Sunday, 23 April 2017


Directions (Q. 1-10): Read the passage carefully and answer the questions given below it. Certain words/phrases have been given in bold to help you locate them while answering some of the questions.
The Modi government's hit on black money may go down as one of India's biggest economic blunders __ or greatest achievements. Whether one agrees with the move or not, its implementation has been bungled and the collateral damage is likely to be heavy. Where did this idea originate? Surely the PM's key economic advisors would not have recommended it.
Demonetisation is usually associated with decrepit economies and hyperinflation, such as Zimbabwe recently and Argentina in the past. The Argentine government demonetised several times in the last century; it even changed its currency's name from peso to austral, then back to peso -- each time, it further reduced confidence in the currency. Myanmar, Ghana, the former Soviet Union, Nigeria  and Zaire also demonetised, leading to devastating economic consequences. In all cases, often done by military dictatorships, demonetisation eroded confidence in the currency. It is therefore surprising that a reform-minded, popular, democratically elected prime minister has resorted to demonetisation. Even Arthakranti, the Pune NGO from where the idea ostensibly emanated, is distancing itself from a ham-handed plan to withdraw 85 per cent of the country's currency overnight.
 There is likely to be a one-time stock effect on those who held black wealth or kala dhan in cash. But much of it sits in gold, real estate or is offshore. Estimates of kala dhan vary; the most commonly accepted is around 25 per cent of GDP. Demonetisation only affects black money notkala dhan. Estimates from previous raids show cash is 5-6 per cent of kala dhan. Cash is easily transactable but because it's bulky, it's hard to hoard too much kale dhan in cash. So, about 1-1.5 per cent of GDP is held in black money. If the government nets half of it through demonetisation, it's around 0.5-0.75 per cent of GDP. This still leaves the bulk of kala dhan untouched. The flow of resources into kala dhan is unlikely to be affected by demonetisation. In fact, over time, even less will be held in cash, more in gold. real estate or shifted offshore.
The collateral damage from this move could be huge. economically and politically. The poor are already suffering, especially those without easy access to banks, post offices, even information on what to do. More long-lasting damage
could be to trade in sectors where much business is conducted in cash — especially the informal sector and rural areas comprising about 40 per cent of GDP. The non-bank financial sector, on which many SMEs rely for short-term finance, has also been hit. As a result, the effect on economic growth in 2016-17 could be as high as one per cent ofGDP —which will neutralise the one-time gain from demonetisation.
It is claimed India's cash-to-GDP ratio, at around 11-12 per cent of GDP, is too high. But comparisons are made with countries at much higher levels of development, with much smaller, rural, unbanked populations. China has a cash-to-GDP ratio of around 9.5 per cent of GDP, Germany at 8 per cent of GDP and the US at around 7.5 per cent of GDP. There appears no correlation between corruption and the cash-to-GDP deposit ratio. Nigeria, widely regarded as one of the most corrupt countries, has a cash-to-GDP ratio of only 3 per cent of GDP as faith in the currency has eroded.
To weed out black money, more comprehensive reform is needed. It might have been better to go after real-estate transactions, the movie industry, gold, weddings, election financing and benami transactions. Without tackling the reasons for black wealth, just demonetising won't address corruption or eliminate the black economy. The Modi government should focus on achieving genuine economic recovery and ensuring job creation. More poorly conceptualised, badly implemented and moralistic policy prescriptions will take us back to the Hindu growth rate of 3-4 per cent of the 1970s and 1980s. We thought we were done with that.

1). Why has the author cited the examples of several countries where demonetisation was implemented earlier?
a)   To suggest that those countries had strong economies
b)   To suggest that those countries had to face serious economic consequences of demonetisation
c)   To suggest that India is not the only county in the world which has demonetised the high denomination currency ,
d)   Only a) and b)
e)   All a), b) and c)

2). The cash to GDP ratio is minimum (only 3%) in Nigeria Why?
a)   Because Nigeria is the most corrupt country
b)   Because Nigeria is a small country
c)   Because people have lost faith in the currency
d)   Because people over there use mostly plastic money
e)   Because Nigeria is the only country in the world where no counterfeit currency is in circulation

3).The author of the passage is of the opinion that
 (A) the implementation of the demonetisation of high denomination currency has been messed up an there is a possibility of heavy collateral damage.
(B) the government's move to demonetise notes may go down either as one of India's biggest economic blunders or greatest achievements.
(C) demonetisation is usually associated with fragile economies and hyperinflation.
a)   Only (A)
b)   Only (A) and (B)  
c)   Only (B)
d)   All (A), (B) and (C)
e)   Only (B) and (C)

4). Find the incorrect statement on the basis of the given passage.
a)   The idea of demonetisation is supposed to have emanated from an NGO based in Pune.
b)   The idea of demonetisation was recommended by PM's key economic advisors and announced by PM Modi himself.
c)   There is a wide difference between ‘kala dhan’ and 'black money' according to the author.
d)   Kala dhan amounts to nearly 25 per cent of GDP.
e)   None of the above

5). According to the author, there are several impacts of demonetisation of currency. Which is not one of them?
(A) There will be huge economic and political damage from demonetisation.
(B) There could be more long-lasting damage to trade, especially in cash-intensive sectors.
(C) There will be little impact on GDP for FY 2016-17,
a)   Only (A)
b)   Only (B)
c)   Only (A) and (C)
d)   All (A), (B) and (C)
e)   Only (C)

6). According to the author, the government should have gone after which of the following instead of resorting to demonetiation of high-denomination currency?
a)   Real-estate transactions
b)   Benami transactions
c)   Election financing and movie industry
d)   Only a) and b)
e)   All a), b) and c)

Directions (Q. 7-8): Choose the word which is MOST SIIMILAR in meaning to the word printed in bold as used in the passage.
7). Devastating
a)   favourable
b)   salubrious
c)   beneficial
d)   constructive
e)   disastrous

 8). Eroded
a)   fixed
b)   rebuilt
c)   softened
d)   crumbled
e)   appreciated

Directions (Q. 9-10): choose the word which is MOST OPPOSITE in meaning of the word printed in bold as used in the passage.
9). Decrepit
a)   Crippled
b)   Weak
c)   Healthy
d)   Deteriorating
e)   Infirm

10). Ostensibly
a)   Apparently
b)   Unlikely
c)   Evidently
d)   Seemingly
e)   Sensibly

Answer Key:

1).b   2).c   3).d   4).b    5).e    6).e    7).e    8).d    9).c    10).b