.
The youth require a mental faculty endowed with multi-dimensional intelligence. It is not adequate to foster cognitive intelligence alone — as is being done in India’s educational campuses today — but to also develop the other dimensions of intelligence: emotional, social, moral, spiritual, environmental, and innovational. India’s vast youth population is its demographic potential dividend, but only if equipped and enabled with this seven-dimensional intelligence. The nation must, therefore, structure a national education policy for the youth so that the seven dimensions of intelligence can be manifested in every young man and woman. Only then will the demographic dividend not be wasted. These seven dimensions constitute the ability of a person to live a productive life and for the national good. Hence, a policy for India’s youth has to be structured within the implied parameters of these dimensions.
The first parameter of such a policy is ability empowerment — the development of the seven types of intelligence. The second is a collective mindset about the legacy and future of the nation, which means knowing the correct de-falsified history of India. The third is the commitment to a social contract of rights and obligations such as a fundamental right to quality primary and secondary education, right to work, an obligation to compete for most positions of employment on merit, practice gender equality and place national interests above selfish interests. A national education policy is, therefore, a framework for the comprehensive growth of the nation’s young population, to enable them to be positioned in life for personal advancement as well as contribute to national greatness. India, however, lacks today a properly structured policy for development of its youth. As a result, many young people are led astray by drugs and crime.
11. According to the passage, democracy cannot be sustained in a country without:
a) Economic Development
b) Education and Skill Development
c) Rural and Urban Development
d) Technological Development
Answer: b)
Explanation: The passage clearly mentions that the democracy cannot be sustained in a country without education and skill development.
12. An empowered intellectual leadership involve:
a) Logical Intelligence
b) Interpersonal Intelligence
c) Multi Dimensional Intelligence
d) Intra-personal Intelligence
Answer: c)
Explanation: It is clearly stated in the passage that in a democratic country the leadership should be intellectually empowered by a multi-dimensional intelligence.
13. According to the passage, in a country economic development is driven by:
a) Human Labor
b) Capital
c) Infrastructure
d) Knowledge and Innovations
Answer: d)
Explanation: The first paragraph clearly states that the world view of economic development has completely changed: it is no longer believed to be driven by human labor, as Karl Marx said, or by capital, as Alfred Marshall stated, but is knowledge-driven.
14. The youth of India is being taught to learn which of these dimensions of intelligence?
A. Emotional and Social B. Social and Moral C. Spiritual D. Environmental and Innovational
a) Only A and B
b) Only B and C
c) Only C and D
d) All of the above
Answer: d)
Explanation: It has been clearly mentioned in the second paragraph that India’s educational campuses today aims to develop the other dimensions of intelligence in youth which are: emotional, social, moral, spiritual, environmental, and innovational.
15. The 21st century education system believes in imparting knowledge:
a) In a gender biased way.
b) In a gender neutral manner.
c) On the basis of sex discrimination.
d) On the preferences based on genders.
Answer: b)
Explanation: It has been clearly mentioned in the last line of the first paragraph that knowledge is gender neutral, and hence the 21st century offers a great opportunity to level the gender inequity of the last thousand years in India.
Passage – 4
In a big step towards resolution of bad loans, Indian banks, Reserve Bank of India and the union finance ministry are discussing setting up two special funds to resurrect troubled investments through equity infusion or more debt funds. The two funds proposed are Stressed Assets Equity Fund and Stressed Assets Lending Fund. “Creation of separate funds for resolution of stressed assets is being worked out. Indian Banks’ Association (IBA) is finalizing the road map,” adding the corpus of these two funds will be fluid and will take case-specific action.
According to RBI data, the stressed assets ratio for the banking sector, which includes gross non-performing assets (NPAs), increased to 14.5% at the end of December 2015 as against 9.8% at the end of March 2012. State-run banks have the highest share in stressed loans. Their gross NPAs or bad loans alone rose from Rs 2.67 lakh crore in March 2015 to Rs 3.61 lakh crore in December. A senior official with IBA said that the stressed assets equity fund (SAEF) will invest in equity of stressed borrower bringing equity to burdened projects. “It may take controlling stake either directly or through strategic debt restructuring scheme (SDR),” he said.
