Test: Current Affairs December 2020


15 Questions MCQ Test Indian Economy for UPSC CSE | Test: Current Affairs December 2020


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QUESTION: 1

Consider the following statements regarding the recent trend in India's external debt.

1. US dollar denominated debt continued to be the largest component of India's external debt.

2. Non-resident deposits remained the largest component of the external debt.

3. The long-term debt constitutes more than twice the short-term debt in total external debt.

Which of the above statements is/are correct?

Solution: India's external debt stood at USD 554.5 billion at end-June, recording a decrease of USD 3.9 billion over its level at the end of March 2020. Further, the external debt to GDP ratio increased to 21.8 per cent at June-end 2020 from 20.6 per cent as on March 31.

As per the data, commercial borrowings remained the largest component of external debt, with a share of 38.1 per cent, followed by non-resident deposits (23.9 per cent) and short-term trade credit (18.2 per cent).

The share of short-term debt in total external debt declined to 18.9 per cent as on June 30 from 19.1 per cent at end-March. The Reserve Bank said the US dollar denominated debt remained the largest component of India's external debt, with a share of 53.9 per cent at end-June followed by the Indian rupee (31.6 per cent), yen (5.7 per cent), SDR (4.5 per cent) and the euro (3.5 per cent).

QUESTION: 2

Consider the following statements regarding Anti-Dumping Duty.

1. An anti-dumping duty is a protectionist tariff that a domestic government imposes on imports that it believes are priced below fair market value.

2. In India, Directorate General of Trade Remedies (DGTR), under the Ministry of Commerce & Industry conducts anti-dumping investigations.

Which of the above statements is/are correct?

Solution: An anti-dumping duty is a protectionist tariff that a domestic government imposes on imports that it believes are priced below fair market value. Dumping is a process wherein a company exports a product at a significantly lower price than the price it normally charges in its home (or its domestic) market.

Directorate General of Trade Remedies (DGTR) conducts anti-dumping investigations, under the Customs Tariff Act, 1975 and the rules made thereunder, based on a duly substantiated application filed by the domestic industry alleging dumping of goods into the country causing injury to the domestic industry. Anti-dumping measures' basic intent is to eliminate injury caused to the domestic industry by the unfair trade practice of dumping and to create a level playing field for the domestic industry.

QUESTION: 3

Teaser loan, sometimes seen in news means;

Solution: Teaser loans charge comparatively lower rates of interest in the first few years after which the rates are increased.

QUESTION: 4

Consider the following statements.

1. Recession is defined as a fall in the overall economic activity for two consecutive quarters accompanied by a decline in income, sales and employment.

2. India's economy has now formally entered into a technical recession.

3. Gross Value Added (GVA) data provides a measure of national income by looking at the value-added sectors of the economy.

Which of the above statements is/are correct?

Solution: According to the official data released recently, India's gross domestic product (GDP) contracted by 7.5% during the July, August, and September quarter. This means that in Q2 of 2020-21 India produced 7.5% fewer goods and services compared to what India produced in Q2 of 2019-20.

In the process, India's economy has now formally entered into a technical recession because — along with the nearly 24% contraction in Q1 — India has had two consecutive quarters when GDP growth rate has declined.

Recession is defined as a fall in the overall economic activity for two consecutive quarters (six months) accompanied by a decline in income, sales and employment.

Gross Value Added (GVA) data provides a measure of national income by looking at the value-added by different economic sectors in that quarter. If you want to compare which parts of the economy improved production and incomes from one quarter to another, the GVA is more apt.

 

QUESTION: 5

Zombie firms, sometimes seen in news implies

Solution:

Former Chief Economic Advisor Arvind Subramanian said India had moved from socialism with a limited entry (for firms) to capitalism without exit. Alas, capitalism without exit is Zombieland, full of companies neither dead nor alive.

In the financial world, companies on life support are called "Zombies": Those firms that cannot cover their debt-servicing costs with current earnings. They are in bad shape and probably should have gone out of business already. Yet, they are being kept alive.

QUESTION: 6

Which of the following are the functions of Banks Board Bureau (BBB)?

