UPSC PREVIOUS YEAR's ECONOMICS QUESTIONS- Part-2

UPSC PREVIOUS YEAR's  ECONOMICS QUESTIONS- Part-2

Q.3 Discuss the steps taken by the government in recent years to control inflation. (10 marks, 150 words)

Ans: Inflation occurs when an economy grows due to increased spending. When this happens, prices rise and the currency within the economy is worth less than it was before leading to weakening of its exchange rate. Controlling inflation has always been a priority area for the government.

According to the Economic Survey 2018-19, the economy witnessed a gradual transition from a period of high and variable inflation to more stable and low level of inflation. "The government has taken a number of measures to control inflation specially food inflation," as per the survey. The measures, inter alia, taken include both general measures and specific measures.

Regular monitoring of inflation, issuing advisories to states against hoarding and black marketing, holding regular review meetings on prices and availability of key commodities, higher minimum support prices for pulses and other crops to incentivise production and setting up of price stabilization fund (PSF) for procurement of agri-horticultural commodities, were some of the general measures used by the government to tackle inflation.

Specific measures taken by the government include releasing onions at reasonable prices from the stock procured under PSF, and utilization of pulses from buffer for strategic market interventions, among others.

Q.4 Comment on the view that Monetary Policy in India is used more as a stabilization device rather than as a development tool. (15 marks, 250 words)

Ans: The Monetary Policy of a country is a regulatory policy which enables the central bank or monetary authority of the country to control the supply of money, availability of bank credit, and the cost of money (or rate of interest). In India, the Reserve Bank of India (RBI) is the central bank of the monetary authority of India. It controls the supply of money and bank credit.

‘Growth with Stability’ is the backbone of the monetary policy in India. The policy helps in the regulation of the availability, cost, and use of money. Traditionally, the monetary policy in India was focused on controlling inflation. This was done through the contraction of money supply and credit. However, this resulted in poor growth of the economy. Therefore, RBI adopted a new policy of growth with stability. But, recent examples show that RBI is still more on the traditional approach.

India has high fiscal deficit which needs to be financed, especially by borrowing. Though RBI liberalised the Bank Rate and Cash Reserve Ratio in recent years to lead the economy by the rate of interest to some extent, but the fear of inflation is also there. Inflation has not been under control even after so many efforts and saving rate is, therefore, low. A large part of Indian revenue is used in interest payments of the debt of the government. For example, recently RBI transferred Rs. 1.76 lakh crore from surplus reserve to the government. Rupee has been setting new records of decline with each passing day in comparison to dollar.

Due to all these, the RBI has to regulate Indian economy, at least to function well, rather than to develop so that it does not fall down in the greed of development




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                                                                                   SANJIT RAJ