The other fund named stressed assets lending fund (SALF) will provide last mile funding or working capital funding to assets in trouble because of funding constraints. “An oversight committee will be formed to look into cases where these funds will invest. Discussions are on to work out the modalities,” said the above quoted government official. Earlier this month, RBI had come out with a scheme for sustainable structuring of stressed assets, also termed as S4A, to strengthen the lenders’ ability to deal with stressed assets and provide an avenue for reworking the financial structure of entities facing genuine difficulties. “The S4A envisages determination of the sustainable debt level for a stressed borrower and bifurcation of the outstanding debt into sustainable debt and equity/quasi-equity instruments which are expected to provide upside to the lenders when the borrower turns around,” the RBI had noted in a statement.
16. Which of the following funds is build to resurrect troubled investments through debt funds?
a) SAEF
b) SEAF
c) SALF
d) SLAF
Answer: c)
Explanation: The first paragraph clearly indicates that Stressed Assets Lending Fund (SALF) will help to resurrect troubled investments through debt funds.
17. What are Non-Performing Assets (NPAs)?
a) Assets of the banks which bring in cash.
b) Assets of the banks which don’t bring any return.
c) Movable assets of the bank.
d) Immovable assets of the bank.
Answer: b)
Explanation: All those assets which don’t generate regular income are known as Non-Performing Assets (NPAs).
18. Which of the following statement is incorrect according to the passage?
a) Gross NPAs rose from Rs 2.67 lakh crore in March 2015 to Rs 3.61 lakh crore in December 2015.
b) Gross non-performing assets (NPAs) were 14.5% in December 2015.
c) Gross non-performing assets (NPAs) were 9.8% in March 2012.
d) Gross non-performing assets (NPAs) were 14.5% in March 2012.
Answer: d)
Explanation: The second paragraph clearly states that according to RBI data, the stressed assets ratio for the banking sector, which includes gross non-performing assets (NPAs), increased to 14.5% at the end of December 2015 as against 9.8% at the end of March 2012. Hence, option d) is incorrect.
19. Stressed Assets Lending Fund (SALF) will provide:
a) Equity Capital Fund
b) Fixed Capital Fund
c) Working Capital Fund
d) Long-term Capital Fund
Answer: c)
Explanation: The third paragraph clearly states that Stressed Assets Lending Fund (SALF) will provide last mile funding or working capital funding to assets in trouble because of funding constraints.
20. The objective of the scheme S4A is:
a) To strengthen the lenders’ ability to deal with stressed assets.
b) To provide an avenue for reworking the financial structure of entities facing genuine difficulties.
c) Sustainable structuring of stressed assets
d) All of the above
Answer: d)
Explanation: The second paragraph clearly states that RBI had come out with a scheme for sustainable structuring of stressed assets, also termed as S4A, to strengthen the lenders’ ability to deal with stressed assets and provide an avenue for reworking the financial structure of entities facing genuine difficulties. Also, the S4A envisages determination of the sustainable debt level for a stressed borrower.
Passage – 5
The NDA government’s Black Money Act may have so far managed to scoop up just the surface of the potentially retrievable unaccounted income. But the rhythm to unearth more illegal income seems to have been set. The CBI searches in State-run Bank of Baroda branches for `6,100-crore suspected black money transfer is perhaps the first major and concrete action against the ‘black sheep’ in years. Hopefully, the investigating agency and the special investigation team on black money will take this forward. The one-time compliance window for the declaration of foreign assets and income under the Black Money Act, which closed on September 30, saw just 638 declarations aggregating to `3,770 crore. Union Finance Minister Arun Jaitley was quick to warn those who did not declare unaccounted income to face the “consequences.” The CBI raid comes just a few days after Jaitley’s warning and if his categorical statement that bulk of the black money is within India is anything to go by, more such raids can be expected.