1. Improve the governance of Public Sector Banks.

2. Advise the government on top-level bank appointments.

3. Provide adequate capital to the Public Sector Banks to deal with bad loans.

Select the correct answer code:

Solution: Banks Board Bureau (BBB) was set up in February 2016 as an autonomous body based on the RBI-appointed PJ Nayak Committee's recommendations to improve governance of Public Sector Banks (PSBs).

It was the part of Indradhanush Plan of government.

It had replaced Appointments Board of Government.

Its broad agenda is to improve governance at state-owned lenders. Its mandate also involved advising the government on top-level bank appointments and assisting banks with capital-raising plans and strategies to deal with bad loans.

It guides banks on mergers and consolidations and governance issues to address bad loans problem among other issues.

QUESTION: 7

Consider the following statements regarding Special economic zones (SEZs) in India.

1. The SEZ Act 2005 envisages a key role for the State Governments in Export Promotion and creating a related infrastructure in SEZs.

2. All laws of India are applicable in SEZs unless specifically exempted as per the SEZ Act/ Rules.

3. SEZs are exempted from Minimum Alternate Tax (MAT).

Which of the above statements is/are correct?

Solution: A special economic zone (SEZ) is an area where the business and trade laws are different from the rest of the country. SEZs are located within a country's national borders, and their aims include increased trade balance, employment, increased investment, job creation and effective administration.

The SEZ Scheme's main objectives are generation of additional economic activity, promotion of exports of goods and services, promotion of investment from domestic and foreign sources, creation of employment opportunities, and the development of infrastructure facilities. All laws of India are applicable in SEZs unless specifically exempted as per the SEZ Act/ Rules. Sales in the Domestic Tariff Area from the SEZ units are treated as imported and subject to payment of applicable customs duties.

SEZs were introduced to India in 2000, following the already successful SEZ model used in China. Before their introduction, India relied on export processing zones (EPZs), which failed to impact foreign investors. By 2005, all EPZs had been converted to SEZs.

The SEZ Act 2005 envisages a key role for the State Governments in Export Promotion and creation of related infrastructure.

QUESTION: 8

Consider the following statements regarding Negative-yield bonds.

1. These are debt instruments that offer to pay the investor a maturity amount lower than the bond's purchase price.

2. Central banks or governments generally issue these.

3. Negative-yield bonds attract investments during times of stress and uncertainty as investors look to protect their capital from significant erosion.

Which of the above statements is/are correct?

Solution: Recently China sold negative-yield debt for the first time, which saw high demand from investors across Europe. As yields in Europe are even lower, there was a huge demand for the 4-billion-euro bonds issued by China. China's 5-year bond was priced with a yield of -0.152%, and the 10-year and 15-year securities with positive yields of 0.318% and 0.664%.

What are negative-yield bonds?

These are debt instruments that offer to pay the investor a maturity amount lower than the bond's purchase price. Central banks or governments generally issue these, and investors pay interest to the borrower to keep their money with them.

Why do investors buy them?

Negative-yield bonds attract investments during times of stress and uncertainty as investors look to protect their capital from significant erosion. When the world is battling the Covid-19 pandemic and interest rates in developed markets across Europe are much lower, investors are looking for relatively better-yielding debt instruments to safeguard their interests.

 

QUESTION: 9

National Company Law Appellate Tribunal (NCLAT) hears appeals from the orders of

1. National Company Law Tribunal (NCLT)

2. Insolvency and Bankruptcy Board of India

3. Competition Commission of India (CCI)

Select the correct answer code:

Solution:

The National Company Law Appellate Tribunal (NCLAT) is a tribunal formed by the Central Government of India under Section 410 of the Companies Act, 2013. The tribunal is responsible for hearing appeals from National Company Law Tribunal (NCLT) orders, starting on 1 June 2016.

The tribunal also hears appeals from orders issued by the Insolvency and Bankruptcy Board of India under Section 202 and Section 211 of IBC. It also hears appeals from any direction issued, a decision made, or order passed by India's Competition Commission (CCI).

QUESTION: 10

Geographical Indication tags are typically given for

1. Agricultural products

2. Foodstuffs

3. Handicrafts

4. Industrial products

5. Wines and spirit drinks 

Select the correct answer code:

Solution:

The World Intellectual Property Organisation defines a GI as "a sign used on products that have a specific geographical origin and possess qualities or a reputation that are due to that origin".
GIs are typically used for agricultural products, foodstuffs, handicrafts, industrial products, wines and spirit drinks. Darjeeling tea, Kullu shawl, Mysore agarbathi, champagne (France), Swiss watches etc. are examples.
Internationally, GIs are covered as an element of intellectual property rights under the Paris Convention for the Protection of Industrial Property. They have also covered under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement.

