UPSC Prelims Previous Year Questions 2023: Indian Economy | Indian Economy for UPSC CSE PDF Download

Ans: (d)

• Interest income that InvIT gets from its underlying SPVs and passes on to unitholders is taxed. The dividends that InvIT pays also get taxed. Both interest and dividend are taxed per the income tax slab. This is applicable where the InvIT has opted for taxation under section 115BAA of the Act. Hence, statement 1 is not correct.
• InvITs are recognized as borrowers under the SARFAESI Act 2002. The SARFAESI Act and the Recovery of Debts Act have been amended. Now, a pooled investment vehicle can be considered a borrower under these laws. This means that a debenture trustee for listed secured debt securities issued by an InvIT or REIT can use the protections and enforcement mechanisms under the SARFAESI Act. Hence, statement 2 is correct.

Ans: (a)

• In the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes to contain the post pandemic inflation. For Example, since May 2022, the Monetary Policy Committee (RBI) has gone for rate hikes many times. Hence, statement 1 is correct.
• The central banks generally are mandated with the task of containing the rising prices of the commodities. Central banks use monetary policy to manage economic fluctuations and achieve price stability. Hence, Statement 2 is correct.

Ans: (c)

• Carbon markets, for years short of puff, have at last become one of the most widespread tools in the fight against climate change. By the end of 2021 more than 21% of the world’s emissions were covered by some form of carbon pricing, up from 15% in 2020. Hence, Statement 1 is correct.
• Carbon markets are designed to create a financial mechanism that encourages the reduction of greenhouse gas emissions. In carbon markets, companies and organisations can buy and sell emissions allowances or credits, which represent the right to emit a certain amount of greenhouse gases. While carbon markets can generate revenue for the government through the sale of emissions allowances, it is not accurate to say that they transfer resources solely from the private sector to the government. Hence, statement 2 is NOT correct.

Ans: (a)

• Sterilisation refers to the process by which the RBI takes away money from the banking system to neutralise the fresh money that enters the system. Classical sterilisation involves central banks conducting buy and sell operations in open markets. Hence, option a is the correct answer.
• For sterilisation, the RBI usually adopts the Market Stabilisation Scheme (MSS).
  • Market Stabilisation Scheme (MSS): Surplus liquidity arising from large capital inflows is absorbed through the sale of short-dated government securities and treasury bills.

Ans: (b)

• Government bond market is a part of the Capital Market. Hence, option 1 is correct. Call money rate is the rate at which short term funds are borrowed and lent in the money market. Hence, option 2 is not correct.
• Treasury bills are short-term debt securities issued by thgovernment. They have a maturity of up to one year and are considered to be the safest type of money market instrument. Hence, option 3 is not correct.
• The Stock Market is a part of the Capital Market. Hence, option 4 is correct.

Ans: (b)
“Small Farmers Large Field (SFLF)” is an agri model to overcome the disadvantages faced by millions of small and marginal farmers due to diseconomies of scale and lack of bargaining power in the supply chain. This model is participatory and flexible and allows small farmers to benefit from achieving economies of scale by organising themselves into groups and synchronising and harmonising selected operations.

Ans: (c)

• The government provides MSP for Niger Seeds. Hence, statement 1 is correct.
• Niger Seed is cultivated as Kharif crop. Hence, statement 2 is correct.
• The tribal population uses niger seed oil for cooking, the press cake post oil-extraction as livestock feed, and also consume the seeds as a condiment. Hence, statement 3 is correct.

Ans: (c)

• The assets that cannot be touched are known as intangible assets. They are non- physical in nature and can be used for a year or more and the list includes brand value, goodwill, and intellectual property like trademarks, patents, and copyrights etc.
• A tangible asset is an asset that has physical substance. Examples include inventory, a building, rolling stock, manufacturing equipment or machinery, and office furniture.

Hence, (c) is the correct answer.

Ans: (c)
Green Hydrogen:

• Hydrogen is a key industrial fuel that has a variety of applications including the production of ammonia (a key fertiliser), steel, refineries and electricity.
• However, all of the hydrogen manufactured now is the so-called ‘black or brown’ hydrogen because they are produced from coal.
• But when electric current is passed through water, it splits it into elemental oxygen and
• hydrogen through electrolysis. And if the electricity used for this process comes from a renewable source like wind or solar then the hydrogen thus produced is referred to as green hydrogen.

Need for Producing Green Hydrogen:

• Green hydrogen in particular is one of the cleanest sources of energy with close to zero emission. It can be used in fuel cells for cars or in energy-guzzling industries like fertilizers and steel manufacturing.
• Green Hydrogen can aid the desulfurisation of crude oil, without the output of CO2 into the atmosphere hence it can provide a clean, on-site green hydrogen supply which will decarbonise the refining process and reduce emissions.

Hence option (c) is correct.