The Act is one of the crucial components of economic reforms announced last year and there’s an urgent need to step up efforts to retrieve stashed income, both within the country and abroad. With investor appetite losing sheen, economic growth slowing down and with India moving nowhere as far as its ease of doing business rank is concerned, the government is in a tight spot to act and now. Stringent norms on undisclosed income imply the country is not a ‘safe haven’ and will strengthen the moral fiber of our society. Importantly, income recovered from such sources is crucial for the government to steer its social programmes and fund public expenditure at a time when the country’s direct and indirect tax collections are below target. The Act can also be used to clean up the mess broiling at our public sector banks that are reeling under severe stressed assets and low recoveries.
Traditionally, stock markets too are often used to circulate black money. Be it via Participatory Notes, which allow investors to invest without having to register themselves, or channeling funds through tax havens like Mauritius or Singapore. While continuing to crack the whip on banks to trace the illicit money flow, the government should also focus on the markets.
21. According to the passage the Black Money Act is for:
a) Financing the black money
b) Retrieving the black money
c) Saving the black money
d) Covering the black money
Answer: b)
Explanation: The first paragraph clearly indicates that Black Money Act is for retrieving the unaccounted illegal income.
22. Which compliance rule helped in unearthing the black money?
a) Declaration of expenditure
b) Declaration of income
c) Declaration of assets
d) Declaration of foreign assets and income
Answer: d)
Explanation: The first paragraph clearly states that “The one-time compliance window for the declaration of foreign assets and income under the Black Money Act, which closed on September 30, saw just 638 declarations aggregating to 3,770 crore”.
23. According to the passage, the Black Money Act is an important part of:
a) Infrastructure Development
b) Technological Development
c) Inflation Control
d) Economic Reforms
Answer: d)
Explanation: The second paragraph clearly states that the Black Money Act is one of the crucial components of economic reforms announced last year.
24. According to the passage, which one of the following is the consequence of increasing black money in India?
a) Higher economic growth
b) Slower economic growth
c) Increase in investments
d) International players opening new business in India
Answer: b)
Explanation: The second paragraph clearly states that due to increase in black income investor appetite losing sheen, economic growth slowing down and India moving nowhere as far as its ease of doing business rank is concerned.
25. According to the passage, the fund collected through Black Money Act can be used for?
a) Fund Public Expenditure
b) Fund Private Expenditure
c) Fund Public Income
d) Fund Private Income
Answer: a)
Explanation: The second paragraph clearly states that income recovered from such sources is crucial for the government to steer its social programmes and fund public expenditure at a time when the country’s direct and indirect tax collections are below target.
Passage – 6
India’s gross domestic product (GDP) grew by 7.3 per cent during 2014-15, according to the official data. The figure fell short of the 7.4 per cent predicted by the Central Statistical Organisation (CSO). This is certainly a creditable achievement when the growth rate in many developed countries is not even half of it. However, what is most distressing is that the growth rate in the agriculture sector was a negligible 0.2 per cent during the same period. Had it performed better, the overall growth rate would have been far more creditable. As a majority of the people still depends on agriculture for their livelihood, the niggardly growth rate is nothing but a national disaster the consequences of which are difficult to be visualised.
That the agricultural sector is in distress and some of the farmers are even forced to commit suicide is no news. The fact is that little has so far been done to strengthen agriculture. It is also well known that the agricultural output has close relations with the climatic conditions. The recent unseasonal rains in many parts of India, followed by searing heat wave conditions, have caused extensive damage to the crops. In the weeks to come, demands for waiving of agricultural loans and increasing the procurement prices of food grains are bound to be taken up by political leaders. Eventually, the government would be forced to concede some of their demands.
