Macroeconomic Trends & Inflation

Statement 1 is Incorrect: Share of agriculture in GDP has actually decreased since 1991, as the service sector has grown significantly. Statement 2 is Correct: Share of India's exports in world trade has increased. India has become a more integrated part of the global economy, with a larger export footprint. Statement 3 is Correct: FDI inflows have increased considerably. The liberalisation measures made India a more attractive destination for foreign investment. Statement 4 is Correct: India's foreign exchange reserves have also increased enormously. This reflects India's improved ability to generate foreign currency and manage its external finances. Therefore, the correct answer is 2, 3, and 4 only. Hence, option B is the correct answer.

Statement 1 is incorrect: Tax revenue as a percent of GDP in India has not steadily increased over the last decade. It has fluctuated — for instance, it rose during periods of strong economic growth but fell during years like 2019–20 and 2020–21 (due to slowdown and the pandemic). Hence, the trend is not steadily upward. Statement 2 is incorrect: Fiscal deficit as a percent of GDP has also not steadily increased. It narrowed from around 4.5% in 2013–14 to about 3.4% in 2018–19, then spiked during the COVID-19 years (to around 9.2% in 2020–21) and has gradually declined since. Thus, there has been no steady increase over the decade.

The Labour Bureau, attached to the Ministry of Labour and Employment, is responsible for compiling and publishing the Consumer Price Index Number for Industrial Workers (CPI-IW) in India. This index tracks changes in the retail prices of a basket of goods and services consumed by industrial workers. It serves as a crucial indicator of inflation faced by this specific segment of the population. The Labour Bureau is responsible for maintaining:
- CPI (Industrial Workers) - CPI (Rural Labourers) - CPI (Agricultural Labourers)

About Eight Core Sectors: These comprise 40.27% of the weight of items included in the Index of Industrial Production (IIP). The eight core sector industries in decreasing order of their weightage:
Refinery Products> Electricity> Steel> Coal> Crude Oil> Natural Gas> Cement> Fertilizers.

Statement 1 is incorrect: The rate of growth of real Gross Domestic Product has fluctuated over the decade. Statement 2 is correct: The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade. Thus, statement 1 is incorrect while statement 2 is correct.

Option A and B are incorrect: RBI plays a key/primary role in controlling inflation through its monetary policy. Option C is correct: Decreased money circulation can help control inflation, while increased circulation can contribute to it. Option D is incorrect: Increased money supply shall only increase inflation.

A decrease in the tax-to-GDP ratio of a country can potentially indicate 1 only (Slowing economic growth rates). Tax to GDP Ratio: This ratio represents the total tax revenue collected by a government as a percentage of the country's GDP. It's a measure of the government's ability to raise funds through taxes. Impact of Decrease: A decrease in this ratio can have several interpretations, but it doesn't necessarily point towards a less equitable income distribution (option 2). Slowing Growth: It might indicate a slowdown in economic growth. During economic downturns, businesses and individuals tend to earn less, leading to lower tax collections. Change in Tax Policy: It could also reflect a deliberate change in tax policy, such as tax cuts or exemptions, aimed at stimulating economic activity. Inefficiency: In some cases, it might suggest inefficiencies in tax collection.

The aim of the 12th Five Year plan is to achieve 'faster, sustainable and more inclusive growth'. For this purpose, it seeks to achieve:
- 4% growth in the agriculture sector - 10% in the manufacturing sector The total budget of the 12th Five Year plan has been estimated at Rs.47.7 lakh crore which is 135 percent more than that for the 11th Five year Plan (2007-12).

Statement 1 is correct: When prices rise, the real value of money decreases. Debtors repay their loans with money that has less purchasing power than when they borrowed it. Therefore, debtors gain because the real burden of debt falls. Statement 2 is incorrect: Bondholders (lenders) receive fixed interest payments. During inflation, the real value of these payments decreases, as money loses purchasing power. Thus, bondholders lose during inflation.

Creating new money to finance a budget deficit will be the most inflationary effect. Because it increases the money supply without any increase in the production of goods and services.