Indian Economy Quiz - 1, General Knowledge - SSC CHSL MCQ

The central banking functions in India are primarily carried out by the following institutions:

• Central Bank of India
• Reserve Bank of India
• State Bank of India
• Punjab National Bank

Among these, the Reserve Bank of India (RBI) is the main authority responsible for regulating the country's monetary policy and overseeing the banking sector.

Other banks mentioned play significant roles in the financial system but do not perform central banking functions.

Development expenditure is the money spent by government on developmental and welfare programmes. Expenditure on economic service, expenditure on social and communist services, grant to states are examples of developmental expenditures. Among the given options, defense expenditure is not an example of developmental expenditure. 

ICICI is primarily recognised as a financial institution. It provides a wide range of banking and financial services to customers, including:

• Retail Banking: Services for individual customers, such as savings accounts, loans, and credit cards.
• Corporate Banking: Financial solutions for businesses, including working capital finance and trade finance.
• Investment Banking: Advisory services for mergers, acquisitions, and capital raising.
• Insurance: A variety of insurance products for individuals and businesses.

Founded in 1994, ICICI Bank has grown to become one of the largest private sector banks in India.

In addition to its domestic presence, ICICI has expanded its operations internationally, catering to a global customer base.

Overall, ICICI plays a crucial role in the financial landscape, supporting economic growth and providing essential services to its clients.

Gilt-edged market refers specifically to a market involving high-quality government securities. These securities are known for their low risk and reliable returns, making them a safe investment choice.

• The term "gilt-edged" originates from the practice of issuing bonds with gilt (gold) edges, symbolising their premium quality.
• Investors are attracted to this market because government securities are considered stable and less likely to default.
• This market typically includes:
• Government bonds issued by national governments.
• Highly rated debt instruments from local and regional authorities.
• Gilt-edged securities are often used by investors looking for a secure investment option.
• They play a crucial role in financial systems, providing liquidity and stability.

In the last one decade, telecommunication has attracted the highest foreign direct investment inflows into India.

Devaluation of a currency refers to a reduction in its value compared to other major currencies that are traded internationally. This process can occur through various mechanisms:

• Market-driven adjustment: The currency is allowed to determine its own value based on supply and demand in the international market.
• Fixed adjustments: The currency's value may be set in relation to a basket of predetermined currencies, aligning with their fluctuations.
• Multilateral coordination: The value can also be established through discussions with organisations like the IMF, the World Bank, and key trading partners.

This process can impact international trade, inflation, and the overall economic health of a country.

- The second nationalization of commercial banks in India took place in 1980.
- During this phase, 6 banks were nationalized.
- This move aimed to increase government control over credit delivery, ensure access to banking services, and align banking policies with national priorities.
- The banks selected had deposits of over Rs. 200 crores.
- The nationalization helped in expanding the banking network and improving financial inclusion across the country.

Since independence, there has been a notable increase in both development and non-development expenditures. However, the rise in development expenditures has been slightly greater.

Non-development expenditure includes:

• Interest payments
• Subsidies
• Defence
• Irrigation

Deficit financing can result in inflation, but its impact can be controlled under certain conditions:

• If government expenditures increase the overall supply of goods and services in line with demand.
• If there is an increase in overall demand without a corresponding increase in supply.
• If all spending is directed solely towards national debt repayment.

In summary, effective management of deficit financing hinges on balancing supply and demand, as well as ensuring that spending is directed appropriately. This balance can help mitigate the inflationary effects that may arise.

Depreciation refers to the gradual reduction in the value of an asset over time, primarily due to wear and tear. This concept is essential in accounting and finance as it represents how much of an asset's lifespan has been consumed.

Key points about depreciation include:

• It applies to tangible assets like machinery, buildings, and vehicles.
• Depreciation reflects the loss of value of an asset as it ages.
• Factors influencing depreciation include usage, maintenance, and technological advancements.
• Businesses use depreciation to allocate costs and reduce taxable income.

Understanding depreciation helps in assessing the financial health of a company and making informed investment decisions.