Needless to say, this will not help the agricultural sector to regain health. Instead, it will only perpetuate the dependency of the farmer on government subsidy, a problem that needs to be addressed in right earnest. What is needed is a shift in emphasis—from subsidy to investment. It is a fact that agriculture has not seen any investment worth the name during the last few decades. In fact, after the success of the Green Revolution, this sector has not seen much investment. Cold storages that can protect perishable commodities like potato and onion and warehouses where grains can be kept protected from rains and moisture are just two areas where heavy investment is required. The insurance industry can be encouraged to come up with crop insurance policies which are imaginatively conceived to meet the needs of the farmer. If this kind of structural change is not attempted, Indian agriculture will remain moribund and the farmers will continue to wallow in distress.
26. According to the passage, the growth in the India’s GDP is:
a) More than the Estimated Rate.
b) Exactly same as the Estimated Rate.
c) Less than the Estimated Rate.
d) First Increased and then decreased as per the estimates.
Answer: c)
Explanation: The passage clearly mentions that the growth in the India’s GDP fell short of the 7.4 per cent predicted by the Central Statistical Organisation (CSO).
27. The growth rate in agricultures sector compared to other sector:
a) Contributes largely to the India’s GDP.
b) Contributes very less to the India’s GDP.
c) Helps in controlling inflation of the country.
d) Indicates a boom in the agriculture sector.
Answer: b)
Explanation: It has been clearly mentioned in the passage that the growth rate in the agriculture sector is quite distressing and negligible (0.2 per cent).
28. Agricultural output is related to:
a) Financial Credit given to farmers
b) Infrastructural Development
c) Government’s support given to farmers
d) Climatic Conditions
Answer: d)
Explanation: The second paragraph clearly states that the agricultural output has close relations with the climatic conditions.
29. According to the passage, what are the main reasons for the damage of the crops in India?
- Unseasonal Rains
- Lack of Financial Support
- Lack of Irrigation Facility
- Hot Climate
a) Only A and B
b) Only B and C
c) Only A and D
d) Only C and D
Answer: c)
Explanation: It has been clearly mentioned in the second paragraph that the unseasonal rains in many parts of India, followed by searing heat wave conditions, have caused extensive damage to the crops.
30. Due to distress in agriculture sector, the government can face which of the following demands from the farmers?
a) Waiving of agricultural loans.
b) Increasing the procurement prices of food grains
c) Increasing the agricultural loans.
d) Waiving of agricultural loans and increasing the procurement prices of food grains.
Answer: d)
Explanation: It has been clearly mentioned in the second paragraph that demands for waiving of agricultural loans and increasing the procurement prices of food grains are bound to come from farmers due to damage in the crops.
Passage – 7
The Government’s approval for the 100 smart cities project and a new urban renewal mission is an important first step toward dealing with an old problem that has only got progressively worse over the years: urban livability. A shade less than a third of India’s population now lives in urban areas, overcrowded cities and towns with infrastructure bursting at the seams. This problem will only worsen with little or no intervention happening. The proportion of the urban population can only go in one direction — upward — as more Indians migrate to the cities and towns in search of jobs. Cities are engines of growth, and as a result attract a lot of people. The country’s urban population contributes over 60 per cent of India’s GDP; in 15 years this will be 70 per cent. On the other hand, there is little incentive for people to migrate out of cities. Earlier attempts at providing better urban infrastructure or at creating new townships have not been able to deal with the issue of livability satisfactorily. Even successful special economic zones have had to contend with the issue of lack of social infrastructure, which usually means access to avenues of education, health, arts, sports, and so on. There are numerous definitions of a smart city but the current government’s idea of one usefully encompasses institutional infrastructure (governance), physical infrastructure, as also social infrastructure.
The Cabinet approval marks the first of many steps, as also the easiest, that will be required for the project. The challenges start now. Of course there is no doubt that this has created tremendous enthusiasm amongst many possible stakeholders, including service providers who have been part of smart city projects elsewhere in the world. Countries such as Japan, Singapore and Germany, among many others, have evinced interest to be a part of this. Yet, in its scale and complexity the project will be second to none. The official estimate of per capita investment requirement is Rs.43386 for a 20-year period, or a total investment of Rs.7 lakh crore. Creating a smart city isn’t just about creating the physical infrastructure — roads, clean water, power, transport and so on, things India finds difficult to deliver to its citizens nearly seven decades after Independence. It is hoped that public private partnerships (PPP) will deliver but the mechanism seems to need a lot of tweaking in order for it to work, a fact acknowledged in the recent Budget. The big challenge will be to create self-sustaining cities, which create jobs, use resources wisely and also train people. This also means more autonomy for these cities. Whether that can happen is a moot question depending heavily on the maturity of the Indian political system.
