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Practice Test: Indian Economy -2 - UPSC MCQ


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50 Questions MCQ Test Mock Test for UPSC Prelims 2025 - Practice Test: Indian Economy -2

Practice Test: Indian Economy -2 for UPSC 2024 is part of Mock Test for UPSC Prelims 2025 preparation. The Practice Test: Indian Economy -2 questions and answers have been prepared according to the UPSC exam syllabus.The Practice Test: Indian Economy -2 MCQs are made for UPSC 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Practice Test: Indian Economy -2 below.
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Practice Test: Indian Economy -2 - Question 1

With respect, to the National Income Accounting of India, consider the following pairs:

1. Gross National Income - It, takes into account, GDP along with net income within the country.

2. Gross Value Added - It is the value of goods and services produced within an industry, minus the value of intermediate consumption.

3. Net National Income - It is derived by subtracting depreciation from Gross National Income.

4. Net Domestic Product - It is obtained by subtracting depreciation from GDP.

How many of the above pairs is/are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 1

Pair 1 is incorrect: Gross National Income - It takes into account GDP along with net income from abroad.

National Income Accounting of India

  • India employs a system of National Income Accounting that follows international standards, primarily based on the guidelines provided by the United Nations System of National Accounts (SNA). The central agency responsible for preparing and disseminating these accounts in India is the Central Statistics Office (CSO), which operates under the Ministry of Statistics and Programme Implementation.

Indicators of the National Income Accounting:

  • Gross Domestic Product (GDP): GDP is one of the most essential measures in National Income Accounting. It represents the total value of all goods and services produced within the country’s borders over a specific time period. India calculates GDP using three approaches: the production approach, the expenditure approach, and the income approach.
  • Gross National Income (GNI): GNI takes into account GDP along with net income from abroad. It considers net primary income (wages, interest, profits, etc.) earned by Indian residents from foreign sources and subtracts net primary income paid to foreign residents.
  • Gross Value Added (GVA): GVA is the value of goods and services produced within an industry, minus the value of intermediate consumption. It provides a measure of the contribution of each industry to the economy.
  • Net National Income (NNI): NNI is derived by subtracting depreciation (wear and tear of capital goods) from GNI. It gives a better indication of the income available for consumption and investment.
  • Net Domestic Product (NDP): NDP is obtained by subtracting depreciation from GDP. It represents the value of the country’s net output of goods and services.
  • Disposable Income: Disposable income is the income available to households for spending or saving after paying taxes and receiving government transfers.
  • Consumption Expenditure: This includes the expenditure by households on goods and services for consumption.
  • Investment Expenditure: Investment includes expenditure on capital goods that will be used for future production, such as machinery, equipment, and infrastructure.
  • Government Expenditure: This includes all government spending on goods and services, as well as transfers to individuals and businesses.
  • Exports and Imports: These represent the value of goods and services sold to foreign countries (exports) and bought from foreign countries (imports).
  • National Disposable Income: This is the sum of all incomes earned by residents in a country, including wages, rents, profits, and taxes, minus subsidies.
Practice Test: Indian Economy -2 - Question 2

Which of the following is/are the approaches followed by the nation while calculating the national income of a country?

Detailed Solution for Practice Test: Indian Economy -2 - Question 2

Calculation of National Income in India

Calculating the national income of a country involves measuring the total economic output generated within its borders during a specific time period. In India, national income is typically calculated using three main approaches: the Production Approach, the Income Approach, and the Expenditure Approach.

Production Approach:

This approach calculates national income based on the value-added by different sectors of the economy. The formula is:

National Income = Gross Value of Output - Value of Intermediate Consumption Income Approach:

This approach calculates national income by summing up all the factor incomes earned in the economy. The main components are wages, rents, interest, and profits.

National Income = Wages + Rents + Interest + Profits Expenditure Approach:

This approach calculates national income by summing up all the expenditures in the economy, including consumption, investment, government spending, and net exports (exports - imports).

National Income = Consumption + Investment + Government Spending + Net Exports

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Practice Test: Indian Economy -2 - Question 3

With reference to the Indian Economy, consider the following statements:

1. Consumer Price Index (CPI) and Wholesale Price Index (WPI) are used to measures inflation indices.

2. The CPI measures the changes in the prices of a basket of goods and services consumed by urban and rural households.

3. It is calculated by the Central Statistical Office (CSO), Ministry of Statistics and Programme Implementation.

How many of the above statements are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 3

Inflation Indices

  • In India, inflation indices are used to measure and track changes in the overall price levels of goods and services over time.
  • These indices provide valuable information for policymakers, businesses, and the general public to understand the rate of inflation and its impact on the economy.
  • The two primary inflation indices used in India are the Consumer Price Index (CPI) and the Wholesale Price Index (WPI).

Consumer Price Index (CPI):

  • The Consumer Price Index measures the changes in the prices of a basket of goods and services consumed by urban and rural households.
  • It is calculated by the Central Statistical Office (CSO), Ministry of Statistics and Programme Implementation.
  • The CPI is further categorized into various sub-indices based on different groups of commodities.
  • CPI Urban: Reflects the price changes in urban areas.
  • CPI Rural: Reflects the price changes in rural areas.
  • CPI Combined: Combines both urban and rural areas to provide an overall measure of inflation.
  • The CPI indices are updated on a monthly basis and are widely used as a gauge of retail inflation in the country.
Practice Test: Indian Economy -2 - Question 4

Consider the following statements about Wholesale Price Index:

Statement-I: It measures the average change in the prices of a selected group of goods at the wholesale level.

Statement-II: The WPI includes primary articles, fuel and power, and manufactured products.

Which one of the following is correct in respect of the above statements?

Detailed Solution for Practice Test: Indian Economy -2 - Question 4

Wholesale Price Index (WPI)

  • The Wholesale Price Index measures the average change in the prices of a selected group of goods at the wholesale level.
  • It is calculated by the Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry. The WPI includes primary articles, fuel and power, and manufactured products.
  • The WPI was historically used as the primary inflation indicator in India, but over time, the focus shifted towards the CPI as it provides a more comprehensive view of inflation from the perspective of the end consumer.
Practice Test: Indian Economy -2 - Question 5

With respect to the Inflation in India, consider the following:

1. Purchasing Power Reduction

2. Wage-Price Spiral

3. Savings and Investments

4. Exports and Imports

5. Central Bank Policies

How many of the above-mentioned indicators may impact the Economy?

Detailed Solution for Practice Test: Indian Economy -2 - Question 5

Inflation Impact on Economy

  • Inflation can have significant impacts on the economy of India, as it does in any other country. Inflation refers to the sustained increase in the general price level of goods and services over a period of time.

Here’s how inflation can impact the Indian economy:

Purchasing Power Reduction

  • High inflation erodes the purchasing power of consumers. As prices rise, people can buy fewer goods and services with the same amount of money. This can reduce consumer confidence and lead to decreased spending on non-essential items.

Fixed-Income Groups

  • Fixed-income groups, such as retirees, pensioners, and individuals with fixed salaries, are particularly vulnerable to inflation. Their income remains constant while the cost of living increases, leading to a decrease in their real income.

Savings and Investments

  • Inflation can impact savings and investments negatively. If the rate of return on investments is lower than the inflation rate, the real value of savings and investments can decline over time.
  • Interest Rates: To combat inflation, central banks might raise interest rates. Higher interest rates can lead to increased borrowing costs for businesses and individuals, potentially slowing down economic growth.

Business Uncertainty

  • Rapidly changing prices can create uncertainty for businesses in terms of production costs and pricing strategies. This uncertainty can affect long-term planning and investment decisions.

Wage-Price Spiral

  • High inflation can trigger a wage-price spiral. As prices rise, workers may demand higher wages to maintain their purchasing power. However, if businesses pass on increased labor costs to consumers through higher prices, it can further fuel inflation.

Exports and Imports

  • Inflation can affect a country’s trade balance. If domestic prices rise faster than international prices, a country’s exports might become more expensive, leading to reduced demand from other countries. Conversely, imports can become relatively cheaper, potentially harming domestic industries.

Central Bank Policies

  • Central banks, like the Reserve Bank of India (RBI), often use monetary policy tools to manage inflation. They may increase interest rates, reduce money supply, or implement other measures to curb inflation. However, these measures can also impact economic growth.

Income Redistribution

  • Inflation can result in a redistribution of income and wealth. For instance, borrowers may benefit from repaying loans with cheaper money, while lenders lose out. Those who hold physical assets like real estate or precious metals might see the value of their holdings rise.

Impact on Government Finances

  • Inflation can impact government finances as well. If government expenditures rise due to inflation, there might be pressure to increase revenue through higher taxes or borrowing, which can have broader economic implications. • In India, managing inflation has been a priority for economic policymakers. The Reserve Bank of India (RBI) employs various monetary policy tools to control inflation and maintain price stability.
Practice Test: Indian Economy -2 - Question 6

Which of the following statements is/are correct?

1. Headline inflation refers to the change in value of all goods in the basket.

2. Core inflation includes food and fuel items from headline inflation.

Select the correct option using the codes given below.

Detailed Solution for Practice Test: Indian Economy -2 - Question 6

Statement 2 is incorrect: Core inflation excludes food and fuel items from headline inflation.

Inflation in various sectors

  • Retail price inflation mainly stems from the agriculture and allied sector, housing, textiles, and pharmaceutical sectors.
  • Further, the global spillovers, representing the imported inflation channel, driven by price pressures in energy, mining, chemicals, trade, basic and machinery, reaches the retail segment mainly through the wholesale price inflation.
  • During FY23, ‘food & beverages’, ‘clothing & footwear’, and ‘fuel & light’ were the major contributors to headline inflation: o Headline inflation refers to the change in value of all goods in the basket.
  • Core inflation excludes food and fuel items from headline inflation.
  • Since the prices of fuel and food items tend to fluctuate and create ‘noise’ in inflation computation, core inflation is less volatile than headline inflation.
  • In a developed economy, food & fuel account for 10-15% of the household consumption basket and in developing economies it forms 30-40% of the basket.
  • Headline inflation is more relevant for developing economies than developed economies.
Practice Test: Indian Economy -2 - Question 7

The inflation can lead to unemployment- In the context of India, consider the following statements:

1. The relationship between inflation and unemployment is often described using the Lorenz curve.

2. When the cost of production rises, businesses may cut back on production and reduce their workforce to maintain profitability.

3. When prices rise rapidly, consumers may cut back on discretionary spending and focus on essential goods and services.

4. Central banks often use monetary policy tools, such as reducing interest rates, to control inflation.

How many of the above statements is/are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 7
  • Statement 1 is incorrect: The relationship between inflation and unemployment is often described using the Phillips curve, which illustrates an inverse relationship between the two in the short run.
  • Statement 4 is incorrect: Central banks often use monetary policy tools, such as raising interest rates, to control inflation.

