Test: Current Affairs November 2020


12 Questions MCQ Test Indian Economy for UPSC CSE | Test: Current Affairs November 2020


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QUESTION: 1

Consider the following statements regarding FDI in India in 2019-20.

1. Singapore remained the top source of FDI followed by Mauritius.

2. Services sector attracted maximum foreign inflows during 2019-20.

3. In India, Greenfield investment is more dominant than in the world.

Which of the above statements is/are correct?

Solution:

Sectors which attracted maximum foreign inflows during 2019-20 include services ($7.85 billion), computer software and hardware ($7.67 billion), telecommunications ($4.44 billion), trading ($4.57 billion), automobile ($2.82 billion), construction ($2 billion), and chemicals ($one billion), the Department for Promotion of Industry and Internal Trade (DPIIT) data showed.

Foreign direct investment into India rose 13% to $49.97 billion in FY20 from $44.36 billion a year earlier.

Singapore remained the top source of FDI, accounting for $14.67 billion, followed by Mauritius at $8.24 billion.

Maharashtra garnered the highest share of FDI at 30% with investments clocking $7.26 billion. Karnataka and Delhi followed with 18% and 17% share, respectively.

In India, Brownfield investment is more dominant than in the world. If investments tend to be in the form of mergers and acquisitions, it is known as brownfield investment.

QUESTION: 2

Singapore's Temasek-like model, sometimes seen in news is related to

(a) Restrictive lockdown measures

(b) Disinvestment programme

(c) Local Governance

(d) Primary Health care


Solution: The Economic Survey 2019-20 backed the government's move to aggressively privatise central public sector enterprises (CPSEs) through divestment of government stake, which will have a multiplier effect on improving efficiency and profitability of the divested company while unlocking capital that can be used for building public infrastructure.

The Survey cited the case of Temasek Holdings Company in Singapore, a model that it said can be adopted to maximise government stake in CPSEs successfully.

In the model, the government can transfer its stake in the listed CPSEs to a separate corporate entity that would be managed by an independent board and would be mandated to divest the government stake in these CPSEs over time. "This will lend professionalism and autonomy to the disinvestment programme which, in turn, would improve the economic performance of the CPSEs," the Survey said.

QUESTION: 3

Consider the following statements regarding the leverage ratio for banks.

1. The leverage ratio measures a bank's core capital to its total assets.

2. An increase in the leverage ratio for banks helps them boost their lending activities.

Which of the above statements is/are correct?

Solution: The Reserve Bank relaxed the leverage ratio (LR) for banks to boost their lending activities.

The leverage ratio stands reduced to 4 per cent for Domestic Systemically Important Banks (DSIBs) and 3.5 per cent for other banks effective from the quarter commencing October 1, 2019.

"Both the capital measure and the exposure measure, along with Leverage Ratio, are to be disclosed on a quarter-end basis. However, banks must meet the minimum Leverage Ratio requirement at all times," RBI said.

The leverage ratio is defined as the capital measure divided by the exposure measure, expressed as a percentage. The capital measure is tier 1 capital, and the exposure measure includes both on-balance sheet exposure and off-balance sheet items.

The leverage ratio measures a bank's core capital to its total assets. The ratio uses tier 1 capital to judge how leveraged a bank is in relation to its consolidated assets. Tier 1 assets are ones that can be easily liquidated if a bank needs capital in the event of a financial crisis. So, it is basically a ratio to measure a bank's financial health. The higher the tier 1 leverage ratio, the higher the bank's likelihood withstanding negative shocks to its balance sheet.

The leverage ratio is used as a tool by central monetary authorities to ensure banks' capital adequacy and place constraints on the degree to which a financial company can leverage its capital base.

QUESTION: 4

Consider the following statements regarding Reverse Charge Mechanism (RCM)

1. Reverse charge is a mechanism under which the goods or services provider is liable to pay the tax instead of the recipient of the goods and services.

2. The RCM helps to check tax evasion and expand the tax base of the government.

3. It puts pressure on small businesses to voluntarily register on the Goods and Service Tax Network. (GSTN).

Which of the above statements is/are correct?

Solution: Reverse charge is a mechanism under which the recipient of the goods or services can pay the tax instead of the goods and services, provider. Under the normal taxation regime, the supplier collects the buyer's tax and deposits the same after adjusting the output tax liability with the input tax credit available. But under reverse charge mechanism (RCM), liability to pay tax shifts from supplier to recipient.

The reverse charge clause is the most powerful check inserted into the regulations by the architects of GST.

RCM intended to check tax evasion and expand the tax base. The first few months of GST rollout witnessed a sharp expansion in the indirect taxpayer base due to the reverse charge feature's presence.

The other impact of RCM was that smaller vendor who wished to supply to larger clients, voluntarily registered on the GST NETWORK. They were afraid that if unregistered, larger clients might spurn them.