QUESTION: 11

Consider the following statements.

1. Disinvestment involves selling minority shares of Public Enterprises, to a public or private entity.

2. When the government sells majority shares in a public sector entity that is strategic disinvestment.

3. Under strategic disinvestment, the government transfers the ownership and control of a public sector entity to another public entity and the private sector is not involved here.

Which of the above statements is/are correct?

Solution: What is strategic disinvestment or strategic sale?

When the government decides to transfer the ownership and control of a public sector entity to some other entity, either private or public, the process is called strategic disinvestment.

What is the difference between strategic disinvestment/sale and disinvestment?

Selling minority shares of Public Enterprises, to another entity be it public or private is disinvestment. In this, the government retains ownership of the enterprise. On the other hand, when the government sells the majority shares in an enterprise, that is strategic disinvestment/sale. Here, the government gives up ownership of the entity as well.

QUESTION: 12

Which of the following are considered as tax revenue for the Union Government?

1. Personal income tax

2. Excise Duty

3. Dividends on investments

4. Income through Spectrum Auctions 

Select the correct answer code:

(c)1, 2

Solution: Tax revenues consist of the proceeds of taxes and other duties levied by the central government.

Tax revenues comprise of direct taxes - which fall directly on individuals (personal income tax) and firms (corporation tax), and indirect taxes like excise taxes (duties levied on goods produced within the country), customs duties (taxes imposed on goods imported into and exported out of India) and service tax.

Non-tax revenue of the central government mainly consists of interest receipts (on account of loans by the central government which constitutes the single largest item of non-tax revenue), dividends and profits on investments made by the government, fees and other receipts for services rendered by the government. Cash grants-in-aid from foreign countries and international organisations are also included.

Income generated by the Central Government through the spectrum auctions is part of non-tax revenue.

QUESTION: 13

Consider the following statements regarding Municipal Bonds.

1. A municipal bond is a kind of debt instrument where investors offer loans to local governments.

2. They are issued by civic bodies for specific projects and usually have a tenure of 10 years.

3. In India, Municipal bonds were introduced under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) scheme.

Which of the above statements is/are correct?

Solution: A municipal bond is a kind of debt instrument where investors offer loans to local governments. They are issued by civic bodies for specific projects and usually have a 10-year tenure. The ULB pays the annual interest on the bonds to the investor at the decided rate.

Bonds are issued to institutional and high net worth individuals. The face value of each instrument slot of a municipal bond if a minimum of Rs 10 lakh. It can be subscribed to (purchased) by a single investor or multiple investors.

According to officials, under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) scheme, urban local bodies (ULBs) are encouraged to tap the bond market.

QUESTION: 14

Consider the following statements regarding the London Interbank Offered Rate (LIBOR).

1. The London Interbank Offered Rate (LIBOR) is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans.

2. The European Central Bank manages it (ECB).

3. LIBOR will not be published any more after end-2021.

Which of the above statements is/are correct?

Solution: The London Interbank Offered Rate (LIBOR) is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans.

LIBOR, which stands for London Interbank Offered Rate, serves as a globally accepted key benchmark interest rate that indicates borrowing costs between banks. The rate is calculated and published each day by the Intercontinental Exchange (ICE). Still, due to recent scandals and questions around its validity as a benchmark rate, it is being phased out.

Libor will not be published any more after end-2021, and market participants are strongly encouraged to transition to other risk-free rates.

QUESTION: 15

Consider the following statements regarding the zero-coupon bond.

1. A zero-coupon bond is a debt security that not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full face value.

2. These are special types of bonds issued only by the Central government specifically to a particular institution.

Which of the above statements is/are correct?

Solution: A zero-coupon bond is a debt security that does not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full face value.

It does not make periodic interest payments or has so-called coupons, hence the term zero-coupon bond. When the bond reaches maturity, its investor receives its par (or face) value.

Zero-coupon bonds by private companies are normally issued at a discount.