Inflation and unemployment

  • Inflation and unemployment are two interconnected macroeconomic phenomena that can influence each other through various channels. 
  • The relationship between inflation and unemployment is often described using the Phillips curve, which illustrates an inverse relationship between the two in the short run.
  • However, in the long run, this trade-off is not as straightforward due to various factors such as expectations, supply-side dynamics, and policy interventions. In the context of India, here’s how inflation can lead to unemployment: Cost-Push Inflation
  • nflation can be caused by factors such as rising commodity prices, supply disruptions, or increases in production costs. When the cost of production rises, businesses may cut back on production and reduce their workforce to maintain profitability. This can result in higher unemployment rates, as businesses adjust their operations in response to increased costs.

Reduced Consumer Spending 

  • High inflation erodes the purchasing power of consumers. When prices rise rapidly, consumers may cut back on discretionary spending and focus on essential goods and services.
  • This reduction in consumer spending can lead to reduced demand for various products, which in turn can cause businesses to cut back on production and employment.
  • Uncertainty and Investment
  • High and volatile inflation can create uncertainty in the economy. Businesses may become hesitant to invest in new projects or expand operations due to uncertainty about future costs and revenues. This reduced investment activity can lead to lower job creation and increased unemployment.

Interest Rate Impact

  • Central banks often use monetary policy tools, such as raising interest rates, to control inflation. Higher interest rates can lead to reduced borrowing by businesses and consumers, which can dampen economic activity and lead to job losses.
  • If businesses face higher borrowing costs, they might delay or cancel expansion plans, leading to decreased job opportunities.

Income Redistribution Effects

  • Inflation can lead to redistributive effects on income and wealth. If wages do not keep up with rising prices, workers’ real incomes decrease.
  • This can lead to reduced demand for goods and services, affecting business sales and potentially leading to layoffs.

Exchange Rate Effects

  • High inflation can also affect a country’s exchange rate. If a country’s inflation rate is significantly higher than that of its trading partners, its currency may depreciate. A weaker currency can lead to increased import costs, including the cost of raw materials and intermediate goods.
  • This can negatively impact industries that rely heavily on imports, potentially leading to reduced production and employment.
Practice Test: Indian Economy -2 - Question 8

With respect to the Nominal and Real GDP, consider the following pairs:

1. Nominal GDP - This is the year that serves as a reference point for prices (Select a base year).

2. Real GDP - This is the GDP calculated using the prices of the current year.

Which of the pairs given above is/are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 8
  • Pair 1 is incorrect: Real GDP - This is the year that serves as a reference point for prices (Select a base year).
  • Pair 2 is incorrect: Nominal GDP - This is the GDP calculated using the prices of the current year.

Nominal and Real GDP

  • Real GDP stands for “Real Gross Domestic Product,” and it is a crucial economic measure used to assess the overall economic performance and health of a country. GDP itself represents the total monetary value of all goods and services produced within a country’s borders during a specific time period, usually a year or a quarter.
  • However, GDP can be affected by changes in prices over time, which can make it difficult to accurately compare economic performance across different time periods. This is where the concept of “real GDP” comes into play.
  • Real GDP adjusts for changes in prices by using a constant set of prices from a base year as a reference point. By doing this, it allows economists and policymakers to focus on changes in the physical volume of goods and services produced, rather than changes in their prices.
  • To calculate real GDP, the following steps are typically taken:
  • Select a base year: This is the year that serves as a reference point for prices.
  • Calculate nominal GDP: This is the GDP calculated using the prices of the current year.
  • Real GDP is a valuable economic indicator because it provides a more accurate representation of a country’s economic growth or contraction, as it strips away the influence of inflation or deflation. This allows for better comparisons of economic performance across different time periods and among different countries.
Practice Test: Indian Economy -2 - Question 9

Consider the following statements:

1. It is a measure used to estimate the overall price level changes in an economy over a specific period of time.

2. It compares the value of output at current prices (nominal GDP) to the value of the same output at constant prices (real GDP).

Identify the appropriate answer based on the information given above.

Detailed Solution for Practice Test: Indian Economy -2 - Question 9

GDP Deflator

  • The GDP deflator is a measure used to estimate the overall price level changes in an economy over a specific period of time. It’s one of the key indicators used to track inflation and to adjust the nominal GDP (Gross Domestic Product) for inflation, providing a more accurate understanding of economic growth or contraction in real terms.
  • The GDP deflator takes into account the prices of all final goods and services produced within a country’s borders. It compares the value of output at current prices (nominal GDP) to the value of the same output at constant prices (real GDP).

The ratio of nominal GDP to real GDP, multiplied by 100, gives the GDP deflator:

  • GDP Deflator = (Nominal GDP / Real GDP) * 100
  • The GDP deflator is considered a broader measure of inflation than other indices like the Consumer Price Index (CPI) or the Producer Price Index (PPI), as it accounts for price changes across the entire economy, including consumption, investment, government spending, and net exports.
Practice Test: Indian Economy -2 - Question 10

Consider the following statements:

1. Corporate tax in India is a tax levied on the income earned by corporations or companies operating within the country.

2. In India, corporate tax rates can be different for domestic companies and foreign companies.

3. The rates may also be influenced by the company’s turnover or revenue.

How many of the above statements are incorrect?

Detailed Solution for Practice Test: Indian Economy -2 - Question 10

Corporate tax in India

  • Corporate tax in India is a tax levied on the income earned by corporations or companies operating within the country. The tax is applied to the profits generated by these entities during a financial year.
  • Corporate tax rates can vary based on factors such as the type of company, its annual turnover, and any applicable tax incentives or exemptions.
  • In India, corporate tax rates can be different for domestic companies and foreign companies. The rates may also be influenced by the company’s turnover or revenue. The government may revise these rates periodically through budget announcements.
Practice Test: Indian Economy -2 - Question 11

Consider the following statements:

  1. Digital money refers exclusively tocryptocurrencies, which are decentralizedand operate on blockchain technology.
  2. Mobile wallets facilitate cashlesstransactions through digital platforms.
  3. Digital money transactions are immuneto security risks and fraud, as they useadvanced encryption techniques to protectuser data and financial information.
  4. The concept of Central Bank DigitalCurrency (CBDC) involves the issuanceof digital currency by central banks,which operates as a legal tender and is regulated by the National Bank of country.

How many of the statements given above arecorrect?

Detailed Solution for Practice Test: Indian Economy -2 - Question 11
  • Statement 1 is incorrect: While cryptocurrencies like Bitcoin and Ethereum are indeed forms of digital money, digital money is a broader concept that includes various forms of electronic currency and payment methods. Not all digital money is based on blockchain technology, and there are centralized digital payment systems as well.
  • Statement 2 is correct: Mobile wallets and electronic payment systems like Paytm and PayPal are indeed examples of digital money. They enable cashless transactions using digital platforms, making it convenient for users to make payments and manage their funds electronically.
  • Statement 3 is incorrect: While digital money transactions often use advanced encryption techniques to enhance security, they are not immune to security risks and fraud. Cyberattacks, phishing, and other forms of online fraud can still pose a threat to digital money transactions, highlighting the importance of cybersecurity measures.
  • Statement 4 is correct: Central Bank Digital Currency (CBDC) is a concept where central banks issue digital currency, which functions as a legal tender regulated by the government. CBDC is an emerging area of interest for central banks worldwide, and it represents a form of digital money directly issued and regulated by the Central Bank of Country.

Digital Currency

  • Digital currency is a form of currency that is available only in digital or electronic form. It is also called digital money, electronic money, electronic currency, or cybercash.
  • Typical digital currencies do not require intermediaries and are often the cheapest method for trading currencies.
  • All cryptocurrencies are digital currencies, but not all digital currencies cryptocurrencies.
  • Some of the advantages of digital currencies are that they enable seamless transfer of value and can make transaction costs cheaper.
  • Some of the disadvantages of digital currencies are that they can volatile to trade and are susceptible to hacks.
Practice Test: Indian Economy -2 - Question 12

Consider the following statements:

  1. Open Market Operations (OMOs) involvethe buying and selling of governmentsecurities in the open market by thecentral bank.
  2. Currency Printing is done for directissuance of currency notes and coins bythe central bank to regulate the moneysupply.

Which of the statement(s) given above is/arecorrect?

Detailed Solution for Practice Test: Indian Economy -2 - Question 12
  • Statement 1 is correct: Open Market Operations are a common tool used by central banks to control the money supply. By buying government securities, the central bank injects money into the economy, increasing the money supply. Conversely, by selling government securities, the central bank absorbs money from the economy, reducing the money supply.
  • Statement 2 is incorrect: The central bank does issue currency notes and coins; this is not primarily done to directly regulate the money supply. Currency issuance is a part of the central bank's responsibilities, but it is not a tool that is typically used to control the money supply on a day-to-day basis.

Tools to control Money supply

  • To ensure a nation's economy remains healthy, its central bank regulates the amount of money in circulation.
  • Influencing interest rates, printing money, and setting bank reserve requirements are all tools central banks use to control the money supply.
  • Other tactics central banks use includes open market operations and quantitative easing, which involve selling or buying up government bonds and securities.
Practice Test: Indian Economy -2 - Question 13

Consider the following statements:

  • Statement I: An increase in the money supply, without a corresponding increase in the production of goods and services, can lead to inflationary pressures in an economy. 
  • Statement II: Central Bank decreases interest rates typically intended to reduce liquidity and curb inflation.

Which one of the following is correct in respect of the above statements?

Detailed Solution for Practice Test: Indian Economy -2 - Question 13
  • Statement 1 is correct: In economics, the quantity theory of money suggests that when the money supply grows faster than the production of goods and services (real GDP), it can lead to an increase in the overall price level, resulting in inflation.
  • This is because there is more money chasing the same amount of goods, creating excess demand and driving prices upward.
  • Therefore, an increase in the money supply without a corresponding increase in production can indeed lead to inflationary pressures.
  • Statement 2 is incorrect: Central banks often use interest rate adjustments, known as monetary policy, to manage liquidity in the economy.
  • When central banks raise interest rates, it becomes more expensive for businesses and individuals to borrow money, which can lead to a reduction in spending and investment.
  • This, in turn, can help control the growth of the money supply and mitigate inflationary pressures.
  • Higher interest rates can also make saving more attractive, reducing the amount of money flowing through the economy and curbing inflation.

Liquidity-Inflation relationship

  • Inflation reduces the real value of money, and thus makes the liquidity constraint more binding.
  • This problem can be resolved by having a financial intermediary which channels the funds from entrepreneurs with excess liquidity to those lacking liquidity.
Practice Test: Indian Economy -2 - Question 14

Consider the following:

  1. Monetary policy implementation
  2. Issuing government bonds
  3. Setting tax rates
  4. Granting loans to individuals and businesses

How many of the above given functions are typically performed by commercial banks?

