Passage – 7
The Government’s approval for the 100 smart cities project and a new urban renewal mission is an important first step toward dealing with an old problem that has only got progressively worse over the years: urban livability. A shade less than a third of India’s population now lives in urban areas, overcrowded cities and towns with infrastructure bursting at the seams. This problem will only worsen with little or no intervention happening. The proportion of the urban population can only go in one direction — upward — as more Indians migrate to the cities and towns in search of jobs. Cities are engines of growth, and as a result attract a lot of
people. The country’s urban population contributes over 60 per cent of India’s GDP; in 15 years this will be 70 per cent. On the other hand, there is little incentive for people to migrate out of cities. Earlier attempts at providing better urban infrastructure or at creating new townships have not been able to deal with the issue of livability satisfactorily. Even successful special economic zones have had to contend with the issue of lack of social infrastructure, which usually means access to avenues of education, health, arts, sports, and so on. There are numerous definitions of a smart city but the current government’s idea of one usefully encompasses institutional
infrastructure (governance), physical infrastructure, as also social infrastructure.
The Cabinet approval marks the first of many steps, as also the easiest, that will be required for the project. The challenges start now. Of course there is no doubt that this has created tremendous enthusiasm amongst many possible stakeholders, including service providers who have been part of smart city projects elsewhere in the world. Countries such as Japan, Singapore and Germany, among many others, have evinced interest to be a part of this. Yet, in its scale and complexity the project will be second to none. The official estimate of per capita investment requirement
is Rs.43386 for a 20-year period, or a total investment of Rs.7 lakh crore. Creating a smart city isn’t just about creating the physical infrastructure — roads, clean water, power, transport and so on, things India finds difficult to deliver to its citizens nearly seven decades after Independence. It is hoped that public private partnerships (PPP) will deliver but the mechanism seems to need a lot of tweaking in order for it to work, a fact acknowledged in the recent Budget. The big challenge will be to create self-sustaining cities, which create jobs, use resources wisely and also train people. This also means more autonomy for these cities. Whether that can happen is a moot
question depending heavily on the maturity of the Indian political system.
31. According to the passage, the urban population in future can only:
a) Increase
b) Decrease
c) Remain Constant
d) First Increase, then decrease Answer: a)
Explanation: The passage clearly mentions that the proportion of the urban population can only go in one direction, i.e., upward.
32. Special Economic Zones Lacks to provide:
- a) Physical Infrastructure
- b) Social Infrastructure
- c) Institutional Infrastructure
- d) Job Opportunities
Answer: b)
Explanation: It is clearly stated in the passage that special economic zones have to contend with the issue of lack of social infrastructure which usually means access to avenues of education, health, arts, sports, and so on.
33. Government’s plan for the smart city is:
a) To have only Physical Infrastructure and Social Infrastructure.
b) To have only Institutional Infrastructure and Physical Infrastructure.
c) To have only Institutional Infrastructure and Social Infrastructure.
d) To have Institutional Infrastructure along with the Physical Infrastructure and Social Infrastructure.
Answer: d)
Explanation: The last line of the first paragraph clearly states that the smart cities must have institutional infrastructure (governance), physical infrastructure and also social infrastructure.
34. Which facilities needs to made available along with the physical infrastructure to develop a smart city?
1.Roads 2.Clean Water 3.Power 4.Transport
- a) Only A and B
- b) Only B and C
- c) Only C and D
- d) All of the above
Answer: d)
Explanation: It has been clearly mentioned in the second paragraph that creating a smart city isn’t just about creating the physical
infrastructure but to provide proper roads, clean water, power, and transport to the public.
35. Which kind of mechanism is required for the success of the Smart City Plan?
a) Building infrastructure through Joint Venture
b) Building infrastructure through Mergers & Acquisitions
c) Building infrastructure through Public Private Partnership
d) Building infrastructure through Consolidation and Holdings.
Answer: c)
Explanation: It has been clearly mentioned in the second paragraph that public private partnerships (PPP) will help in successful implementation of Smart City Plan.
Explanation of the terms in Q 35
A Joint Venture comes into existence when two or more persons joins hands, pool their resources to do a certain business or to carry out a particular contract of short or seasonal duration. It is a temporary partnership. Profit and loss are shared according to the agreement between the parties, but, in the absence of
any such agreement all parties will share profit and loss equally. The agreement between the parties and the joint venture arrangements come to an end as soon as particular contract is completed or particular operations of the joint venture are over. Continuity of businesses on a joint basis is never the intention.
Mergers and acquisitions:
●The term mergers and acquisitions (M&A) refer broadly to the process of one company combining with one another.
●In an acquisition, one company purchases the other outright. The acquired firm does not change its legal name or structure but is now owned by the parent company.
● A merger is the combination of two firms, which subsequently form a new legal entity under the banner of one corporate name.
●M&A deals generate sizable profits for the investment banking industry, but not all mergers or acquisition deals close.
●Consolidation of land holding means to bring together different pieces of lands and merge them into one land.
More details on Public-Private partnerships:
●Public-private partnerships allow large-scale government projects, such as roads, bridges, or hospitals, to be completed with private funding.
●These partnerships work well when private sector technology and innovation combine with public sector
incentives to complete work on time
and within budget.
●Risks for private enterprise include
cost overruns, technical defects, and an inability to meet quality standards, while for public partners, agreed-upon usage fees may not be supported by demand—for example, for a toll road or a bridge.
