PYQ Bank — UPSC Civil Services

All three statements are correct.

India adopted the System of National Accounts 2008 (SNA 2008) in 2015, shifting from Factor Cost to Basic Prices methodology for international comparability.

The base year 2011-12 is used for calculating GDP at constant prices. GDP at constant prices removes the inflation effect and shows real economic growth by valuing goods and services at prices of a particular base year.

This change was recommended by the Rangarajan Committee to align with global statistical standards.

The fiscal multiplier represents how a change in government spending (or taxation) leads to a proportionally larger change in equilibrium national income or output.

For instance, if government spending increases by ₹100 crore and this leads to ₹250 crore increase in national income, the multiplier is 2.5.

This concept is crucial for understanding the impact of government stimulus packages during economic slowdowns. A higher multiplier indicates more effective fiscal policy intervention, though its actual value depends on factors like the marginal propensity to consume and the economy's openness.

The current account deficit—the gap between imports and exports plus net income flows—is primarily financed through the capital account, which includes Foreign Portfolio Investment (FPI) and external borrowing by both government and private sector.

While remittances and FDI are also capital inflows, they are generally credited to the capital account under different categories. RBI's reserves are used as a last resort to bridge gaps rather than primary financing sources.

This financing structure makes India's external sector vulnerable to sudden reversals in FPI flows, as experienced during crisis periods.

Only statement 1 is correct. PMJDY (launched in 2014) indeed aims to provide universal financial inclusion through basic banking services.

However, statement 2 is misleading—while life insurance and accident insurance cover are available, they are not automatically comprehensive coverage but rather basic protection with specified coverage amounts.

Statement 3 is incorrect because PMJDY is a universal scheme open to all unbanked adults regardless of BPL status; it deliberately avoids means-testing to ensure true universality.

The scheme's success lies in this inclusive approach, having opened over 400 million accounts.

Stagflation presents a policy dilemma because traditional Phillips Curve trade-offs break down—conventional expansionary policies risk accelerating inflation further. A Keynesian approach to stagflation, particularly when caused by supply shocks (as with oil prices or commodity inflation), recommends contractionary fiscal policy to manage aggregate demand while simultaneously implementing supply-side reforms to increase production capacity and reduce cost pressures.

Option A is theoretically contradictory as it combines opposing policies without clear direction.

Option B would worsen inflation, a major concern during stagflation.

Option D ignores the demand management aspect.

India faced stagflation challenges in 2022-23, requiring RBI to carefully balance growth concerns with inflation targeting while the government focused on supply enhancement.