Detailed Solution for Practice Test: Indian Economy -2 - Question 14
  • Option (a) is correct: Commercial banks grant loans to individuals and businesses. The setting of tax rates is a government function, usually performed by the legislative bodies or relevant government departments. Commercial banks are not involved in this process.
  • Monetary policy implementation: This function is primarily carried out by central banks, not commercial banks. Reserve Bank of India (RBI) is responsible for implementing monetary policy, which includes controlling the money supply and interest rates to achieve macroeconomic goals.
  • Commercial banks may buy government bonds as part of their investment activities, but they do not issue government bonds. Issuing government bonds is the responsibility of the government, specifically the treasury department.

Functions of Commercial banks

  • The main purpose of commercial banks is to provide financial services to the general public and also provide loan facilities to the business which helps in ensuring economic stability and growth of the economy.
  • Commercial banks perform various functions that are as follows:
  • Accepting deposits
  • Granting loans and advances
  • Agency functions Discounting bills of exchange
  • Credit creation
Practice Test: Indian Economy -2 - Question 15

With regard to types of banks operating in India, consider the following statements:

  1. Scheduled Commercial Banks (SCBs) are required to maintain a certain percentage of their net demand and time liabilities with the Reserve Bank of India (RBI).
  2. Co-operative banks in India are regulated by the State Governments provide banking services in rural areas.

Which of the statement(s) given above is/are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 15
  • Statement 1 is correct: Scheduled Commercial Banks (SCBs) in India are indeed required to maintain a certain percentage of their net demand and time liabilities as Cash Reserve Ratio (CRR) with the Reserve Bank of India (RBI).
  • Statement 2 is incorrect: While co- operative banks in India do play a significant role in providing banking services in rural and semi-urban areas, they are not solely regulated by State Governments.
  • Co-operative banks are regulated by both the Reserve Bank of India (RBI) and the National Bank for Agriculture and Rural Development (NABARD), depending on their size and operations.

Types of banks

  • Banks can be classified into various types. Given below are the bank types in India:-
  • Central Bank
  • Cooperative Banks
  • Commercial Banks
  • Regional Rural Banks (RRB)
  • Local Area Banks (LAB)
  • Specialized Banks
  • Small Finance Banks
  • Payments Banks

Commercial Banks: Organized under the Banking Companies Act, 1956.

  • They operate on a commercial basis and its main objective is profit.
  • They have a unified structure and are owned by the government, state, or any private entity.
  • They tend to all sectors ranging from rural to urban
  • These banks do not charge concessional interest rates unless instructed by the RBI
  • Public deposits are the main source of funds for these banks
Practice Test: Indian Economy -2 - Question 16

With reference to the Banking Regulation Act1949, Consider the following statements:

  1. The Act empowers the Reserve Bankof India (RBI) to issue licenses to newbanks and regulate the banking sector inIndia.
  2. It allows the RBI to control the interestrates offered by commercial banks onsavings accounts.
  3. It empowers the RBI to inspect the booksof scheduled cooperative banks.

How many of the statement(s) given above is/are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 16
  • Statement 1 is correct: The Banking Regulation Act, 1949 provides the RBI with the authority to issue licenses to new banks and regulates the functioning of banks in India, including matters related to their management, capital requirements, operations, and more. The RBI plays a crucial role in supervising and overseeing the banking sector to ensure its stability and proper functioning.
  • Statement 2 is incorrect: The Banking Regulation Act, 1949 does not explicitly grant the RBI the authority to directly control the interest rates offered by commercial banks on savings accounts.
  • Interest rates on savings accounts are typically determined by individual banks based on various factors, including market conditions and the bank's policies.
  • However, the RBI does have indirect influence over interest rates through its monetary policy decisions, which impact the overall money supply and interest rate environment.
  • Statement 3 is correct: The Banking Regulation Act, 1949 does provide the RBI with the authority to inspect the books and accounts of scheduled cooperative banks, ensuring that these banks operate in a sound and transparent manner.

Banking Regulation Act, 1949

  • Banking Regulation act, 1949 regulates commercial banking in India.
  • The Act gives power to RBI in licensing of banks, voting rights of shareholders, appointment of boards and management.
  • RBI also conducts the audits, mergers, gives liquidation directives to banks and imposing penalties.
  • It was amended in 1965 to bring cooperative societies under its preview but not all provision are applicable to them as they do on commercial banks.
  • Banking related function of cooperative societies is undertaken by RBI whereas management related functions are carried out by the centre and states together.
Practice Test: Indian Economy -2 - Question 17

In regard of the steps taken for stabilising of global banking system, consider the following statements:

  1. Basel II norms primarily focuses on hold to cover various types of risks. capital adequacy, setting guidelines for the minimum capital that banks must
  2. Basel III was introduced to address liquidity risks and promoting risk management practices within banks.

Which of the statement(s) given above is/are incorrect?

Detailed Solution for Practice Test: Indian Economy -2 - Question 17

Basel Norms

  • The Basel Committee on Banking Supervision, under the auspices of the Bank for International Settlements (BIS), indeed formulated the Basel norms to promote international standards for banking regulation.
  • These norms aim to improve the stability and soundness of the global banking system by setting guidelines for risk management, capital adequacy, and liquidity.
  • Basel II is a set of international banking regulations that primarily focus on capital adequacy.
  • It defines different risk categories and assigns specific capital requirements to each category, ensuring that banks have sufficient capital to cover various types of risks, including credit, market, and operational risks.
  • Basel III, introduced as an extension of Basel II, indeed introduced regulations aimed at addressing liquidity risks within the banking system.
  • It emphasizes the importance of maintaining sufficient liquidity buffers and promotes improved risk management practices within banks to enhance their resilience during periods of financial stress.
Practice Test: Indian Economy -2 - Question 18

Which of the following statements about Non-Banking Financial Institutions (NBFCs) inIndia is/are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 18
  • Option (a) is incorrect: NBFCs, unlike traditional commercial banks, are not allowed to accept demand deposits. Demand deposits are a type of deposit that can be withdrawn on-demand without any notice, and this privilege is generally restricted to banks with specific regulatory requirements and safeguards.
  • Option (b) is incorrect: While the primary regulatory authority for NBFCs in India is the Reserve Bank of India (RBI), NBFCs engaged in certain financial activities, such as securities trading, may also come under the purview of the Securities and Exchange Board of India (SEBI).
  • The RBI regulates various aspects of NBFCs, including their capital adequacy, lending practices, and overall functioning.
  • Option (c) is correct: NBFCs primarily engage in lending and investment activities, offering various financial services such as loans, advances, asset financing, and investment in securities.
  • They do not accept demand deposits, which is a distinct feature that separates them from traditional banks.

Non-Banking Financial Institutions (NBFCs)

  • A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition ofshares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities.
  • A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).

Features of NBFCs:

  • NBFC cannot accept demand deposits.
  • NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on it.
  • Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs.
Practice Test: Indian Economy -2 - Question 19

Consider the following statements:

  1. The Insolvency and Bankruptcy Code (IBC) was enacted to consolidate the laws relating to insolvency resolution of corporate entities.
  2. Under the IBC, a financial creditor, such as a bank or a financial institution, has the authority to initiate insolvency proceedings against a corporate debtor when a default occurs.
  3. The Insolvency and Bankruptcy Board of India (IBBI) is the regulatory body responsible for overseeing insolvency professionals and information utilities in India.

How many of the statement(s) given above is/ are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 19
  • Statement 1 is correct: The Insolvency and Bankruptcy Code (IBC) was indeed enacted in 2016 to provide a comprehensive legal framework for the insolvency resolution process in India. It covers a wide range of entities, including corporate entities, individuals, and partnership firms.
  • Statement 2 is correct: Under the IBC, a financial creditor has the authority to initiate the insolvency resolution process against a corporate debtor when a default occurs, subject to certain conditions specified in the IBC.
  • Statement 3 is correct: The Insolvency and Bankruptcy Board of India (IBBI) is indeed the regulatory body responsible for overseeing various aspects of the insolvency process in India, including insolvency professionals, insolvency professional agencies, and information utilities.

Insolvency and Bankruptcy Code (IBC)

  • Insolvency and Bankruptcy Code 2016 was implemented through an act of Parliament.
  • The law was necessitated due to huge pile- up of non-performing loans of banks and delay in debt resolution.
  • IBC applies to companies, partnerships and individuals. It provides for a time-bound process to resolve insolvency.
  • When a default in repayment occurs, creditors gain control over debtor's assets and must take decisions to resolve insolvency.
  • Under IBC debtor and creditor both can start 'recovery proceedings against each other.
Practice Test: Indian Economy -2 - Question 20

Consider the following statements regarding Central Bank Digital Currency (CBDC):

  • Statement I: CBDC is legal tender and can be used for various transactions, similar to physical currency. 
  • Statement II: CBDC is a form of digital currency issued by private banks and regulated by the central bank to promote cashless transactions.

Which one of the following is correct in respect of the above statements?

Detailed Solution for Practice Test: Indian Economy -2 - Question 20
  • Statement 1 is correct: CBDC is not issued by private banks. It is a form of digital currency issued by the central bank of a country, making it a part of the official currency. CBDC is indeed aimed at promoting cashless transactions, but its issuance and regulation are under the control of the central bank.
  • Statement 2 is incorrect: CBDC is legal tender issued by the central bank, and it operates as a digital form of currency that can be used for various transactions. It is designed to function similarly to physical currency but in digital form.

Central Bank Digital Currency (CBDC)

  • CBDC operates on decentralized blockchain technology, making it resistant to any form of regulation by the central bank.
  • While CBDC can be used to replace physical cash, it has significant implications for a country's monetary policy.
  • CBDC affects how money is created, distributed, and managed, and it has the potential to impact various aspects of the financial system, including monetary policy and banking.
Practice Test: Indian Economy -2 - Question 21

Consider the following statements:

  1. Frictional unemployment is generally caused by fundamental shifts in an economy.
  2. If a person has left his current job and is looking for another job, then he is facing structural employment.

Which of the statements given above is/are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 21
  • Statement 1 is incorrect; Structural unemployment is caused by fundamental shifts in the economy that make it difficult for workers to find employment.
  • Statement 2 is incorrect: If a person has left his current job and is looking for another job, then he is facing Frictional unemployment.