31. According to the passage, the urban population in future can only:
a) Increase
b) Decrease
c) Remain Constant
d) First Increase, then decrease
Answer: a)
Explanation: The passage clearly mentions that the proportion of the urban population can only go in one direction, i.e., upward.
32. Special Economic Zones Lacks to provide:
a) Physical Infrastructure
b) Social Infrastructure
c) Institutional Infrastructure
d) Job Opportunities
Answer: b)
Explanation: It is clearly stated in the passage that special economic zones have to contend with the issue of lack of social infrastructure which usually means access to avenues of education, health, arts, sports, and so on.
33. Government’s plan for the smart city is:
a) To have only Physical Infrastructure and Social Infrastructure.
b) To have only Institutional Infrastructure and Physical Infrastructure.
c) To have only Institutional Infrastructure and Social Infrastructure.
d) To have Institutional Infrastructure along with the Physical Infrastructure and Social Infrastructure.
Answer: d)
Explanation: The last line of the first paragraph clearly states that the smart cities must have institutional infrastructure (governance), physical infrastructure and also social infrastructure.
34. Which facilities needs to made available along with the physical infrastructure to develop a smart city?
- Roads
- Clean Water
- Power
- Transport
a) Only A and B
b) Only B and C
c) Only C and D
d) All of the above
Answer: d)
Explanation: It has been clearly mentioned in the second paragraph that creating a smart city isn’t just about creating the physical infrastructure but to provide proper roads, clean water, power, and transport to the public.
35. Which kind of mechanism is required for the success of the Smart City Plan?
a) Building infrastructure through Joint Venture
b) Building infrastructure through Mergers & Acquisitions
c) Building infrastructure through Public Private Partnership
d) Building infrastructure through Consolidation and Holdings.
Answer: c)
Explanation: It has been clearly mentioned in the second paragraph that public private partnerships (PPP) will help in successful implementation of Smart City Plan.
Passage – 8
Rupee has been continuously depreciating for the last few weeks and has touched an all-time low of 56 to dollar. Even though the price of crude oil has not increased in the international market, the cost for the oil marketing companies (OMC) like Indian Oil Corporation (IOCL), Bharat petroleum (BPCL) has been increasing on the account of increased value of dollar. The oil marketing companies have lost around Rs 4300 crores for selling petrol below the cost in the last six months. Since 2010, the petrol has been deregulated and OMCs can increase the price of petrol if there is large variation in their costs. The main reason behind increase in the petrol prices is the rise of dollar against rupee. We need to understand why rupee is depreciating against dollar like a free fall. One of the many reasons cited for the depreciation is the ongoing euro crisis. Many institutional investors have moved out their investments in euro to dollar as dollar is considered to be safe haven. In order to be safe, some investment has also moved out of India. But the euro crisis only cannot justify the free fall of rupee. If we see the other currencies like Pound, Yen, Brazilian Real, there has been no significant depreciation, in fact yen has gained against dollar considering one year time frame.
So what are the other significant reasons for depreciating rupee? One of prime reasons is our burgeoning fiscal deficit (difference between revenue and expenditure). The fiscal deficit for the year 2011-2012 stood at Rs. 521,980 and it is targeted at Rs. 513,590 crores for the 2012-2013. This huge deficit is primarily because of subsidy offered on food, fertilizer and petroleum. The oil subsidy for the year 2012-2013 is estimated to be Rs 43,580 crores. But we project the losses suffered by OMCs for the current year, this subsidy will come out to be Rs. 114,000 crores. According to twin deficit hypothesis, there is strong linkage between fiscal deficit and trade deficit (imports – exports). The government’s fiscal deficit is increasing i.e. government is spending more than it is what it is earning. This is because increased expenditure is not matched by the increased tax rates. Hence, people are left with more money, out which some of the money is diverted towards the imports which results in more imports than exports leading to trade deficit. The major portion of our imports is oil. Since oil imports have to be paid in dollars, the importers need to buy dollars and sell rupee leading more demand of dollar and excess of rupee in the market. Considering the demand supply, rupee is continuously losing value; the OMCs have to shell out more rupees for same amount of oil imports.
