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Insights Mission 2018

Static Test 4 Synopsis

1.Examine the trend of gap between GDP and GVA growth rate in India. Discuss
the reasons behind it.
Answer:
GDP (Gross Domestic Product) is a monetary value of the market value of all final goods and
services produced in a period. GVA (Gross Value Added) is linked as a measurement to GDP, as
both are measures of output.
GVA + Taxes on products – Subsidies on products = GDP
GVA is determined in an economy after deducting the cost of inputs and raw materials (called
intermediate consumption) that have gone into the production of those goods and services.
GVA gives a picture of the economic activity from producer’s/ supply side while, GDP gives it from
consumer’s/ demand perspective.
Both measures need not match because of the difference in treatment of net taxes. In India, as
per CSO, the higher indirect tax collection and lower subsidies have pushed up the indirect tax
component of GDP, resulting in divergence between GDP and GVA.
In quarter that ended Dec 2016, GVA was 6.6 % while GDP was 7%. The increasing gap in both is
due to vast collection of indirect tax collections during FY 17.
GVA data helps policymakers to decide which sectors need incentive while, GDP is a key measure
in comparing the incomes of different countries. Therefore, a trend of gap has been visible
between GDP and GVA growth rate.

2.Discuss the criticism raised regarding the revised guidelines provided by CSO for
national Income Accounting.
Answer:

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As its periodic exercise, CSO (Central Statistics Office) which coordinates with various federal and
state government agencies to collect and compile data, is required to calculate GDP and other
statistics. It revised the guidelines for national income accounting in following ways:
1. Revision of base year from 2004-05 to 2011-12 for better analysis of structural changes
in the economy with time.
2. Implementing the recommendations of National Accounts (SNA), 2008 prepared as per
WB, IMF etc.
Under new guidelines, database created by the Ministry of Corporate Affairs under e-
governance project MCA, is used. Earlier data of ASI and IIP were used which did not include data
on brand pricing, marketing and allied activities.
Further, GDP is now calculated based on market price (consumer side) rather than earlier
calculations of GDP at factor cost (producer side).
GDPMP = GDPFC + Indirect Taxes- Subsidy
Now, indirect taxes are added and subsidy is subtracted to get the GDP at market price.
Thus, both change in data source (use of MCA 21 data instead of ASI and IIP) and change in
method to calculate GDP (at Market Price instead of Factor cost) have pushed up India’s
economic growth after 2012-13, compared to older series.
So, criticism is being made to new series of GDP estimates from this upward revision of economic
growth and manufacturing growth due to these reasons:
1. The new base year is not free from global and domestic abnormalities, therefore, whether
it is ideal or not is a question.
2. The MCA21 database does not factor in the lack of IT infrastructure in the MSME sector.
3. Both the RBI governor and Chief economic advisor believe that the reformed GDP does
not reflect ground economic fundamentals. Growth rates have been revised upwards and
there is a contradiction in inflation calculations.
Adoption of these global standards are expected to improve India's ease of doing business and
may play a crucial role in bringing in investment. They reflect a more inclusive picture of all the
sectors and are therefore crucial.

3.Discuss the arguments made in favour of and against the disinvestment policy
in India in recent times.
Answer:

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Disinvestment is the process in which the government sells only a part of the equity which is
less than 51% so that ownership and management rights rest with the Government itself.
If the Government retains control over public enterprises, the company’s basic character is not
affected. The Government may dilute its equity and raise resources to meet the social needs of
the people. Hence, the government use disinvestment as useful economic tool for selective uses.
For example: There are many companies where disinvestment has taken place or is being
proposed:
1. Oil and Natural Gas Corporation (ONGC)
2. Gas Authority of India Ltd. (GAIL)
3. Steel Authority of India Ltd. (SAIL)
4. Mahanagar Telephone Nigam Ltd. (MTNL)
5. Indian Airlines
Arguments made in favour of disinvestment:
1. It helps in meeting the budgetary needs and improve overall economic efficiency by
reducing fiscal deficit.
2. It helps in diversification of ownership of PSU for enhancing efficiency of individual
enterprise.
3. It is beneficial in raising funds for technological upgradation, modernization and
expansion of PSUs.
Challenges before disinvestment:
1. Disinvestment is considered a process against the interest of socially disadvantageous
people.
2. There is political pressure from left and opposition against disinvestment.
3. Getting investment is difficult for loss making units.
4. Lack of well-defined investment policy in India.
In the present scenario, disinvestment process should be taken up more seriously by the
government. It should try to come out with a time bound programme to conduct the process
with transparency in all the activities being conducted in this sphere so that a consensus is built
to reap benefits out of the process.