Types of Unemployment

  • Structural unemployment is caused by fundamental shifts in the economy that make it difficult for workers to find employment.
  • Structural unemployment occurs when there is a mismatch between the jobs that are available and the people looking for work.
  • This mismatch could be because job seekers don't have the skills required to do the available jobs, or because the available jobs are a long way from the job seekers.
  • Structural unemployment occurs for a number of reasons - workers lacking the requisite job skills, change in government policy or change in technology, or they may be far from regions where jobs are available but are unable to move there or simply unwilling to work because existing wage levels are too low.
  • So, while jobs are available, there is a serious mismatch between what companies need and what workers can offer. Structural unemployment exists when there are jobs available and people willing to do work, but there is not a sufficient number of people qualified to fill the vacant jobs.
  • Frictional unemployment arises due to people moving between jobs, careers or locations or people entering and exiting the labor force, or workers and employers having inconsistency or incomplete information.
  • Actually, people first leave job and then try to find a new job according to their choice and this process takes some time to apply for new jobs and for employers to make a selection and hence they remain unemployed for this transition period.
  • That is why frictional unemployment is also called transitional unemployment and it is always present in the economy.
Practice Test: Indian Economy -2 - Question 22

Which of the following best defines the Capability Approach in the context of methodologies employed in poverty reduction and eradication?

Detailed Solution for Practice Test: Indian Economy -2 - Question 22
  • Four approaches to the definition, measurement and eradication of poverty are proposed in general: the monetary, capability, social exclusion and participatory approaches.
  • This is a major Contemporary issue as Capability approach is an emerging theme in poverty reduction across the world.
  • These statements define the monetary approach. It identifies poverty with a shortfall in consumption (or income) from some poverty line.
  • The valuation of the different components of income or consumption is done at market prices, which requires identification of the relevant market and the imputation of monetary values for those items that are not valued through the market.
  • For economists, the appeal of the monetary approach has in its being compatible with the utility-maximizing behavior assumption that underpins microeconomics, i.e. that the objective of consumers is to maximize utility and that expenditures reflect the marginal value or utility people place on commodities.
  •  Welfare can then be measured as the total consumption enjoyed, proxied by either expenditure or income data, and poverty is defined as a shortfall below some minimum level of resources, which is termed the poverty line.
  • In the Capability approach, development should be seen as the expansion of human capabilities, not the maximization of utility or its proxy, money income.
  • The capability approach (CA) rejects monetary income as its measure of well-being, and instead focuses on indicators of the freedom to live a “valued” life.
  • In this framework, poverty is defined as deprivation in the space of CA, or failure to achieve certain minimal or basic capabilities, where “basic capabilities" are “the ability to satisfy certain crucially important functionings up to certain minimally adequate levels',
  • Social exclusion approach used in EU. The concept of social exclusion (SE) was developed in industrialized countries to describe the processes of marginalization and deprivation that can arise even in rich countries with comprehensive welfare provisions.
Practice Test: Indian Economy -2 - Question 23

Consider the following statements with respect to the Project BOLD:

  1. It is an initiative of the Ministry of Finance.
  2. This is the first-ever attempt to grow bamboo trees in the high Himalayan terrains.
  3. The objective is to harness the environmental benefits and economic potential of bamboo cultivation in order to protect the environment.

Which of the above statements is/are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 23

Statement 1 is incorrect: Ministry of MSME, through Khadi and Village Industries Commission (KVIC), launched a unique pilot project named Project BOLD (Bamboo Oasis on Lands in Drought).

Project BOLD

  • Project Bamboo Oasis on Lands in Drought (BOLD) Ministry of MSME, through Ivhadi and Village Industries Commission (KVIC), launched a unique pdot project named Project BOLD (Bamboo Oasis on Lands in Drought). The project aims to fulfil the combined national objectives of preventing land degradation, reducing desertification and providing hvehhood and multidisciplinary rural industry support to the people living in dry/arid and drought-prone regions of the country. There is no budgetary provision for this project under KVIC.
  • Ministry of MSME, through Ivhadi and Village Industries Commission (KVIC). launched a unique pdot project named Project BOLD (Bamboo Oasis on Lands in Drought).
  • The Project BOLD (Bamboo Oasis on Lands in Drought) of Khadi and ViUage Industries Commission (KVIC) has received Indian Army's support in Leh. This is the first ever attempt to grow bamboo trees in the high Himalayan terrains with the objective of preventing land degradation and developing green cover. In continuation with this effort, 1000 bamboo saplings wid be planted at village Chuchot in Leh on 18th August. These bamboo plants wdl be ready for harvest in 3 years.
  • Whde this wid create sustainable income for the local tribal population; it wdl also contribute to environment and land protection as envisaged by the Prime Minister. The objective of this initiative is to scientificady harness the environmental benefits and economic potential of bamboo cultivation to protect environment and strengthen rural economy through various vidage industries.
Practice Test: Indian Economy -2 - Question 24

Consider the following statements regarding the New Pension System (NPS):

  1. Only government employees were eligible under Old Pension Scheme, whereas private sector employees can also join New Pension Scheme.
  2. Unlike the Old pension system, NPS is regulated by Pension Fund Regulatory and Development Authority (PFRDA).
  3. OPS do not provide any guaranteed pension, whereas the NPS provides a guaranteed pension by the government.
  4. Under OPS, there is no provision for tax on pension, whereas certain proportion of pension is taxable under the NPS.
  5. Under NPS, employees are not required to contribute to their pensions, whde employees contribute 10 percent of their basic salary under the OPS.

How many of the statements above are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 24
  • Statement 3 is incorrect: Under the NPS, the government does not provide any guaranteed pension. Instead, OPS provide a guaranteed pension that is based on the individual's last drawn salary and the number of years of service.
  • Statement 5 is incorrect: Under OPS, employees are not required to contribute to their pensions. In NPS, those employed by the government contribute 10 percent of their basic salary to NPS, while their employers contribute up to 14 percent.

National Pension System (NPS)

  • National Pension System (NPS) is a pension cum investment scheme to provide old age security to Citizens of India.
  • Any individual citizen of India (both resident and Non-resident) in the age group of 18-70 years can join NPS.
  • However, OCI (Overseas Citizens of India) and PIO (Person of Indian Origin) card holders and Hindu Undivided Families are not eligible for opening of NPS account.
  • It is being administered and regulated by Pension Fund Regulatory and Development Authority (PFKDA). Old Pension system does not have any such regulator.
  • The NPS is a defined contribution scheme that allows individuals to invest in a variety of pension funds. Under the NPS, the government does not provide any guaranteed pension. Instead, the pension received is based on the investment returns generated by the pension funds. The OPS, on the other hand, is a defined benefit scheme that provides a pension based on the inchvidual’s last drawn salary and the number of years of service. Under the OPS, the government provides a guaranteed pension that is based on the individual’s last drawn salary and the number of years of service.
  • Under Old Pension Scheme (OPS), there is no tax on pension. However, under New Pension Scheme (NPS), 60% of the NPS Corpus is tax-free while the remaining 40% is taxable.
  • Under OPS, employees are not required to contribute to their pensions. An incentive for taking on government employment was the guarantee of a pension post-retirement and a family pension. OPS have become unsustainable for governments due to rises in hfe expectancy. In NPS, those employed by the government contribute 10 percent of their basic salary to NPS, while their employers contribute up to 14 percent.
Practice Test: Indian Economy -2 - Question 25

Consider the following statements about Scheme for Facilitating Start-Ups Intellectual Property Protection (SIPP):

  1. Underthescheme, Start up entrepreneurs are given free training on how to file the patents.
  2. The Smart India Hackathon is organized by Ministry of Commerce and Industry under the scheme.

Which of the above given statements is/are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 25

Statement 2 is incorrect: The Smart India Hackathon is organized by the HDR/ Ministry of Education of India since 2017 onwards.

Scheme for Facilitating Start-Ups Intellectual Property Protection (SIPP)

  • Under the scheme. Fee was borne by the Office of the Controller General of Patents Designs and Trademarks, Department for Promotion of Industry and Internal Trade.
  • To further encourage the IP facilitators to provide quality services to startups in order to increase the number of IP applications filed by startups, the scheme has now been revised and facilitation fees has been notably increased by at least 100%.
  • To protect and promote Intellectual Property Rights (IPR) of startups and to encourage innovation and creativity among them, the Government of India had launched a scheme for facilitating start-ups Intellectual Property Protection (SIPP) in 2016.
  • The scheme facihtated startups in filing and processing of their patent, design or trademark application through the assistance of IP facilitators.
  • The Smart Incha Hackathon is organized by the HRD/ Ministry of Education of Incha since 2017 onwards. Since 2019, College students are asked to give innovative ideas to solve the challenges faced by public sector organisations, industries and even NGOs, 36 hours software development competition, 5 clays hardware development competition etc.
Practice Test: Indian Economy -2 - Question 26

Consider the following statements with respect to the E-rupee:

  1. E-rupees will be issued in the same denominations as paper currency and coins.
  2. Transactions can only be person to merchant and not person to person.
  3. It is a fungible legal tender, for which holders need not have a bank account.
  4. It can be converted to other forms of money like deposits with bank.
  5. E-rupee will not be a bearer instrument like paper currency i. e, whoever is holding the e-Rupee will not be assumed to be the owner at any given point of time.

Which of the above statement(s) is/are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 26
  • Statement 2 is incorrect: Transactions can be both person to person (P2P) and person to merchant (P2M).
  • Statement 5 is incorrect: E-Rupee will be a bearer instrument i.e., whoever is holding the e-Rupee wdl be assumed to be the owner at any given point of time.

E-rupee

  • Unlike our savings in commercial banks which rely on the bank's promise to fulfil, CBDCs are recognized by law and backed by Central Bank which cannot go bankrupt.
  • For example, if a commercial bank collapses, then our savings could potentially be wiped out, but this would not be the case with CBDCs, which we can hold on to our own in digital form and could be as trusted as cash. CBDCs would be as convenient as payment apps and it also benefits from the same blockchain technology (Distributed Ledger Technology) which support s crypt o currency.
  • E-rupees will be issued in the same denominations as paper currency and coins, and wdl be distributed through the intermediaries, that are banks.
  • Transactions can be both person to person (P2P) and person to merchant (P2M), For P2M transactions (such as shopping), there will be QR codes at the merchant location. A user wdl be able to withdraw digital tokens from banks in the same way she can currently withdraw physical cash. She wdl be able to keep her digital tokens in the wadet, and spend them online or in person, or transfer them via an app.
  • E-rupee or the Central Bank Digital Currency (CBDC) is a legal tender issued by the RBI in digital form. It is the same as the fiat currency, and is exchangeable one-to-one with the fiat currency. The e-rupee wid be representing a claim on the central bank, and wdl effectively function as the chgital equivalent of a banknote that can be transferred electronicady from one holder to another. It is a fungible legal tender, for which holders need not have a bank account.
  • E-rupee wdl be distributed through intermediaries i.e,, banks and it can be converted to other forms of money like deposits with bank. If I am holding cash and making pay men I to someone then it does not require any kind of settlement with a third party and the RBTs liabihty moves from me to the other person, whom I have paid. But when I make payment through cheque/card then it requires inter-bank settlement (through RBI in case of different banks). E-rupee would just be hke cash, and I can make payment to anyone through the e-Rupee and the RBI’s liabihty wid move to the other person. And the requirement of inter-bank settlement would chsappear.
  • E-Rupee wdl be a bearer instrument i.e., whoever is holding the e-Rupee wdl be assumed to be the owner at any given point of time.
Practice Test: Indian Economy -2 - Question 27

Consider the following statements about the Nirbhaya Fund:

  1. It is a Non-lapsable fund administered by the Dept of Economic Affairs of the Finance ministry.
  2. Under the Fund, Sakhi One stop centres are to be set up within 5 kms radius of the hospitals or mechcal facilities.