Now if the prices of oil products are not increased, the deficit will keep on increasing further impacting our economy. An increase in price will result into fall in demand which means that fewer dollars will have to be paid for the oil imports, leading to lower trade deficit which will in turn lead to release of pressure on rupee-dollar rate. Another effect of not increasing the prices oil products is that, government will need to compensate the OMCs for the subsidy offered. Government will finance this deficit by borrowing from the market leading crowding out of the private investment which will slow down our economic growth. It may lead to higher interest rates which will increase the common man’s EMIs. The prices of petrol have been increased. This will have some effect on trade deficit and rupee-dollar value but in order to have more pronounced effect, the government needs to increase the price of diesel, LPG and kerosene. An increase in prices of these will help government reduce its fiscal deficit, meaning less borrowing from the market leading to more funds available for the private investment. Hence better economic growth. In the age of coalition politics, these are harsh decisions which the government may not be willing to take. But these decisions will have to be taken, to prevent our economy from stagnation.
36. According to the passage, why petrol price is rising in India?
- The burgeoning fiscal deficit of India.
- The Euro crisis which has led to depreciating rupee.
Which of the reasons given alone is/are valid?
a) I only
b) II only
c) Both I and II
d) Neither I nor II
Answer: c)
Explanation: The first paragraph and the second paragraph clearly states that one of the many reasons cited for the depreciation is the ongoing euro crisis and another prime reasons is our burgeoning fiscal deficit.
37. Which of the following statements is incorrect according to the passage?
a) The fiscal deficit for the year 2011-2012 stood at Rs. 521,980 crores.
b) The fiscal deficit targeted for the year 2012-2013 at Rs. 513,590 crores.
c) The oil subsidy for the year 2012-2013 is estimated to be Rs 43,580 crores.
d) Before 2010, the petrol was deregulated.
Answer: d)
Explanation: It has been clearly mentioned in the first paragraph that since 2010, the petrol has been deregulated and OMCs can increase the price of petrol if there is large variation in their costs. Hence, option d) is incorrect.
38. In reference to the passage, which of the following assumptions can be made?
- Increased fiscal deficit of Indian government is due to increased expenditure which is not in accordance with the increased tax rates.
- The fiscal deficit of India increased further as prices of oil products remained unchanged.
a) I only
b) II only
c) Both I and II
d) Neither I nor II
Answer: c)
Explanation: Second and third paragraph clearly states that the government’s fiscal deficit is increasing i.e. government is spending more than it is what it is earning. This is because increased expenditure is not matched by the increased tax rates. Also, if the prices of oil products are not increased, the deficit will keep on increasing further impacting our economy.
39. According to twin deficit hypothesis:
a) There is a link between fiscal deficit and trade surplus.
b) There is a link between fiscal deficit and trade deficit.
c) There is a link between Debts and trade deficit.
d) There is a link between fiscal deficit and economic slowdown.
Answer: b)
Explanation: According to twin deficit hypothesis, there is strong linkage between fiscal deficit and trade deficit (imports – exports).
40. In order to decrease fiscal deficit:
- Limit the import of oil to the minimum possible extent.
- Compensate the OMCs for the subsidy offered.
- Prices of petrol have to be increased along with prices of diesel, LPG and kerosene.
a) I and II
b) II and III
c) I only
d) III only
Answer: d)
Explanation: The last paragraph clearly states that an increase in prices of diesel, LPG and kerosene will help government reduce its fiscal deficit, meaning less borrowing from the market leading to more funds available for the private investment.