QUESTION: 5

Which of the following sectors are eligible for Priority Sector Lending to ensure adequate institutional credit?

1. Export Credit

2. Micro, Small and Medium Enterprises

3. Social Infrastructure

4. Renewable Energy

Select the correct answer code:

Solution:
QUESTION: 6

Consider the following statements.

1. India is the world's largest crude oil importer.

2. At present, OPEC countries meet 90% of India's crude oil demand.

Which of the above statements is/are correct?

Solution: India is the world's third-largest crude oil importer.

OPEC meets 78% of India's crude oil demand, 59% of its LPG needs, and nearly 38% of LNG consumption.

Traditionally, OPEC nations offer bigger discounts on crude oil sold to western economies than eastbound cargoes.

QUESTION: 7

Participatory notes (P-notes) investments in the Indian market is allowed in which of the following instruments

1. Equity

2. Debt

3. Hybrid securities

4. Derivatives

Select the correct answer code:

Solution: Registered FPIs issue P-notes to overseas investors who wish to be part of the Indian stock market without registering themselves directly. They, however, need to go through a due diligence process.

P-note investments in Indian markets - equity, debt, hybrid securities and derivatives.

QUESTION: 8

Consider the following statements.

1. India is the leading exporter of Basmati Rice to the global market.

2. In India, Basmati rice is mainly grown in South and Central India.

3. Agricultural & Processed Food Products Export Development Authority (APEDA) has registered Basmati Rice as a product with Geographical Indication (GI).

Which of the above statements is/are correct?

Solution: India is the leading exporter of Basmati Rice to the global market. India is also the largest producer of basmati rice in the world.

Major Export Destinations (2019-20): Iran, Saudi Arab, Iraq, UAE, Kuwait.

Basmati Rice production areas in India are in the states of J & K, Himachal Pradesh, Punjab, Haryana, Delhi, Uttarakhand and western Uttar Pradesh.

On February 15, 2016, the Agricultural & Processed Food Products Export Development Authority (APEDA), an autonomous organisation under the Department of Commerce in India, registered Basmati Rice as a product with Geographical Indication (GI).

QUESTION: 9

Consider the following statements.

1. Regional Rural Banks (RRBs) were formed by an act of parliament, with an objective to provide credit and other facilities to small farmers, agricultural labourers, and artisans in rural areas.

2. As per RBI guidelines, the RRBs have to provide 90 per cent of their total credit under priority sector lending.

3. Co-operative Banks contributed the major share in agricultural and allied credit in India.

Which of the above statements is/are incorrect?

Solution: Regional Rural Banks (RRBs) were formed under the RRB Act, 1976 with an objective to provide credit and other facilities to small farmers, agricultural labourers, and artisans in rural areas.

As per RBI guidelines, the RRBs have to provide 75 per cent of their total credit under priority sector lending.

RRBs primarily cater to the credit and banking requirements of the agriculture sector and rural areas, focusing on small and marginal farmers, micro and small enterprises, rural artisans and weaker sections of the society. 

QUESTION: 10

Consider the following statements.

1. From the 11th finance commission to the 14th finance commission, the share of net proceeds recommended to be devolved to states have increased each time.

2. The gap between states' share in gross tax revenue and states' share in a divisible pool has widened due to increase in cesses and surcharges.

Which of the above statements is/are correct?

Solution: From t4he 11th finance commission to the 14th, the share of net proceeds recommended being devolved to states increased each time: from 29.5% to 30.5% to 32% to 42%. In Article 279 of the Constitution, net proceeds are defined as gross tax revenue of the centreless surcharges and cesses, and cost of collection.

QUESTION: 11

Special Drawing Rights (SDR) can be used to

1. Supplementing IMF member countries' official reserves.

2. Settle Balance of Payment transactions

3. Bridge fiscal deficit and fund infrastructure projects

Select the correct answer code:

Solution: The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies. It cannot be used to fund infrastructure projects as it is not a currency. Same goes for settling domestic financial bills of the government.

SDR allocations can play a role in providing liquidity and supplementing member countries' official reserves.

IMF member countries can borrow SDRs from its reserves at favourable interest rates, mostly to adjust their balance of payments to favourable positions.

QUESTION: 12

Consider the following statements regarding the National Security Clause under the WTO rules.

1. National Security Clause is an exception that allows WTO members to breach their WTO obligations for purposes of national security.

2. If India invokes National Security Clause, it will allow India to impose tariffs on imports from one country while exempting other trading partners.

Which of the above statements is/are correct?

Solution: National Security Exception laid out in Article XXI of the General Agreement on Tariffs and Trade (GATT) allows WTO members to breach their WTO obligations for national security purposes.

Border hostilities potentially give India room to invoke the national security clause in the WTO rules. This would allow it to impose tariffs on imports from China while exempting other trading partners.

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