4. Discuss the issue and policy changes regarding the growth of manufacturing
sector in India.

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Answer:
India has become an attractive destination for foreign investments in the manufacturing sector.
But, there are many issues that require to be addressed to ensure hassle free growth in the
sector:
1. Design effective ways to scale quality training for the workforce of the future- Skill
development is the most pressing challenge to the manufacturing sector in India.
Although the Indian government has put in significant effort over the past 50 years to
develop its science and technical infrastructure, the current capacity for workforce
development does not meet the country’s aggressive growth targets
2. Develop less restrictive labour laws- Changes need to be enacted that focus on improving
workforce relations and allow greater flexibility for companies to react to changes in
demand. Labour costs in India must remain competitive.
3. There is a need to invest in globally competitive infrastructure, develop infrastructure
to bring industry, not vice versa and create industrial clusters that result in integrated
industrial townships with state-of-the art infrastructure.
4. A more liberal and simplified tax structure with a greater level of transparency to improve
consistency of interpretation is required. The implementation of the Goods and Services
Tax (GST) will make India a common market which will be a big draw for investors.
5. There is a need to review and reform regulatory restrictions on foreign investments in
sectors considered important and strategic to India’s growth objectives and enact basic
financial sector and capital market reforms to attract private investments.
6. Creation of sustained competitive advantage by encouraging technological innovation
and movement up the value chain and improvement in intellectual property filing process
will ensure protection of every player in this sector.
7. Government incentives for small and medium-sized enterprise manufacturers are
needed for survival of these industries.
With impetus on developing industrial corridors and smart cities, the government aims to
ensure holistic development of the nation which would further assist in integrating, monitoring
and developing a conducive environment for the industrial development and will promote
advance practices in manufacturing.

5. What were the shortcomings of the policies that led to the problem of jobless
growth in India?
Answer:
Indian economy has performed well according to the GDP rate, but unemployment has been
there. Every year around 13-14 million youths are entering the workforce while the economy due

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to lack of robust policies has been unable to absorb the unemployed workforce into the system.
Some of the reasons are:
1. Growth in services sector- There was stagnation in manufacturing and decline in
agriculture sector post 1991 reforms. Though there has been a high growth; services
sector brought far less employment than manufacturing and agriculture, where more
physical labour is required as compared to expertise.
2. Advancement of technology- Development in technology and automation reduced the
demand for labour in many cases like the automobile sector where machines and robots
have reduced the requirement of people.
3. Inequality- The gap between rich and poor is still increasing instead of showing a decline.
Yet, measurement of GDP is only based on the principle of aggregate and therefore, it
fails to consider the quality of growth and employment.
4. The employment rate also went down because of less recruitment in the public sector.
5. Organised businesses grew more than the MSMEs because liberalization gave a chance
to big companies from abroad to set their feet in India without safeguarding the
interests of small and cottage industries.
Through schemes like Skill India, Make in India, MNREGA etc, issue of jobless growth is being
addressed. Yet, there is an urgent need to focus on agriculture, skill development and implement
the schemes proactively to tackle jobless growth effectively.

6.The oceanic crust is much younger compared to continental crust. Explain.


Answer:

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Oceanic crust is the uppermost layer of the oceanic portion of a tectonic plate. The crust lies
above the solid uppermost layer of mantle. Continental crust is the layer of rocks that forms the
continents and it is less dense (2.7gm/cm3) compared to oceanic crust (2.9gm/cm3).
Oceanic crust is destroyed at subduction zones and also new oceanic crust is created by seafloor
spreading, while continental crust is not. This is because oceanic crust is denser and is forced or
sinks due to gravity into the mantle. These subduction zones are also sites of volcanoes,
earthquakes, etc. Seafloor spreading occurs at mid-oceanic ridges, where new oceanic crust is
formed through volcanic activity and then moves away from the ridge.
For example, the Atlantic basin is actively spreading at the Mid-Atlantic Ridge. The plates of the
Pacific Ocean experience subduction which causes the ‘Ring of Fire’.
Thus, effects of subduction and seafloor spreading in oceanic crust cause their destruction and
formation over time and therefore, they are younger than the continental crust.

7. What do you understand by Deltas and Estuary. Bring out the ecological
significance of landforms (deltas and estuary) and associated vegetation in the
Indian context.
Answer:
A delta is formed by deposition of sediments carried by a river as it enters an ocean, sea, lake,
etc. A river begins at a source, follows a path downstream (transporting sediments), and ends at

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a mouth (depositing its sediments). At river mouth, its velocity decreases rapidly and delta is
formed when enough alluvium (loose soil) builds up.
Ecological Significance:
1. Deltas absorb runoff from floods (from rivers) and storms (from lakes or the ocean).
2. They filter water as it slowly makes its way through the delta's distributary network. This
can reduce the impact of pollution flowing from upstream.
3. They are important wetland habitats.
4. Many, many animals and plants are indigenous to the shallow, shifting waters of a delta.
Fish, crustaceans such as oysters, birds, insects, and even tigers.
In India, the Ganges-Brahmaputra delta is highly fertile and, around 130 million people live here.
It consists of ecoregions of Gangetic plains, moist deciduous forests and Sundarbans mangroves.
Sal, teak and peepal are found in these forests. Mangroves protect the region from erosion,
tsunami, etc. Mahanadi Delta includes critical conservation areas like Chilka lake (home to many
migratory birds and dolphins), Bhitarkanika (mangrove forest) and Gharimata (olive ridley
turtles). Similarly, deltas of other rivers like Godavari, Kaveri, Krishna, etc are ecologically
significant, highly fertile and home to various flora and fauna species in India.
An estuary is a partially enclosed coastal body of brackish water (created by mixing of seawater
with freshwater). One or more rivers/streams flow into an estuary with open connection to sea.
They experience both marine (like tides, waves and seawater) and riverine (like flow of sediment
and freshwater) influences. Thus, they have high levels of nutrients making them most productive
natural habitats in the world. Most of the westward flowing rivers in India make estuaries
(Narmada, Tapi etc). They are the productive regions on earth, creating more organic matter each
year as compared to forest, grassland, or agricultural land.
Ecological Significance:
1. Estuary has very little wave action, so it provides safety from the open sea due to presence
of mangrove forests (as they are well adapted to salinity). It is therefore, ideal for the
survival of numerous aquatic species and fishing.
2. It traps sediment and forms a buffer between coastal catchments and the marine
environment.
3. They are ideal for the construction of ports and harbours.