When all banks in an economy are nationalised and turned into a monopoly bank, the effect on total deposits can be summarised as follows:

• The structure of the banking system changes significantly.
• A monopoly bank can lead to a more stable deposit environment.
• Depositors may feel more secure with a single, government-backed institution.
• However, the absence of competition might reduce the incentives for banks to attract deposits.
• Overall, while individual behaviour may vary, the total level of deposits is likely to remain steady.

In essence, the absence of competition does not inherently lead to an increase or decrease in total deposits.

India transitioned to the decimal system of coinage in April 1957, marking a significant change in its currency structure. This change aimed to simplify transactions and improve the efficiency of financial exchanges.

• The decimal system replaced the old currency denominations with a more straightforward structure.
• One rupee was subdivided into 100 paise, making calculations easier for the general public.
• This system is now widely used across the country, facilitating trade and commerce.
• Prior to this change, India used a variety of coin denominations, which could be confusing.

This shift to a decimal system has helped modernise India's economy and align it with international practices.

The association of the rupee with the pound sterling as the intervention currency ended in 1992.

This change marked a significant shift in India's economic policy, leading to:

• Increased flexibility in currency exchange rates.
• A move towards a more market-driven economy.
• Enhanced control over monetary policy by the Reserve Bank of India.

The break from this association was part of broader economic reforms aimed at liberalising the Indian economy.

The benefits received principle of taxation is a concept used to determine how taxes should be levied based on the benefits individuals receive from public services. This principle aims for optimality in taxation.

• The principle suggests that those who benefit more from government services should pay more taxes.
• It is often associated with the idea of marginal benefits, where individuals are taxed according to the additional benefits they receive.
• This approach promotes fairness, as it aligns tax contributions with the advantages one receives.
• In contrast, other principles, like ability to pay, focus on the taxpayer's financial capacity rather than the benefits they receive.

Overall, the benefits received principle supports a direct correlation between the amount of tax paid and the public services enjoyed, fostering a sense of accountability and equity in taxation.

One of the reasons for India's occupational structure remaining more or less the same over the years has been that

• Investment patterns are largely focused on capital-intensive industries.
• High productivity in agriculture encourages many to continue working in this sector.
• Land ownership ceilings allow more individuals to own land, reinforcing their commitment to agriculture.
• Many people are unaware of the importance of transitioning from agriculture to industry for overall economic progress.

Gross domestic capital formation refers to the process of investing in physical assets to enhance or maintain the overall capital stock of an economy. It plays a critical role in economic growth and development.

• Capital stock includes assets such as machinery, buildings, and equipment.
• The flow of expenditure is necessary for creating new assets or replacing those that are worn out.
• It is crucial for ensuring that an economy remains productive and can meet future demand.
• Depreciation represents the reduction in value of assets over time, and net capital formation considers this factor.

This concept is central to understanding how economies develop and sustain growth over time.

The Agricultural Refinance and Development Corporation (ARDC) was established to provide financial support to agricultural sectors in India. On July 12, 1982, the ARDC was merged into another important financial institution.

This merger aimed to enhance the financial services available to farmers and improve agricultural productivity. The institution that absorbed the ARDC is known for its role in facilitating rural development and providing credit to various agricultural activities.

• The merger was part of a larger strategy to consolidate financial operations in the agricultural sector.
• It allowed for a more streamlined approach to funding agricultural initiatives.
• This integration also aimed to leverage resources and expertise to better serve rural communities.

As a result of this merger, the new entity could offer more comprehensive services, including development finance and support for rural infrastructure projects.

Overall, this change was significant in enhancing the support system for agriculture in India, ensuring that farmers had better access to the necessary resources to thrive.

Developments in national and international markets can significantly impact a country's export surplus. Here are the main points to consider:

• Market Demand: When there is high demand for a country's goods in international markets, it boosts exports.
• Competitive Advantage: Innovations or unique products can enhance a country's attractiveness to foreign buyers.
• Trade Agreements: Positive trade agreements can open new markets, increasing export opportunities.
• Economic Growth: A growing economy often leads to increased production capacity and export levels.

In contrast, factors like a stringent import policy may restrict imports but do not directly contribute to a surplus in exports. Therefore, developments in both national and global markets play a crucial role in achieving a sustainable export surplus.