Which of the statements given above is/are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 27
  • Statement 2 is incorrect: One Stop Centres (OSCs) are to be set up within 2 kms radius of the hospitals or medical facilities either in new constructed budehng in an approved design or in pre-existing buddings.

Nirbhaya Fund

  • The Government of India had set up the ‘Nirbhaya Fund’ for implementation of initiatives aimed at enhancing the safety and security for women in the country.
  • An Empowered Committee of officers constituted under Nirbhaya Fund recommends proposals for funding under Nirbhaya Fund in conjunction with the concerned Ministries/ Departments/ Implementing Agencies.
  • Under the Nirbhaya Fund, one of the schemes namely “One Stop Centre (OSC) Scheme" is implemented across the country since 1st April 2015, It is a Non-lapsable fund administered by the Department of Economic Affairs of the Finance ministry.
  • OSCs are to be set up within 2 kms rachus of the hospitals or medical facilities either in new constructed building in an approved design or in pre-existing buildings.
  • Under the scheme. One Stop Centres are being set up in all districts of the country. So far, 704 OSCs have been operationalised and more than three lakh women have been assisted through them. These centres were set up using Nirbhaya Fund.
  • These centres provide assistance to women victims of domestic abuse /rape /prostitution / trafficking etc and depending on case they may be sent to Swadhar Greh Shelter homes or reconnected with family.
Practice Test: Indian Economy -2 - Question 28

What is unemployment trap?

Detailed Solution for Practice Test: Indian Economy -2 - Question 28
  • Option (a) is correct: Unemployment trap is a situation when unemployment benefits discourage the unemployed to go to work. People find the opportunity cost of going to work too high when one can simply enjoy the benefits by doing nothing.

Unemployment Trap

  • While the purpose of social security and welfare systems is to provide relief to the unemployed, they end up providing them with an incentive not to return to work.
  • An unemployment trap arises when opportunity cost of going to work is higher than the income received, chscouraging people from returning to work and being productive.
  • Therefore, we can summarise, Unemployment trap as a situation when unemployment benefits discourage the unemployed to go to work.
  • People find the opportunity cost of going to work too high when one can simply enjoy the benefits by doing nothing.
Practice Test: Indian Economy -2 - Question 29

With reference to the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), consider the following statements:

  1. At least 60% of the works undertaken under the scheme must be related to land and water conservation.
  2. Under the scheme, wage seekers receive their wages directly in their bank accounts.
  3. It has led to a strengthening of grass-root democracy through mandatory social audit of all works executed under the scheme.
  4. Minimum of half of the workers enrolled under the scheme has to be women.

How many of the above statements is/are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 29

Statement 4 is incorrect: MGNREGA mandates that minimum one-third of the workers should he women. Thus, it has promoted high female participation and empowerment.

Mahatma Gandhi National Rural Employment Guarantee Scheme

  • The Scheme was introduced in 2005. The Ministry of Rural Development (MRD) in association with the state governments monitors the implementation of the scheme.

Key Features of the Scheme

  • Demand-driven scheme
  • Gram Panchayat has the mandate to provide employment within 15 days of a work apphcation. If it fails, the worker will get an unemployment allowance.
  • Payment of wages within 15 days of completion of work. In case of fadure, the worker will get a delay compensation of 0.05% per day of wages earned.

Direct and Indirect benefits of MGNREGA

  • Creation of Employment: increase in consumption, food security and nutrition, reduction in poverty, positive impact on health and education.
  • The most important benefit according to workers is self-respect
  • Positive impact on agricultural wages
  • Help marginalized sections SCs and STs
  • Reduction in Distress Migration
  • Seasonal benefits and insurance function
  • Financial Inclusion

Provisions under the scheme

  • It mandates that at least 60 percent of the works undertaken must be related to land and water conservation. The creation of these productive assets in and outside agriculture boosts rural incomes as the majority of villages are agrarian.
  • The scheme has led to the creation of common community assets. These assets are built by communities on common lands thereby creating a sense of responsibility towards the structure which results in better care.
  • Under the scheme, 99 percent of wage seekers are receiving their wages directly into their bank accounts using Direct Benefit Transfer. It is a big step towards transparency.
  • Section 17 of the MGNREGAhas mandated Social audit of all Works executed under the MGNREGA. Gram Sabhas conduct social audits to enable the community to monitor the implementation of the scheme.
  • Thus, strengthening grass root processes of democracy infusing transparency and accountability in governance.
  • MGNREGA mandates that minimum one-third of the workers should be women. Thus, it has promoted high female participation and empowerment.
Practice Test: Indian Economy -2 - Question 30

With reference to the changes observed between National Family Health Survey-4 (NFHS-4) and National Family Health Survey-5(NFHS-5), consider the following statements:

  1. The percentage of under-five children who are reported to be stunted has increased
  2. Anaemia among Indian women has increased significantly between 2015 and 2020.3.
  3. Total fertility rate has declined.

Which of the statements given above is/are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 30
  • Statement 2 is incorrect: According to the 5th National Family Health Survey (NFHS-5) data, the percentage of Inchan women suffering from anemia has declined (and not increased) in 2020 in comparison to 2015.

National Family Health Survey - 4 & 5

  • Anaemia is a condition in which a person has a lower-than-normal number of red blood cells or quantity of hemoglobin, which reduces the capacity of their blood to carry oxygen and can lead to a number of health problems, and even death. It is considered a severe public health problem if more than 40% of the population is diagnosed with anemia.
  • The indicator Children under 5 years who are underweight (weight-for-age) is one of the composite indicators for child malnutrition. As per recently released data of the first round of National Family Health Survey-5, conducted in 2019-20, the rate of malnutrition in the country has increased as compared to the National Family Health Survey-4 (2015-16). In most of the 22 states and UTs covered by NFHS 5, there has been a reversal: the percentage of under-five children who are reported to be stunted has increased. Sikkim was noted to have the lowest child stunting rate.
  • A comparison of NFHS 4 with NFHS 5 findings revealed that there were only three states (Bihar, Manipur and Sikkim) that reported a decline in the rate of stunting by at least 3 percentage points. Thirteen states and UTs showed a rise in the percentage of stunted children while the share of children who had low weight for their height increased in 12 states.
  • According to the 5th National Family Health Survey (NFHS-5) data, Incha has the highest total prevalence of anemia at 39.86 percent in the world. NFHS-5 data also suggested that more than half of the children and women are anemic in 13 of the 22 States/ UTs in the country. In comparison, 53% of Inchan women of reproductive age (15 to 49 years) were estimated to be anemic in the fourth National Family Health Survey (NFHS-IV) in 2015-16. Thus, the percentage of Indian women suffering from anemia has decreased (and not increased) in 2020 in comparison to 2015.
  • As per the latest National Family Health Survey (NFHS), India’s TFIi has decreased to 2.0 which is below the replacement level fertility. Total Fertility Bate (TFR) is defined as the total number of children that would be born to each woman if she were to live to the end of her childbearing years.
Practice Test: Indian Economy -2 - Question 31

Consider the following statements:

1. The Reserve Bank of India’s directive requires all system providers to store payment data exclusively in systems located within India.

2. Payment System Operators (PSOs) are prohibited from processing payment transactions outside India.

3. The directive mandates that cross-border transaction data must be stored only in India.

How many of the statements given above are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 31
  • Statement 1 is correct: The Reserve Bank of India’s directive explicitly states that all data related to payment systems operated by system providers must be stored in systems located exclusively within India. This includes end-to-end transaction details and various payment-related information.
  • Statement 2 is incorrect: The directive does not prohibit the processing of payment transactions outside India by Payment System Operators (PSOs). It allows PSOs to process payment transactions abroad if they so desire. However, in such cases, the data processed abroad must be brought back to India within 24 hours.
  • Statement 3 is incorrect: The directive does not explicitly require cross border transaction data to be stored only in India. It does mention that for cross-border transactions consisting of both foreign and domestic components, a copy of the domestic component may also be stored abroad.

Reserve Bank of India’s Directive on ‘Storage of Payment System Data:

  • The Reserve Bank of India (RBI) issued a directive regarding the storage of payment system data to ensure data security and compliance with regulatory standards. The key points of the directive include:

Data Storage in India:

  • The directive mandates that all data related to payment systems, including customer details, transaction data, and payment credentials, must be stored within systems located only in Incha. This is to enhance data security and maintain control over sensitive information.

Processing of Payment Transactions:

  • The directive does not bar the processing of payment transactions outside India if the Payment System Operators (PSOs) choose to do so. However, any data processed abroad must be brought back to India within 24 hours to ensure that customer data remains within the country’s jurisdiction.

Cross-Border Transactions:

  • The directive does not explicitly require cross border transaction data to be stored only in Incha. It mentions that for transactions with both foreign and domestic components, a copy of the domestic component may also be stored abroad. This indicates a level of flexibility in managing cross-border data storage.

Access to Data:

  • Data stored in Incha can be accessed when needed for handling customer disputes and other processing activities. The data may also be shared with overseas regulators, subject to prior approval from the RBI,
  • The directive aims to strike a balance between data security and operational efficiency in the payment system while allowing some flexibility for cross border transactions and processing.
Practice Test: Indian Economy -2 - Question 32

Consider the following statements about the Reserve Bank of India’s Composite Financial Inclusion Index (Fl-Index):

1. The PI-Index is a comprehensive index that includes details of banking, investments, insurance, postal, and pension sectors.

2. The Fl-Index captures the extent of Financial Inclusion in India through parameters such as Access, Usage, and Quality of financial services.

3. The Pradhan Mantri Jan-Dhan Yojana (PMJDY) scheme was introduced with the main aim of increasing the level of financial inclusion in the country.