Passage – 8
Rupee has been continuously depreciating for the last few weeks and has touched an all-time low of 56 to dollar. Even though the price of crude oil has not increased in the international market, the cost for the oil marketing companies (OMC) like Indian Oil Corporation (IOCL), Bharat petroleum (BPCL) has been increasing on the account of increased value of dollar. The oil marketing companies have lost around Rs 4300 crores for selling petrol below the cost in the last six months. Since 2010, the petrol has been deregulated and OMCs can increase the price of petrol if there is large variation in their costs. The main reason behind the increase in petrol prices is the rise of dollar against the rupee. We need to understand why
rupee is depreciating against the dollar like a free fall. One of the many reasons cited for the depreciation is the ongoing euro crisis. Many institutional investors have moved out their investments in euro to dollar as dollar is considered to be safe haven. In order to be safe, some investment has also moved out of India. But the euro crisis only cannot justify the free fall of rupee. If we see the other currencies like Pound, Yen, Brazilian Real, there has been no significant depreciation. In fact, the yen has gained against the dollar considering a one year time frame.
So what are the other significant reasons for depreciating rupee? One of prime reasons is
our burgeoning fiscal deficit (difference between revenue and expenditure). The fiscal deficit for the year 2011-2012 stood at Rs. 521,980 and it is targeted at Rs. 513,590 crores for the 2012-2013. This huge deficit is primarily because of subsidy offered on food, fertilizer and petroleum. The oil subsidy for the year 2012-2013 is estimated to be Rs 43,580 crores. But we project the losses suffered by OMCs for the current year, this subsidy will come out to be Rs. 114,000 crores. According to the twin deficit hypothesis, there is a strong linkage between fiscal deficit and trade deficit (imports – exports). The government’s fiscal deficit is increasing i.e. government is spending more than it is earning. This is because increased
expenditure is not matched by the increased tax rates. Hence, people are left with more money, out of which some of the money is diverted towards imports which results in more imports than exports leading to trade deficit. The major portion of our imports is oil. Since oil imports have to be paid in dollars, the importers need to buy dollars and sell rupee leading to more demand for dollars and excess of rupee in the market. Considering the demand supply, the rupee is continuously losing value; the OMCs have to shell out more rupees for the same amount of oil imports.
Now if the prices of oil products are not increased, the deficit will keep on increasing
further impacting our economy. An increase in price will result in fall in demand which means that fewer dollars will have to be paid for the oil imports, leading to lower trade deficit which will in turn lead to release of pressure on rupee-dollar rate. Another effect of not increasing the prices of oil products is that, government will need to compensate the OMCs for the subsidy offered. Government will finance this deficit by borrowing from the market leading crowding out of the private investment which will slow down our economic growth. It may lead to higher interest rates which will increase the common man’s EMIs. The prices of petrol have been increased. This will have some effect on trade deficit and
rupee-dollar value but in order to have more pronounced effect, the government needs to increase the price of diesel, LPG and kerosene. An increase in prices of these will help the government reduce its fiscal deficit, meaning less borrowing from the market leading to more funds available for private investment. Hence better economic growth. In the age of coalition politics, these are harsh decisions which the government may not be willing to take. But these decisions will have to be taken, to prevent our economy from stagnation.
Note:
Burgeoning means beginning to grow or increase rapidly; flourish.
36. According to the passage, why petrol prices are rising in India?
1.The burgeoning fiscal deficit of India. 2.The Euro crisis which has led to
depreciating rupee.
Which of the reasons given alone is/are valid?
- a) I only
- b) II only
- c) Both I and II
- d) Neither I nor II
Answer: c)
Explanation: The first paragraph and the second paragraph clearly states that one of the many reasons cited for the depreciation is the ongoing euro crisis and another prime reason is our burgeoning fiscal deficit.
37. Which of the following statements is incorrect according to the passage?
a) The fiscal deficit for the year 2011-2012 stood at Rs. 521,980 crores.
b) The fiscal deficit targeted for the year 2012-2013 at Rs. 513,590 crores.
c) The oil subsidy for the year 2012-2013 is estimated to be Rs 43,580 crores.
d) Before 2010, the petrol was deregulated.
Answer: d)
Explanation: It has been clearly mentioned in the first paragraph that since 2010, the petrol has been deregulated and OMCs can increase the price of petrol if there is large variation in their costs. Hence, option d) is incorrect.
38. In reference to the passage, which of the following assumptions can be made?
1.Increased fiscal deficit of Indian government is due to increased expenditure which is not in accordance with the increased tax rates.
2.The fiscal deficit of India increased further as prices of oil products remained unchanged.
a) I only
- b) II only
- c) Both I and II
- d) Neither I nor II
Answer: c)
Explanation: Second and third paragraph clearly states that the government’s fiscal deficit is increasing i.e. government is spending more than it is earning. This is because increased expenditure is not matched by the increased tax rates. Also, if the prices of oil products are not increased, the deficit will keep on increasing, further impacting our economy.
39. According to twin deficit hypothesis:
a) There is a link between fiscal deficit and trade surplus.
b) There is a link between fiscal deficit and trade deficit.
c) There is a link between Debts and trade deficit.
d) There is a link between fiscal deficit and economic slowdown.
Answer: b)
Explanation: According to the twin deficit hypothesis, there is strong linkage between fiscal deficit and trade deficit (imports – exports).
40. In order to decrease fiscal deficit:
1.Limit the import of oil to the minimum possible extent.
2.Compensate the OMCs for the subsidy offered.
3.Prices of petrol have to be increased along with prices of diesel, LPG and kerosene.
- a) I and II
- b) II and III
- c) I only
- d) III only
Answer: d)
Explanation: The last paragraph clearly states that an increase in prices of diesel, LPG and kerosene will help the government reduce its fiscal deficit, meaning less borrowing from the
market leading to more funds available for the private investment.