If the cash reserve ratio is lowered by the RBI, it will impact credit creation.

A lower cash reserve ratio (CRR) means that banks must hold less money in reserve with the Reserve Bank of India. This change can lead to several effects on credit creation:

• Increased Lending Capacity: With a lower CRR, banks have more funds available to lend to customers.
• Boost in Credit Availability: More loans can stimulate economic activity as businesses and consumers will have access to additional credit.
• Encouragement of Investment: Increased credit can lead to higher investment levels by companies, supporting growth.

In summary, when the cash reserve ratio is reduced, it enhances the banks' ability to create credit, which can positively influence the economy.

A company's balance sheet includes various items that reflect its financial position at a specific point in time. However, some items are not included in this financial statement:

• Stocks of raw materials: These are recorded as assets on the balance sheet.
• Total issued capital: This represents the funds raised by issuing shares and is included as equity.
• Cash held at the bank: This is part of the company's liquid assets and is listed on the balance sheet.

On the other hand, revenue from sales is not shown on the balance sheet. Instead, it is recorded in the income statement, which reflects the company's performance over a period of time. Thus, while the balance sheet provides a snapshot of financial health, revenue details are found elsewhere.

The concept of currency convertibility refers to the ability of a currency to be easily exchanged for another currency without restrictions. This idea was formalised in the Bretton Woods Agreement, which was established in 1944. Key points include:

• The Bretton Woods Agreement aimed to create a stable international monetary system.
• It established fixed exchange rates between currencies, with the US dollar pegged to gold.
• Countries agreed to convert their currencies into US dollars, promoting international trade.
• The agreement fostered economic cooperation and stability after World War II.

Over time, the system evolved, leading to greater flexibility in exchange rates, but the principles of convertibility remain crucial in today's global economy.

State Financial Corporations in India play a crucial role in supporting various sectors of the economy. Their primary focus is on promoting the development of:

• Agricultural farms: These entities receive assistance to enhance productivity and sustainability.
• Cottage industries: Small-scale enterprises benefit from financial support to encourage local craftsmanship.
• Large-scale industries: These industries may also receive funding, but the emphasis is less pronounced.
• Medium and small-scale industries: This sector is a key focus, with significant assistance aimed at fostering growth and innovation.

Among these sectors, the medium and small-scale industries are particularly emphasised, as they contribute significantly to employment and economic stability.

The central co-operative banks play a vital role in the agricultural and financial ecosystem of a region. Their primary function is to connect with various stakeholders, particularly:

• Farmers: They provide essential financial services and support to local farmers, helping them access credit and other resources.
• State co-operative banks: These banks act as a crucial link, facilitating financial transactions and ensuring that funds flow efficiently to meet the needs of the agricultural sector.
• Land development banks: They often collaborate with central co-operative banks to provide long-term loans for agricultural development.
• Central government: Although not directly involved in daily operations, they influence policies that affect the functioning of co-operative banks.

In summary, the central co-operative banks primarily interact with state co-operative banks, enhancing the support system for farmers and contributing to agricultural development.

The first wholly Indian bank was established in 1894.

This bank marked a significant milestone in India's banking history, as it was:

• Founded entirely by Indians, showcasing local entrepreneurship.
• A response to the growing economic needs of the Indian population.
• Instrumental in promoting financial independence and stability.

The establishment of this bank laid the foundation for future Indian banks and encouraged:

• The development of a banking system that catered to local needs.
• Increased investment in Indian businesses and industries.

Overall, this event was crucial in shaping the financial landscape of India.

States generate the most revenue through various taxation methods, with commercial taxes being a significant contributor.

The primary sources of revenue for states include:

• Land Revenue: Income generated from the leasing and sale of land.
• Custom Revenue: Fees collected from imports and exports.
• Commercial Taxes: Taxes imposed on goods and services sold within the state.
• Excise Duties: Taxes on the production and sale of specific goods, such as intoxicants.

Among these, commercial taxes are particularly important as they encompass a broad range of transactions and contribute significantly to the overall state revenue.