How many of the statements given above are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 32
  • Statement 1 is correct: The Fl-Index is a comprehensive index that incorporates details of various financial sectors, including banking, investments, insurance, postal, and pension sectors. It was developed by the RBI in consultation with the government and sectoral regulators to provide a holistic view of financial inclusion.
  • Statement 2 is correct: The primary aim of the Fl-Index is to measure and capture the extent of financial inclusion in India. It evaluates financial inclusion through three main parameters: Access, Usage, and Quality of financial services. These parameters reflect the ease of access to financial services, the extent of their usage, and the quality of services provided.
  • Statement 3 is correct: Pradhan Mantri Jan-Dhan Yojana (PMJDY) aimed to enhance financial inclusion by providing every household access to basic banking services, insurance, credit, and pension facilities, fostering economic empowerment.
  • Composite Financial Inclusion Index (FIIndex)
    • The Composite Financial Inclusion Index (Fl-Index) is a comprehensive measure introduced by the Reserve Bank of Incha (RBI) to assess the level of financial inclusion in the country. Here are some additional details:
  • Development and Scope
    • The Fl-Inclex covers multiple sectors of the financial industry, including banking, investments, and insurance, postal services, and pensions. It was introduced in 2021 by the RBI in collaboration with relevant sectoral regulators and the government.
  • Parameters and Objectives
    • The Fl-Inclex aims to capture the extent of financial inclusion by evaluating three main parameters: Access, Usage, and quantity of financial services. These parameters are further broken down into various dimensions, reflecting the multifaceted nature of financial inclusion.
  • Scoring System
    • The Fl-Inclex is designed on a scale of 0 to 100. A higher score indicates better financial inclusion, whereas a lower score implies greater financial exclusion. The index doesn’t have a specific base year and is published annually in July.
  • Parameter Weights
    • The Fl-Inclex assigns different weights to its parameters: Access (35%), Usage (45%), and Quality (20%). These weights reflect the importance of each parameter in assessing overall financial inclusion.
  • Comprehensiveness
    • The index encompasses a total of 97 indicators, making it a comprehensive tool for evaluating financial inclusion.
    • It measures not only the availability of financial services but also their accessibility and the quality of services provided.
Practice Test: Indian Economy -2 - Question 33

Consider the following statements related to the Global Minimum Corporate Tax Rate (GMCTR):

1. The G7 has backed a minimum global corporation tax rate of 10%.

2. The GMCTR will allow companies to continue shifting profits to tax havens without any penalties.

3. A global minimum rate will increase the tools that countries use to push policies that suit them.

How many of the statements given above are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 33
  • Statement 1 is incorrect: The G7 has backed a minimum global corporation tax rate of at least 15%, not 10%. The move is to ensure that corporations are fairly taxed and prevent them from moving profits to low-tax jurisdictions.
  • Statement 2 is incorrect: The GMCTR aims to counteract the advantage of shifting profits to tax havens. If companies pay lower rates in a particular country, their home countries can “top-up their taxes to the agreed minimum rate, effectively neutralizing the benefit of using tax havens.
  • Statement 3 is incorrect: Rather than increasing the tools, a global minimum rate could restrict the policy tools countries have. Historically, countries have used competitive tax rates to attract businesses. With a standardized global minimum, their ability to offer lower rates as an incentive will be limited.

GMCTR

  • The G7 nations have proposed a Global Minimum Corporate Tax Bate (GMCTE) of at least 15% to ensure companies pay taxes in the countries where they operate. This tax would apply to firms’ overseas profits, allowing governments to set their local corporate tax rates.
  • However, if businesses pay below the minimum rate in any country, their home countries would compensate by raising the tax to the agreed minimum, thus negating the benefits of transferring profits to tax havens.
  • Tax havens are essentially offshore nations that offer minimal or no tax liabilities. The push for GMCTE arises from the need to reduce tax losses, especially when intangible assets, such as software or patents, allow businesses to evade higher taxes in their primary nations by using intricate subsidiary structures.
  • Notably, India faces a tax loss of over USD 10 billion annually due to corporate tax evasion. The GMCTE also seeks to standardize corporate taxation globally, halting the competitive lowering of tax rates by countries to attract corporate entities.
  • However, implementing GMCTE is challenging. Gaining consensus among nations is tough, primarily when the initiative affects sovereign rights concerning tax policies. There’s also the argument that a global minimum tax rate might hinder countries’ policy-making freedom and inadequately address tax evasion.
  • The OECD has been at the forefront, negotiating taxation norms with 140 countries, focusing on digital services and curbing tax base erosion, India views this move positively, as the domestic tax rate already exceeds the proposed global minimum, positioning it advantageously in attracting investments.
Practice Test: Indian Economy -2 - Question 34

Consider the following statements about the National Monetisation Pipeline (NMP):

1. The NMP plans to utilize capital from only strategic government-owned assets.

2. A envisages an aggregate monetization potential of ?T00 lakh crore.

3. The NMP is anticipated to boost the economy and drive the competitiveness of the Inchan economy.

How many of the statements given above are incorrect?

Detailed Solution for Practice Test: Indian Economy -2 - Question 34
  • Statement 1 is incorrect; The National Monetisation Pipeline (NMP) focuses on unlocking the capital from non-strategic underperforming government-owned assets rather than just the strategic assets. Its aim is to reinvest these funds into new infrastructure projects, enhancing the economic utility of these assets.
  • Statement 2 is incorrect: NMP envisages an aggregate monetization potential of tJ6-lakh crore. This is expected to be achieved through the leasing of core assets of the Central government in diverse sectors such as roads, railways, power, and more over a four-year period (FY 2022-25). The aim is to enhance the efficiency of the assets and generate funds for further development projects.
  • Statement 3 is correct: NMP is an innovative initiative designed to rejuvenate the economy by tapping into the potential of underutilized public assets. By doing so, it aims to create employment opportunities, generate funds for new infrastructure projects, and enhance the overall competitiveness of the Indian economy.

National Monetisation Pipeline

  • The National Monetisation Pipeline (NMP). introduced in August 2021, aims to tap into institutional and long-term capital to unlock the value of investments in brownfield public sector assets. It anticipates a monetization potential of ,6-lakh crore by leasing core assets in sectors including roads, railways, power, and telecom, over a four-year period (FY 2022-25).
  • The initiative stems from the underperformance of Public Sector Enterprises due to reasons such as cost overruns, overcapitalization, and excessive government control. The NMP promises to revitalize the economy, capitalize on underutilized public assets, and further the competitive edge of the Indian market.
  • However, the NMP isn’t devoid of challenges. Concerns arise from the taxpayers’ perspective, as they’ve already financed these public assets. Critics also fear a cycle where assets are created and then monetised once they become governmental liabilities.
  • There are sector-specific challenges, like capacity underutilization and regulated tariffs. A crucial criticism is the potential monopolization in sectors like highways and railways, which could increase prices.
  • The broader scope of the initiative is also in question, given the current global challenges like climate change and geopolitical turmoil, alongside India's internal issues hke endemic poverty and institutional erosion.
Practice Test: Indian Economy -2 - Question 35

Consider the following statements regarding the Gati Shakti scheme:

1. The scheme aims to establish 11 new defense corridors.

2. One of the expected outcomes of the scheme is to provide immense clarity on last-made connectivity linking different regions and industrial hubs.

3. One of the aims of the scheme is to add 17,000 km to the gas pipeline network.

How many of the statements given above are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 35
  • Statement 1 is incorrect: The scheme intends to have 11 industrial corridors, but only two new defense corridors - one in Tanul Nadu and the other in Uttar Pradesh.
  • Statement 2 is correct: One of the
  • anticipated results of the scheme is to provide a clear vision on how different regions and industrial hubs in the nation are interconnected, emphasizing the significance of last-mile connectivity.
  • Statement 3 is correct: One of the specific objectives of the Gati Shakti scheme is to add 17,000 kms to the existing gas pipeline network, thus enhancing the energy infrastructure of the country.

Gati Shakti scheme

  • The Gati Shakti scheme, initiated to ensure cohesive planning and implementation of infrastructure projects over the next four years, aims to expedite on-ground works, generate jobs, and reduce expenses.
  • This scheme will incorporate the Rs 110 lakh crore National Infrastructure Pipehne initiated in 2019. Objectives include enhancing logistics efficiency, expanding cargo handling, reducing port turnaround times, developing 11 industrial corridors, two defense corridors, extending 4G connectivity to all villages, and adding 17,000 kms to the gas pipeline network.
  • With the vision to meet the government’s 2024-25 goals, the scheme aims to increase the national highway network to 2 lakh kms and commission over 200 new aviation facilities.
  • To address challenges like fragmented planning and lack of standardization, the scheme embodies an integrated approach, intending to unify 16 infrastructure-related ministries. This strategy will streamline clearances and optimize infrastructure capabilities.
  • A significant component is the Gati Shakti Digital Platform, designed to facilitate coordinated and real-time planning and implementation of infrastructure projects across ministries.
  • Anticipated outcomes include clear mapping of connectivity projects, enhanced clarity on interlinking different regions, and bolstering the ‘Make in India' initiative by providing integrated transport connectivity. This holistic approach positions India to emerge as the global business capital.
Practice Test: Indian Economy -2 - Question 36

Consider the following statements about Credit Rating Agencies (CRAs) in India:

1. Financial institutions eagerly lend money to businesses with poor credit ratings.

2. CRAs are directly accountable to investors.

3. There is a conflict of interest when CRAs have consultancy or advisory services registered in subsidiaries.

Which of the statements given above is/are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 36
  • Statement, 1 is incorrect: Financial institutions are typically wary of lending to businesses with poor credit ratings. Such businesses are viewed as high-risk borrowers. A poor credit rating indicates a higher school of default, which poses a financial risk to lenders. Consequently, lenders are hesitant and more cautious while extending credit to such businesses to avoid potential losses.
  • Statement 2 is incorrect: Crecht Hating Agencies (C-RAs) are not directly accountable to investors. This lack of direct accountability has raised regulatory concerns. Investors rely on CRAs for unbiased financial evaluations. However, without a direct one of responsibility, there can be potential biases and influences in their ratings, which might not always serve the best interests of the investors.
  • Statement 3 is correct: A conflict of interest arises when CRAs have consultancy or advisory services registered in subsidiaries. This can potentially influence the impartiality of their ratings. CRAs should ideally offer unbiased evaluations. When they provide consultancy or advisory services, it could compromise the neutrality of their assessments, as they might have vested interests in the entities they rate.

Credit Rating Agencies

  • Credit Rating Agencies (CRAs) in Incha play a pivotal role in the financial landscape, offering an independent assessment of creditworthiness, which aids investors and lenders in decision-making. They standardize credit ratings, thereby augmenting transparency and efficiency in financial markets.
  • These ratings serve as vital benchmarks for financial market regulations. Consequently, they can potentially lower the borrowing costs for companies by curbing information asymmetry and bolstering investor trust.
  • Notably, a robust credit rating can significantly enhance a country’s ability to allure high-value investors and foreign direct investments.
  • However, CRAs have also faced criticism. Some are seen as prioritizing shareholder returns, often exhibiting unsustainable high profits. There are concerns about their direct accountability to investors, which presents a regulatory challenge.
  • Additionally, some CRAs have been criticized for protective stances that might influence their objectivity. A notable conflict of interest emerges when CRAs operate consultancy or advisory services through subsidiaries, which many argue should be disallowed due to the potential compromise on impartiality.
Practice Test: Indian Economy -2 - Question 37

Which one of the following statements is correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 37

Option (a) is correct: Foreign Direct Investment (FDI) has the potential to stimulate economic growth in the host country by establishing new production facilities, transferring advanced technologies, generating employment opportunities, and improving the skill set of the local workforce, contributing to overall development.

