UPSC Prelims 2017 · Question 44 of 99
UPSC Prelims 2017 question on Tax Revenue Fiscal Deficit Trends
- ExamUPSC CSE
- Year2017
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicPublic Finance
- DifficultyMedium
- TypeStatement
Consider the following statements:
1. Tax revenue as a percent of GDP of India has steadily increased in the last decade.
2. Fiscal deficit as a percent of GDP of India has steadily increased in the last decade.
Which of the statements given above is/are correct?
Show answer
Answer: D. Neither 1 nor 2
Verdict
The answer is neither 1 nor 2. Neither tax revenue nor the fiscal deficit rose steadily as a share of GDP over the decade.
Analysis
Statement 1 is INCORRECT. Service tax, personal income tax, corporation tax and excise duty rates were all reduced at points during the period to support aggregate demand against the global downturn, so tax revenue as a share of GDP fluctuated rather than rising steadily. Statement 2 is INCORRECT. The fiscal deficit as a share of GDP widened sharply around the stimulus years and then narrowed under consolidation targets, so it too moved up and down rather than increasing steadily.
Source
Economic Survey 2014-15.
How to crack it
The operative word in both statements is steadily, which asserts a monotonic trend, and a single reversal falsifies it. Macroeconomic ratios almost never move in one direction for a decade, because they respond to cycles, crises and policy shifts. Whenever a statement claims a steady or continuous change in an economic aggregate over a long period, look for the one shock that must have interrupted it, which here is the global financial crisis and the stimulus that followed.