UPPSC 2024 Prelims GS Paper-I · Question 95 of 150

Correct — A, Only 3, reducing taxes on fuel and certain imported products. The Economic Survey 2022-23, tabled in January 2023, describes the government's answer to the price shock that followed the outbreak of the Russia-Ukraine conflict in February 2022 as a multi-pronged one, and every fiscal limb of it is a tax cut. In the Survey's own words, the Central Government undertook fiscal measures 'like reduction in excise duty on petrol and diesel… reduction in import duties and cess on pulses, rationalization of tariffs and imposition of stock limits on edible oils and oil seeds… and rationalization of import duties on raw materials used in the manufactured products.' The Survey's summary of the multi-pronged approach lists the same direction of travel: import duty on major inputs was brought to zero, customs duty on cotton imports was waived with effect from 14 April 2022 until 30 September 2022, and the basic duty on crude and refined palm oil, crude soyabean oil and crude sunflower oil was reduced. Fuel taxes down, import duties down — statement 3 is exactly the policy, and the codes offer no combination, so (a) stands alone.

• (b)Only 1 — Food and fertiliser subsidies were not cut in response to the disruption; they overshot because of it. The Survey records that subsidy expenditure had been budgeted to fall to 1.2 per cent of GDP in FY23, but that about 94.7 per cent of the whole year's budgeted subsidy spending had already been used up between April and November 2022 'due to the sudden outbreak of geopolitical conflict resulting in higher international prices for food, fertiliser and fuel'. On the food side the government went further and launched a new integrated food security scheme, Pradhan Mantri Garib Kalyan Ann Yojana, on 1 January 2023 to give free foodgrains to more than 80 crore beneficiaries. The statement is tempting because a pre-shock glide path of falling subsidies did exist in the budget; what it did not do was survive the shock.
• (c)Only 2 — The exact inversion of the policy, and it is half-plausible for one honest reason. Duties on the way IN were cut — on crude and refined edible oils, on pulses, on cotton, on industrial raw materials — while some duties on the way OUT were raised: the Survey notes that the tax on the export of iron ores and concentrates was increased from 30 to 50 per cent, that an export duty was imposed on rice and that exports of wheat products were prohibited outright. Those are export restrictions designed to keep supplies at home, not taxes on imported products. Excise duty on petrol and diesel likewise came down, not up.
• (d)None of the above — Cannot be right, because statement 3 reproduces the Survey's own description of the fiscal response. 'None of the above' in a three-statement UPPSC set is usually the safe-looking refuge for a candidate who cannot separate the two directions of tax change; here the Survey is explicit enough to remove the doubt.

The Economic Survey is prepared by the Economic Division of the Department of Economic Affairs in the Ministry of Finance and tabled in Parliament, ordinarily a day before the Union Budget. The 2022-23 edition, tabled in January 2023, is dominated by a single story: the war in Ukraine sent the prices of crude oil, natural gas, fertiliser and wheat soaring, and India — an importer of all four — had to manage imported, supply-side inflation. Supply-side inflation cannot be cured by squeezing demand alone, so the response was split. The Reserve Bank handled the demand side, raising the policy repo rate by 225 basis points from 4.0 to 6.25 per cent between May and December 2022, while the government worked on the supply side and on prices directly, largely through the tax code.

Reason from the direction of a price shock rather than from memory of the Survey. When world prices of fuel, edible oil, fertiliser and food are rising, a government that wants to shield consumers does three things: it cuts the taxes that sit on top of the imported price, it restricts exports so that domestic supply is protected, and it spends more on subsidies to absorb what is left. Every one of those moves is expansionary or revenue-losing; none of them involves raising taxes on imports or trimming food and fertiliser subsidies. That logic disposes of statements 1 and 2 without recalling a single sentence of the Survey. The one nuance worth carrying, because examiners exploit it, is that export duties did rise — on iron ore, from 30 to 50 per cent, and on rice — which is why the phrase 'increasing taxes' is not wholly imaginary. Read whether a statement says imports or exports.

• Economic Survey 2022-23, on the fiscal response: 'Central Government has undertaken fiscal measures like reduction in excise duty on petrol and diesel, prohibition of the export of wheat products, imposition of export duty on rice, reduction in import duties and cess on pulses, rationalization of tariffs and imposition of stock limits on edible oils and oil seeds, maintenance of buffer stock for onion and pulses and rationalization of import duties on raw materials used in the manufactured products.'
• The Survey's multi-pronged list also includes a phase-wise reduction in the export duty on petrol and diesel, import duty on major inputs brought to zero, customs duty waived on cotton imports from 14 April 2022 to 30 September 2022, and a cut in the basic duty on crude and refined palm oil, crude soyabean oil and crude sunflower oil.
• The only tax increases were on exports — the tax on exports of iron ores and concentrates went up from 30 to 50 per cent, an export duty was imposed on rice, and exports of wheat products under HS Code 1101 were prohibited.
• Subsidies rose rather than fell: budgeted subsidy expenditure was to fall from 1.9 per cent of GDP in FY22 to 1.2 per cent in FY23, but about 94.7 per cent of the budgeted amount was already spent between April and November 2022 because of higher international food, fertiliser and fuel prices.
• Retail inflation peaked at 7.8 per cent in April 2022, above the Reserve Bank's 6 per cent upper tolerance limit, and the Monetary Policy Committee raised the repo rate by 225 basis points from 4.0 to 6.25 per cent between May and December 2022 — the monetary half of the response, not the fiscal half this question asks about.

• Missing the import-versus-export distinction. Duties on imports were cut; duties on exports of iron ore and rice were raised. A statement that says 'imported products' and 'increase' is false even though some tax did go up.
• Confusing the monetary response with the fiscal one. The 225-basis-point repo-rate increase was the RBI's action; the question asks only about fiscal policy.
• Treating the budgeted decline in the subsidy-to-GDP ratio as a response to the disruption. That glide path predates the shock, and the shock is precisely what blew it off course.

UPPSC lifts statements almost verbatim from the latest Economic Survey and changes one word or one number — a timeframe in 2023, a policy direction here. Read the Survey's chapter summaries for the exact phrasing and, when a statement reports a policy, ask first whether the direction of the change is plausible given the shock.

• practice — not a real PYQ

  As recorded in the Economic Survey 2022-23, which of the following measures did the Government of India take in 2022 to contain the pass-through of global prices?

  • (a)Raised the basic customs duty on crude edible oils
  • (b)Brought the import duty on major inputs to zero and increased the tax on exports of iron ore from 30 to 50 per cent
  • (c)Withdrew the free foodgrain programme
  • (d)Raised excise duty on petrol and diesel to fund the subsidy bill

  Answer(b) Brought the import duty on major inputs to zero and increased the tax on exports of iron ore from 30 to 50 per cent — both appear in the Survey's summary of the multi-pronged approach; import duties came down while export levies went up.

• practice — not a real PYQ

  The Economic Survey is prepared and tabled in Parliament by which of the following?

  • (a)The Reserve Bank of India
  • (b)NITI Aayog
  • (c)The Department of Economic Affairs, Ministry of Finance
  • (d)The Comptroller and Auditor General of India

  Answer(c) The Department of Economic Affairs, Ministry of Finance — its Economic Division drafts the Survey under the Chief Economic Adviser, and it is normally tabled a day before the Union Budget.