Foreign direct investment (FDI)

  • FDI typically implies a strong influence or control over the acquired foreign entity. It's not merely passive, as it often involves tangible assets and direct involvement or at least the potential for such involvement in the company’s operations. The core essence of DFI is active participation and decision-making in the foreign entity.
  • Greenfield Investments refer to starting new operations or building new facilities in another country from scratch, rather than acquiring or merging with existing entities. The statement incorrectly defines it as an investment in existing facilities.
  • In Turnkey Projects, a company constructs and equips a facility, then hands it over once it’s ready to operate. The buyer generally has the control to operate, make strategic decisions, and manage intellectual property.
  • The statement misleadingly implies that the seller retains strategic and intellectual property rights after handover.
Practice Test: Indian Economy -2 - Question 38

Consider the following statements:

1. Shanghai Cooperation Organisation originated from a group called the “Shanghai Five.”

2. China is a member of ASEAN.

3. BIMSTEC was initially founded with seven member countries.

How many of the statements given above are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 38
  • Statement 1 is correct: The Shanghai Cooperation Organisation (SCO) originated as the “Shanghai Five’’ in 1996, comprising China, Russia, Kazakhstan, Kyrgyzstan, and Tajikistan. Uzbekistan joined in 2001, transforming it into the SCO. Current SCO members are -China, India, Kazakhstan, Kyrgyzstan, Russia, Pakistan, Tajikistan, Uzbekistan and Iran.
  • Statement 2 is incorrect: China is not a member of ASEAN. The Association of Southeast Asian Nations (ASEAN) comprises ten member countries from Southeast Asia. These are Brunei Darussalam. Cambodia. Indonesia, Laos (officially known as Lao PDR), Malaysia, Myanmar (formerly known as Burma), Philippines, Singapore, Thailand, and Vietnam. These nations have come together with the aim of promoting political and economic cooperation and regional stability among its members.
  • Statement 3 is incorrect: BIMSTEC was not founded with seven member countries. Initially, it was formed with four Member States with the acronym 'BIST-EC’ (Bangladesh, Incha, Sri-Lanka and Thailand Economic Cooperation, which later expanded to seven.

ASEAN (Association of Southeast Asian Nations)

  • Established in 1967, it comprises ten Southeast Asian countries: Brunei Darussalam, and Cambodia. Indonesia, Laos, Malaysia, Myanmar, Philippines. Singapore, Thailand, and Vietnam.
  • Founded during the Cold War era, its main goals include fostering economic growth, social progress, and cultural development among members, alongside promoting regional peace and stability.
  • Over the years, ASEAN has played a pivotal role in regional diplomacy, mitigating disputes and encouraging collaboration.

BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation):

  • Formed in 1997, BIMSTEC links South and Southeast Asian countries along the coast of the Bay of Bengal, namely Bangladesh, Bhutan, Incha, Myanmar, Nepal, Sri Lanka, and Thailand.
  • Its primary objective is to foster socioeconomic cooperation, and technological collaboration, and facilitate trade ties.
  • BIMSTEC also aims to harness shared interests and common histories, thereby boosting regional develop men I and integration.

SCO (Shanghai Cooperation Organisation):

  • Founded in 2001 in Shanghai, the SCO is a comprehensive regional organization that includes China, Russia, India, Pakistan, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan.
  • Iran has officially joined the SCO, becoming the group's ninth permanent member. The organization focuses on promoting political, economic, and security-related cooperation among its members.
  • Originally established to resolve border disputes, its remit has since expanded to combat terrorism, separatism, and extremism, while also endorsing cultural exchanges and enhancing economic partnerships.
Practice Test: Indian Economy -2 - Question 39

Consider the following statements:

1. Member countries of a Customs Union maintain individual tariff policies for non-member countries.

2. Within a Customs Union, member countries eliminate tariffs on goods traded among themselves.

3. The common market does not allow the free movement of capital and labor between member countries.

How many of the statements given above are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 39
  • Statement 1 is incorrect: A distinctive trait of a Customs Union is the institution of a common external tariff (CET). This CET signifies that every member state uniformly levies the same tariffs on imports from countries outside of the union. This uniformity aims to streamline trade policies toward non-member nations and provide a level playing field for all members within the union.
  • Statement 2 is correct: Within the framework of a Customs Union, member nations concur on abolishing tariffs on intra-union trade. Removing these trade barriers, there’s an encouragement and enhances trade activities between member countries, leading to economic benefits and closer ties between the nations.
  • Statement 3 is incorrect: While the free movement of goods and services is fundamental, a Common Market extends its principles further. It ensures the unhindered flow of not only goods and services but also capital and labor. This broader integration fosters an interconnected economic landscape where resources. including humans and capit al. can move freely, optimizing economic benefits and growth.
  • Customs Union:
    • A Customs Union is an agreement between two or more countries to eliminate tariffs on trade among themselves and to adopt a common external tariff for non-member countries,
    • This ensures that all member countries maintain a unified trade policy towards nations outside the union, preventing trade diversion.
    • Example: The Southern Common Market (Mercosur), which includes countries like Argentina, Brazil, Paraguay, Uruguay, and Venezuela.
  • Common Market:
    • Based on the foundation of a Customs Union, a Common Market not only allows free trade of goods and services but also permits the free movement of capital and labor across member countries. It aims to remove non-tariff barriers.
    • Example: The European Economic Area (EEA), which combines the European Union (EU) members and some non-EU countries.
  • Economic Union:
    • An Economic Union is a deeper form of integration that combines the features of a Common Market with unified monetary, fiscal, and social policies.
    • This often means member countries will have harmonized taxation, shared public procurement, and more closely integrated economic policies.
    • Example: The European Union (EU) started as an economic union, though it has since evolved further.
  • Economic and Monetary Union:
    • This is a type of economic union that adopted a single currency, centralizing the monetary policy under one central bank and aligning fiscal policies.
    • By doing so, it seeks to achieve higher levels of economic integration and stability. Example: The Eurozone, where 19 of the 27 EU member countries use the Euro as their official currency.
Practice Test: Indian Economy -2 - Question 40

Consider the following statements:

1. The Trade-Related Investment Measures (TRIMS) prohibits certain measures that violate the GATT national treatment and quantitative restrictions.

2. The TRIMS Agreement applies only to trade in goods.

3. India faced challenges under the TradeRelated Aspects of Intellectual Property Rights (TRIPS) Agreement due to its local content requirements in the solar power sector.

How many of the statements given above are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 40
  • Statement 1 is correct: The Trade-Related Investment Measures (TRIMS) recognizes specific investment measures that infringe upon fundamental GATT (General Agreement on Tariffs and Trade) principles. Key among these are the principle of national treatment, which ensures equal treatment between domestic and foreign goods, and the prohibition of quantitative restrictions, which forbids limits on the quantity of imports or exports.
  • Statement 2 is correct: The TRIMS Agreement specifically addresses trade in goods. It does not encompass trade in services or intellectual property matters. These areas, important in their own right, fall under distinct World Trade Organization (WTO) agreements, ensuring a comprehensive trade framework for member nations.
  • Statement 3 is incorrect: India faced challenges under the TRIMS Agreement due to its local content requirements in the solar power sector, as some measures were deemed inconsistent with its national treatment obligation under the TRIMS Agreement and the GATT 1994,

TRIPS (Trade-Related Aspects of Intellectual Property Rights):

  • This is one of the most comprehensive multilateral agreements on intellectual property.
  • TRIPS cover copyright and related rights (like performers), trademarks, geographical indications, industrial designs, patents, integrated circuit layout designs, and undisclosed information like trade secrets.
  • It incorporates many IP standards from various conventions, mainly the Berne Convention (for copyrights) and the Paris Convention (for industrial property).
  • It has a special provision for the protection of test data submitted for the approval of pharmaceuticals and agricultural chemicals.

TRIMS (Trade-Related Investment Measures):

  • It recognizes that certain investment measures can restrict and distort trade.
  • The main objective is ensuring that investment measures do not discriminate against foreign products or lead to quantitative restrictions, both of which violate basic WTO principles.
  • Examples of restricted measures under TRIMS include requirements to achieve a given level of local content or to purchase or use products of domestic origin.

India’s Relationship with TRIMS and TRIPS:

  • India has had to make significant changes in its intellectual property laws, especially patent law, to become TRIPS-compliant.
  • In the arena of TRIMS, India’s policies, especially in sectors like solar energy, faced scrutiny because of local content requirements. India has been active in the WTO’s discussions on both TRIPS and TRIMS, seeking to ensure that its development and public policy objectives are addressed.
Practice Test: Indian Economy -2 - Question 41

Which among the following are the efforts undertaken by the Government to help formalize the economy?

1. Introduction of GST

2. Direct Benefit transfer of subsidies/scholarships

3. Extending social security coverage

4. Digitisation of payments

Select the correct answer using the code given below.

Detailed Solution for Practice Test: Indian Economy -2 - Question 41

In recent times, the Government has been making efforts to formalize the economy. In this direction, several initiatives have been taken, namely— the introduction of GST, digitisation of payments, direct benefit transfer of subsidies/scholarships/wages & salaries to bank accounts, opening of Jan Dhan accounts, extending social security coverage to more workers.
As a result of these initiatives, an increase in formal employment is evident as is shown through multiple data sources:

  • As per the Annual Survey of Industries (ASI), there has been an increase in employment in the ‘organised’ manufacturing sector.
  • To indicate the extent of formalisation of the workforce by extending coverage of organised social security, the Government, since September 2017, published the monthly payroll data indicating the number of new subscribers who have availed benefits under three major social security schemes, namely— Employees’ Provident Fund (EPFO); Employees’ State Insurance Scheme (ESIC); and the National Pension Scheme (NPS).
Practice Test: Indian Economy -2 - Question 42

Consider the following statements regarding the state of agriculture in India:

1. The share of the agriculture sector in India's GDP has seen a consistent rise since independence.

2. Around 55% of India's population still depends on the agriculture sector for livelihood.

3. Agriculture carries no burden of individual income tax.

4. The productivity gap between on-thefield and ideal farm practices has significantly increased in recent years.

Which of the statements given above are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 42
  • Statement 1 is incorrect: The share of the agriculture sector in India's GDP has seen a significant decline since independence. In the fiscal year 1950–51, agriculture accounted for around 55.4% of the GDP, while currently, it stands at around 15 %. This demonstrates a substantial decrease in its contribution to the overall economy over the years.
  • Statement 2 is correct: Despite the decreasing share in the country's gross income, around 55% of India's population still depends on the agriculture sector for their livelihood. It means that around 55 per cent of the population lives with only around 18 per cent of the total income of the Indian economy.
  • Statement 3 is correct: Agriculture is not only the biggest sector of the economy, but also the biggest private sector. It is the only profession which still carries no burden of individual income tax.
  • Statement 4 is incorrect: The productivity gap between on-the-field and ideal farm practices has decreased in recent years. As per the recent release of the Gol, the average productivity of rice, wheat and pulses, which was 2,202 kg, 2,802 kg and 625 kg per hectare in 2007— 08, increased to 2,346 kg, 3,026 kg and 649 kg per hectare during 2011— 13.
Practice Test: Indian Economy -2 - Question 43

Which of the following is the aim of the National Land Records Modernization Programme (NLRMP) initiated in 2008?

