Comprehension : Comprehension

Q 10 / 466

UPSC CSE Prelims 2026

Directions: Read the following passage and answer the items that follow. Your answers should be based solely on the passage.
Passage:
How is deflation done? Most countries use a method called 'double deflation', where input and output prices are deflated separately. Consider a manufacturer importing oil for use in production. If oil prices fall, output prices do not and quantities remain the same, real value added should not change. But if the same deflator is used for inputs and outputs, as in India, it would look as if the manufacturer had become more productive.
Which of the following assumptions is/are valid?
  1. Deflation strategies can be used to make manufacturers appear to be doing better than they actually are.
  2. When input and output prices are both deflated against a single input price, it is referred to as 'double deflation'.
Select the answer using the code given below.

EXPLANATION

The correct option is (a) - 1 only.

[as per provisional answerkey]

Why this is correct

Assumption 1 is valid because the passage explicitly states that if the same deflator is used for inputs and outputs (as is the case in India), it can make it "look as if the manufacturer had become more productive" even when real value added has not changed. This implies that the choice of deflation strategy can indeed create a misleadingly positive impression of a manufacturer's performance or productivity.

Why the other options are incorrect

  • Assumption 2 - Single input price deflation is 'double deflation': This is factually contradicted by the passage. The passage defines 'double deflation' as a method where "input and output prices are deflated separately," not against a single price or deflator.
  • Option (b) - 2 only: This is incorrect because Assumption 2 misrepresents the definition of double deflation provided in the text.
  • Option (c) - Both 1 and 2: This is incorrect because while Assumption 1 is a valid inference/assumption based on the text, Assumption 2 is logically inconsistent with the passage's definition.
  • Option (d) - Neither 1 nor 2: This is incorrect because Assumption 1 is a logically sound deduction from the final sentence of the passage regarding the appearance of increased productivity.

Key Concept

The distinction between 'double deflation' (separate deflators) and 'single deflation' (same deflator) and how the latter can distort productivity metrics.