8. What is desertification? Discuss the link between desertification, global climate


change and biodiversity loss.

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Answer:

Desertification is the process of land degradation in arid, semi-arid and sub-humid areas due to
various factors like climatic variations and human activities. Due to this, the originally different
biome of the land changes to desert biome and the land loses its vegetation, water bodies and
wildlife. This is a global environmental issue and according to UNESCO, 1/3 rd of world’s land
surface is threatened by desertification.
It is being caused by factors like overgrazing, poor farming practises, urbanization and natural
disasters like drought. The primary cause is loss of vegetation which removes nutrients from the
soil. Due to global warming because of pollution, deforestation and other human activities;
climate change has reached an alarming level. Rivers, lakes and underground water sources are
drying up putting adverse impact on water cycle, rainfall and ground water table.
Desertification, global climate change and biodiversity loss are very closely intertwined with one
another through loss of carbon sequestration capacity and an increase in land-surface albedo.
Excessive exploitation of vegetation leads to loss in primary production and also reduced
carbon sequestration. Dryland soil contains over a quarter of all of the organic carbon stores in
the world along with inorganic carbon. Excessive desertification can cause release of large
amount of carbon to the global atmosphere leading to significant feedback consequences to

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the global climate system. This in turn adversely affects biodiversity and causes desertification
due to increase in evapotranspiration and decrease in rainfall in drylands
Vegetation and its diversity of physical structure are instrumental in soil conservation and in the
regulation of rainfall infiltration, surface runoff, and local climate. Therefore, joint
implementation of the UNCCD, the Convention on Biological Diversity, and the Framework
Convention on Climate Change can yield multiple benefits.

9. The study of seismic waves is used for understanding the interior of earth.
Explain.
Answer

Seismic waves are waves of energy that travel through the Earth’s layer. They are originated by
earthquakes, volcanoes, etc and are recorded by seismometer. Observations of travel time,
reflections, refractions (change in direction of wave propagation due to change in transmission

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medium) and phase transition of seismic body waves tell about earth’s interior structure. Seismic
waves are of two types – body waves and surface waves.
Body wave - They travel through Earth’s interior and are controlled by material properties. They
are further either P-wave or S-waves
P-waves travel through fluid layers but are refracted through transition between semisolid
mantle and liquid outer core and has a shadow zone between 105 degrees and 145 degrees. In
contrast, S-waves don't penetrate the outer core, so they're shadowed everywhere more than
105° away from the epicentre.
In this way, by above properties of seismic body waves, we get information that structure of the
earth is layered and has an outer solid crust, a highly viscous mantle, a liquid outer core and a
solid inner core.

10. Explain the concept of geomagnetism.


Answer:

Geomagnetism is the study of the dynamics of the Earth’s magnetic field, which is produced in
the inner core. The Earth’s magnetic field is predominantly a geo-axial dipole, with north and
south magnetic poles located near the geographic poles.

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• Earth’s magnetic field or geomagnetic field is the magnetic field that extends from the
Earth’s interior out into the space. There it meets the solar wind, a stream of charged
particles coming from the Sun.
• It has a magnitude of 0.25-0.54 Gauss. Earth’s magnetic dipole is tilted at an angle of
about 11.5 degrees from Earth’s rotational axis.
• It can be assumed that a bar magnet is placed at this axis at the centre of the Earth.
• The North geomagnetic pole, located near Greenland is the south pole of earth’s magnetic
pole and vice versa.
• Like any bar magnet, field lines are North to South external to it and South to North
internal of the bar magnet.
• Earth’s magnetic field changes over time and is generated by the motion of molten iron
alloys in its outer core. These changing fields help to study the process of plate tectonics
(movement of continents and ocean floor). This study of past magnetic field is called
paleomagnetism.
• These magnetic fields deflect most of the solar wind, whose charged particles would
otherwise strip away the protective ozone layer. Called Van Allen Belts, they protect the
Earth’s atmosphere from destruction.
• Magnetic compass has been used for centuries for navigation. Magnetic fields are
perhaps also used by birds and animals during migration.

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