Economic Survey and Key Indicators: Concepts and PYQs

The correct answer is D. National income counts only final goods and services; intermediate goods are deliberately left out, because counting the flour as well as the bread would mean counting the same value twice. Option A is a genuine feature, since national income is an aggregate of the whole economy and belongs to macroeconomics, not to the study of a single firm or household. Option B is a feature as well: national income is a flow, measured over a period of time, unlike wealth, which is a stock measured at a point of time. Option C is also a feature, as the Indian accounts express national income for a financial year running from April to March. So the odd statement is the one about intermediate goods, and the rule to carry into the hall is that only the value added at each stage enters the total.

The correct answer is A, implicit price deflator. The deflator is nominal GDP divided by real GDP and multiplied by a hundred, so it is not computed from a fixed basket of goods at all; it is implied by the two GDP series, and that is exactly why it carries the word implicit. Option B is wrong because there is no index of that name, and the deflator is not built explicitly from price quotations. Option C is wrong because the standard term pairs implicit with price deflator, not with inflation index; the word index in economics is reserved for measures such as the CPI and the WPI. Option D is wrong for the same reason as B, since nothing explicit is used in its construction. Remember the one advantage of the deflator: it covers every good and service in GDP, not a selected basket.

The correct answer is C, GNP at factor cost. Work through the expression in two steps. Adding depreciation to a net aggregate turns it gross, so NNP at market prices plus depreciation gives GNP at market prices. Subtracting net indirect taxes from a market price aggregate turns it into a factor cost aggregate, so the result is GNP at factor cost. Option A is wrong because it stops after the first step and ignores the subtraction of net indirect taxes. Option B is wrong because net national income at market prices is simply NNP at market prices, the aggregate we began with. Option D is wrong because nothing in the expression removes net factor income from abroad, and that is the only operation that could turn a national aggregate into a domestic one. Hold on to two rules: depreciation moves between net and gross, and net indirect taxes move between factor cost and market price.

The correct answer is D, Both I and II. Both statements state the same rule from opposite sides: national income is the value of final goods and services, and the value of intermediate goods is excluded so that the same output is not counted at every stage of production. Option A is wrong because statement I is also correct; leaving out intermediate goods is not an error but the central convention of national accounting. Option B is wrong because both statements are correct, as the value added method itself demonstrates. Option C is wrong because final goods, those bought for final use rather than for further processing or resale, are precisely what the accounts add up. Note that the same good can be intermediate or final depending on use: sugar bought by a bakery is intermediate, the same sugar bought by a household is final.

The correct answer is B. The Survey is written in the Economic Division of the Department of Economic Affairs in the Ministry of Finance, under the overall supervision of the Chief Economic Adviser, and is laid before both Houses of Parliament, usually a day before the Union Budget. Option A is wrong because the Reserve Bank publishes its own documents, such as the Annual Report, the Monetary Policy Report and the Report on Trend and Progress of Banking in India, but not the Economic Survey. Option C is wrong because NITI Aayog is a policy think tank for the government and does not author the Survey. Option D is wrong because the National Statistical Office compiles the statistics, including the national accounts, which the Survey then uses and interprets. Remember also that the Survey is a convention, not a requirement of the Constitution.

The correct answer is C, Dadabhai Naoroji. He estimated India's national income for the year 1867-68 and used the figure in his argument about the drain of wealth from India under British rule, which is why he is remembered as the first to attempt the exercise. Option A is wrong, though it is the closest distractor: V. K. R. V. Rao's estimate for 1931-32 is regarded as the first scientific estimate, because it applied a consistent method to the whole economy. Option B is wrong because P. C. Mahalanobis chaired the National Income Committee set up in 1949, which created the official framework, and he is better known as the statistician behind the Second Five Year Plan. Option D is wrong because R. C. Desai's estimate came in the 1930s as well, after Naoroji. Keep the chain in order: Naoroji first, Rao scientific, Mahalanobis official.

The correct answer is B, P. C. Mahalanobis. The National Income Committee was appointed in 1949 with Professor P. C. Mahalanobis as chairman and Professor D. R. Gadgil and Dr V. K. R. V. Rao as members; its reports in the early 1950s produced the first official estimates of national income for independent India and shaped the work of the Central Statistical Organisation, today the National Statistical Office. Option A is wrong because D. R. Gadgil was a member, not the chairman, and is separately remembered for the Gadgil formula for the distribution of plan assistance to States. Option C is wrong because V. K. R. V. Rao was also a member, known for the scientific estimate of 1931-32. Option D is wrong because Dadabhai Naoroji belonged to the nineteenth century and died long before independence.

The correct answer is B. The fiscal deficit is the gap between what the government spends and everything it receives other than borrowings, so it measures exactly how much the government must borrow during the year and is the headline figure watched in every Budget. Option A is wrong because that is the definition of the revenue deficit, which covers only the revenue account and says nothing about capital spending. Option C is wrong because removing interest payments from a deficit gives the primary deficit, and in any case the subtraction is made from the fiscal deficit, not from total expenditure. Option D is wrong because no standard deficit is defined that way; capital receipts include borrowings, which is the very item the fiscal deficit excludes. Also remember the effective revenue deficit, which is the revenue deficit minus grants given to States for creating capital assets.

The correct answer is A, fiscal deficit minus interest payments. Interest payments are the cost of borrowing done in earlier years, so taking them out of the fiscal deficit leaves the borrowing the government needs for this year's own activities; a zero primary deficit means the government is borrowing only to pay interest on past debt. Option B is wrong because adding interest payments would double-count them, as they are already part of total expenditure within the fiscal deficit. Option C is wrong because the subtraction is made from the fiscal deficit, not from the revenue deficit; the revenue deficit covers only revenue receipts and revenue expenditure. Option D is wrong because the difference between the fiscal and revenue deficits reflects capital spending and lending, not interest. The three deficits are governed by the Fiscal Responsibility and Budget Management Act of 2003.

The correct answer is D, Deflator method. There is no such method of measurement; the GDP deflator is a price index derived after the aggregates have been estimated, used to convert nominal values into real values. Option A is wrong because the value added or product method adds the gross value added of every producing unit and is the method on which India's industry-wise estimates rest. Option B is wrong because the income method adds the earnings of the factors of production, namely compensation of employees, rent, interest, profit and the mixed income of the self-employed. Option C is wrong because the expenditure method adds private final consumption expenditure, government final consumption expenditure, gross capital formation and net exports. All three methods should in principle yield the same total, and a mismatch between them is reported as a discrepancy in the accounts.