Ans: (d)

• According to the recent WTO’S Global Trade Outlook and Statistics report, India accounts for 1.8 % of global exports of goods. Hence, statement 1 is not correct.
• The ‘Production Linked Initiative’ (PLI) scheme offers companies incentives on incremental sales from products manufactured in India. It aims to attract foreign companies to set up units in India while encouraging local companies to expand their manufacturing units, generate more employment, and reduce the country's reliance on imports. Hence, Statement 2 is correct.

Ans: (b)

• The new definition and criterion of MSMEs will come into effect from 1st July, 2020. The definition of Micro manufacturing and services units was increased to Rs. 1 Crore of investment and Rs. 5 Crore of turnover.
• The limit of small unit was increased to Rs. 10 Crore of investment and Rs 50 Crore of turnover.
• For medium Enterprises, now it will be Rs. 50 Crore of investment and Rs. 250 Crore of turnover. Hence, Statement 1 is not correct.
  
• Priority Sector Lending Guidelines: In terms of Master Direction on ‘Priority Sector Lending (PSL) – Targets and Classification’ dated September 4, 2020, all bank loans to MSMEs conforming to the conditions prescribed therein qualify for classification under priority sector lending.
• Bank loans to Micro, Small and Medium Enterprises (for both manufacturing and service sectors) engaged in providing or rendering of services and defined in terms of investment in equipment under MSMED Act, 2006, irrespective of loan limits, are eligible for classification under priority sector, w.e.f. March 1, 2018. Hence, Statement 2 is correct.

Ans: (c)

• Central Bank Digital Currency (CBDC) is a digital form of currency notes issued by a central bank. Here payments in a digital currency are without using the US dollar or SWIFT system. Hence, statement 1 is correct.
• CBDC can be classified into two broad types viz. general purpose or retail (CBDC-R) and wholesale (CBDC-W).
  • Retail CBDC would be potentially available for use by all viz. private sector, non- financial consumers and businesses while wholesale CBDC is designed for restricted access to select financial institutions.
  • While Wholesale CBDC is intended for the settlement of interbank transfers and related wholesale transactions, Retail CBDC is an electronic version of cash primarily meant for retail transactions.
• Programmability: One interesting application of CBDC is the technical possibility of programmability. CBDCs have the possibility of programming the money by tying the end use. For example, agriculture credit by banks can be programmed to ensure that it is used only at input store outlets.
  • However, the programmability feature of CBDC needs to be carefully examined in order to retain the essential features of a currency. It can also have other implications for monetary policy transmission as tokens may have an expiry date, by which they would need to be spent, thus ensuring consumption. Hence, statement 2 is correct.
• The programmability of tokens can be achieved using the following:
  • Smart contracts: Business rules are stored as code that is executed during transactions to verify that the token is being used correctly.
  • Token version: The version of the token can be tightly linked to the technical code class. The alternative is that the version is stored as a token data field.

Ans: (d)

• In the context of finance, the term ‘beta’ refers to a measure of how an individual asset moves (on average) when the overall stock market increases or decreases. It is used as a measure of risk and is an integral part of the Capital Asset Pricing Model (CAPM). A company with a higher beta has greater risk and also greater expected returns.
  The beta coefficient can be interpreted as follows:
  • β =1 exactly as volatile as the market β >1 more volatile than the market
  • β <1>0 less volatile than the market β =0 uncorrelated to the market
  • β <0 negatively correlated to the market2
  • The beta coefficient can be calculated by dividing the product of the covariance of the security’s returns and the market’s returns by the variance of the market’s returns over a specified period
• A type of systemic risk that arises where perfect hedging is not possible is called basis risk.
• An investment strategy of a portfolio manager to balance risk versus reward is called asset allocation.
• The process of simultaneous buying and selling of an asset from different platforms, exchanges or locations to cash in on the price difference is called arbitrage.
• A numeric value that measures the fluctuations of a stock to changes in the overall stock market is called beta. Hence, option (d) is correct.

Ans: (b)

• Self-Help Group or in-short SHG is now a well-known concept. It is now almost two decade old. It is reported that the SHGs have a role in hastening country’s economic development. SHGs have now evolved as a movement. We can trace the origin of the concept of SHGs in Bangladesh (Dr. Mehmud Yunus). India has adopted the Bangladesh’s model in a modified form.
  • In 1970, Ilaben Bhat, founder member of ‘SEWA’(Self Employed Women’s Association) in Ahmadabad, had developed a concept of ‘women and micro-finance’. The Annapurna Mahila Mandal’ in Maharashtra and ‘Working  Women’s Forum’ in Tamilnadu and many National Bank for Agriculture and Rural Development (NABARD)- sponsored groups have followed the path laid down by ‘SEWA’.
  • In 1991-92 NABARD started promoting self-help groups on a large scale. And it was the real take-off point for the ‘SHG movement’. In 1993, the Reserve Bank of India also allowed SHGs to open saving accounts in banks. Hence, statement 1 is not correct.
• Such groups work as a collective guarantee system formembers who propose to borrow from organised sources. The poor collect their savings and save it in banks. In return they receive easy access to loans with a small rate of interest to start their micro unit enterprise. Hence, statement 2 is correct.