Detailed Solution for Practice Test: Indian Economy -2 - Question 43

The National Land Records Modernization Programme (NLRMP), started in 2008, aims at updating and digitising land records by the end of the 12th Plan. Eventually, the intent is to move from the presumptive title (where registration of a title does not imply the owner’s title is legally valid) to a conclusive title (where it does).
Important points related to this process may be summarised as follows:

  • Digitisation will help enormously in lowering the costs of land transactions, while conclusive title will eliminate legal uncertainty and the need to use the government as an intermediary for acquiring land so as to ‘cleanse’ title.
  • Given the importance of this programme, its rollout in various states needs to be accelerated— easier and quicker land transactions will especially help small and medium enterprises that do not have legal support or management.
Practice Test: Indian Economy -2 - Question 44

Consider the following statements:

1. Family planning was a major target of this Development Plan.

2. The Plan was based on the Gadgil strategy.

3. Emphasis was on the growth rate of agriculture to enable other sectors to move forward.

Which of the following Five-Year plans is best described by the above statements?

Detailed Solution for Practice Test: Indian Economy -2 - Question 44

The Fourth Five-Year plan period was 1969— 74. The Plan was based on the Gadgil strategy with a special focus on the ideas of growth with stability and progress towards self-reliance. Droughts and the Indo-Pak War of 1971— 72 led the economy to capital diversions, creating a financial crunch for the Plan.
The main emphasis was on the growth rate of agriculture to enable other sectors to move forward. The first two years of the plan saw record production. The last three years did not measure up due to poor monsoon. Implementation of Family Planning Programmes was among the major targets of the Plan.

Practice Test: Indian Economy -2 - Question 45

Consider the following statements with reference to Green Climate Fund:

1. It was established by UN Framework Convention on Climate Change member countries in 2010.

2. The Fund allocates its resources in lowemission and climate-resilient development projects in developing countries.

3. Stockholm convention on Persistent Organic Pollutants is specifically funded by this fund.

How many of the statements given above are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 45
  • Statement 1 is correct: The Green Climate Fund was established by 194 countries party to the UN Framework Convention on Climate Change in 2010. It is designed as an operating entity of the Convention’s financial mechanism and is headquartered in the Republic of Korea. It is governed by a 24 Board member Board, representing countries, and receives guidance from the Conference of the Parties to the Convention (COP). Created by the United Nations Framework Convention on Climate Change (UNFCCC), the Fund aims to support a paradigm shift in the global response to climate change.
  • Statement 2 is correct: The fund allocates its resources to low-emission and climateresilient projects and programmes in developing countries. The Fund pays particular attention to the needs of societies that are highly vulnerable to the effects of climate change, in particular Least Developed Countries (LDCs), Small Island Developing States (SIDS), and African States.
  • Statement 3 is incorrect: The Stockholm Convention on Persistent Organic Pollutants is a global treaty to protect human health and the environment from chemicals that remain intact in the environment for long periods, become widely distributed geographically, accumulate in the fatty tissue of humans and wildlife, and have harmful impacts on human health or on the environment. The Global Environment Facility finances the Stockholm Convention on Persistent Organic Pollutants (POPs).

The GEF is also a Financial Mechanism for four other major international environmental conventions:

  • Minamata Convention on Mercury
  • United Nations Convention on Biological Diversity (UNCBD)
  • United Nations Convention to Combat Desertification (UNCCD)
  • United Nations Framework Convention on Climate Change (UNFCCC)
Practice Test: Indian Economy -2 - Question 46

Consider the following:

1. To reduce the emissions intensity of its GDP by 33 to 35 percent by 2030 from 2005 level.

2. To create an additional carbon sink of 2.5 to 3 billion tonnes of CO2 equivalent through additional forest and tree cover by 2030.

3. To achieve about 40 per cent cumulative electric power installed capacity from non-fossil fuel based energy resources.

How many of the above were included in India’s Intended Nationally Determined Contribution (INDCs) submitted at COP 21 of United Nations Framework Convention on Climate Change?

Detailed Solution for Practice Test: Indian Economy -2 - Question 46
  • Countries across the globe committed to create a new international climate agreement by the conclusion of the U.N. Framework Convention on Climate Change (UNFCCC) Conference of the Parties (COP21) in Paris in December 2015. In preparation, countries have agreed to publicly outline what post-2020 climate actions they intend to take under a new international agreement, known as their Intended Nationally Determined Contributions (INDCs).
  • India had submitted its Intended Nationally Determined Contribution (INDC) to the United Nations Framework Convention on Climate Change during October 2015. It has been revised and approved by the Cabinet during August 2022.

Salient features of India's INDC

  • To adopt a climate-friendly and a cleaner path than the one followed hitherto by others at corresponding level of economic development.
  • To reduce the emissions intensity of its GDP by 33 to 35 percent by 2030 from 2005 level. Hence, option 1 is correct.
  • To achieve about 40 per cent cumulative electric power installed capacity from non-fossil fuel based energy resources by 2030, with the help of transfer of technology and low cost international finance, including from Green Climate Fund. Hence, Option 3 is correct. To create an additional carbon sink of 2.5 to 3 billion tonnes of CO2 equivalent through additional forest and tree cover by 2030. Hence, Option 2 is correct.
  • To build capacities, create domestic framework and international architecture for quick diffusion of cutting edge climate technology in India and for joint collaborative R&D for such future technologies.
Practice Test: Indian Economy -2 - Question 47

Which of the following terms is used to describe the maximum size of an agricultural holding that must be possessed and owned by a family?

Detailed Solution for Practice Test: Indian Economy -2 - Question 47

Optimum Holding is the Maximum size of the holding which must be possessed and owned by a family.
Economic Holding is that holding which ensures a minimum satisfactory standard of living in a family. In other words, economic holding is a minimum essential area for profitable agriculture. Family holding gives work to an average-sized family having one plough under a traditional farming system. In other words, family holding is a ‘plough unit’ which is neither less nor more for an average size family to cultivate properly.

Practice Test: Indian Economy -2 - Question 48

Consider the following statements with reference to the National Action Plan on Climate Change:

1. There are twelve ‘National Missions’ which form the core of the plan.

2. An objective of the plan is to achieve national growth and poverty alleviation while ensuring ecological sustainability.

Which of the statements given above are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 48

Statement 1 is incorrect: The National Action Plan on Climate Change (NAPCC) It outlines a national strategy that aims to enable the country to adapt to climate change and enhance the ecological sustainability of India‘s development path. It stresses that maintaining a high growth rate is essential for increasing living standards of the vast majority of people of India and reducing their vulnerability to the impacts of climate change.
There are eight ‘National Missions’ which form the core of the National Action Plan. They focus on promoting understanding of climate change, adaptation and mitigation, energy efficiency and natural resource conservation.

1. National Solar Mission

2. National Mission for Enhanced Energy Efficiency

3. National Mission on Sustainable Habitat

4. National Water Mission

5. National Mission for Sustaining the Himalayan Ecosystem

6. National Mission for a Green India

7. National Mission for Sustainable Agriculture

8. National Mission on Strategic Knowledge for Climate Change

Statement 2 is correct: The Principles of the National Action Plan on Climate Change (NAPCC) are:

  • Protecting the poor through an inclusive and sustainable development strategy, sensitive to climate change
  • Achieving national growth and poverty alleviation objectives while ensuring ecological sustainability
  • Efficient and cost-effective strategies for end-use demand-side management
  • Extensive and accelerated deployment of appropriate technologies for adaptation and mitigation
  • New and innovative market, regulatory, and voluntary mechanisms for sustainable development.
Practice Test: Indian Economy -2 - Question 49

Consider the following statements about the Samagra Shiksha scheme:

1. It was launched by subsuming two schemes, namely Sarva Shiksha Abhiyan (SSA) and Rashtriya Ucchatar Shiksha Abhiyan(RUSA).

2. The scheme includes an annual school grant to look after a variety of needs of the school.

Which of the statements given above are correct?

Detailed Solution for Practice Test: Indian Economy -2 - Question 49
  • Statement 1 is incorrect: Integrated Scheme for School Education (ISSE), i.e. ‘Samagra Shiksha’ was launched in 2018–19 by subsuming three erstwhile Centrally Sponsored Schemes, namely Sarva Shiksha Abhiyan (SSA), Rashtriya Madhyamik Shiksha Abhiyan (RMSA) and Teacher Education (TE). The ISSE envisages school education as a continuum from preschool to senior secondary level and aims to ensure inclusive and equitable quality education.
  • Statement 2 is correct: Under it, States and UTs are supported for strengthening of existing government schools, and for the creation and augmentation of infrastructure facilities based on proposals received from respective States/UTs. The scheme includes an annual school grant to look after a variety of needs of the school such as—sanitation, annual maintenance, toilets and other facilities to upkeep the infrastructure in good condition besides various interventions for improvement of quality of education (such as induction and in-service training of teachers and school heads, learning enhancement programmes, use of ICT in education, assessment of learning outcomes, provision of libraries and supplementary graded material to schools, etc).
Practice Test: Indian Economy -2 - Question 50

The concept of micro insurance has been developed by which one of the following private companies in India?

Detailed Solution for Practice Test: Indian Economy -2 - Question 50

Micro-insurance is specifically intended for the protection of low-income people, with affordable insurance products to help them cope with and recover from financial losses. The need for insurance for an underprivileged section cannot be avoided as this section of society is more prone to many risks which ultimately leads to the incapacity to face such uncertain situations. Hence, the role that micro-insurance plays becomes inevitable.
The concept of microinsurance has been developed by the private insurance company Aviva Life Insurance (in partnership with MFIs), which has forged alliances with banks like Canara Bank, P&SB, RRBs, 23 cooperatives, etc., to promote microfinance.
The major challenges in microinsurance distribution are: -

  • Small ticket size coupled with high transaction and service delivery costs.
  • Absence of a business model that can attract good intermediaries. Capacity building of
  • intermediaries.
  • Lack of basic awareness and knowledge on how insurance works
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