Test: Economy - 4 - UPSC MCQ

• Statement 4 is incorrect: Loan given to the states by the centre comes under capital expenditure. 
Revenue expenditure
• Revenue Expenditure is that part of government expenditure that does not result in the creation of assets. Payment of salaries, wages, pensions, subsidies and interest fall in this category.
• Revenue expenses are incurred by the government for its operational needs.
• The Union government’s revenue expenditure comprises money spent on revenue account — the amount spent on running its elaborate machinery.
• All grants given to state governments and Union territories are also treated as revenue expenditure, even if some of these grants may be used for the creation of capital assets.
• In India, the payment of subsidies is also included in revenue expenditure. The central government pays subsidy under three major heads – food subsidy, fertiliser subsidy and fuel subsidy.

• Option (a) is correct: Bank Ombudsman is an official authority to resolve customer’s complaint against deficiency in banking services.
Banking Ombudsman Scheme
• The Scheme was introduced in 2006 with the object of enabling resolution of complaints relating to certain services rendered by banks and to facilitate the satisfaction or settlement of such complaints.
• The Banking Ombudsman is a senior official in the rank of Chief General Manager or General Manager appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services.
• The tenure of a banking ombudsman is for a period not exceeding 3 years.
• The appeal lays before an appellate authority i.e. the Deputy Governor in charge of the Department of the Reserve Bank implementing the Scheme.
• The ombudsman is required to send an annual report to the RBI governor containing general review of the activities of his office during the preceding financial year and other information required by the central bank.
• Currently, twenty Banking Ombudsmen have been appointed with their offices located mostly in state capitals.
• All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Cooperative Banks are covered under the Scheme.
Ombudsman Scheme for Non-Financial Banking Companies (NBFC’s)
• In 2018, RBI introduced an Ombudsman Scheme for Non-Banking Financial Companies (NBFC’s) to redress customer complaints against NBFCs for deficiency in certain services covered under the grounds of complaint specified under Clause 8 of the Scheme.
• As on date, four ombudsmen for NBFC’s have been appointed with their offices located at Chennai, Kolkata, New Delhi and Mumbai.
• The NBFC’s which are authorized to accept deposits; have customer interface, with assets size of one billion rupees or above were initially covered under the scheme.
• In 2019, RBI extended ombudsman scheme to cover non-deposit taking NBFC’s having customer interface and asset size of Rs.100 crores (Rs.1 billion) and above as well.

• Statement 1 is incorrect. Foreign exchange earnings from tourism sector have decreased in 2018-19.
Trends in Service Sector
• The moderation in services growth are reflected in various high frequency indicators such as bank credit to services sector, Nikkei India Services PMI, air passenger traffic etc.
• During 2018-19, FDI equity inflows into service sector fell by US$696 million or 1.3 per cent from the previous year to about US$28.26 billion.
• India received 10.6 million foreign tourists in 2018-19 compared to 10.4 million in 2017-18. 
• The foreign exchange earnings from tourism stood at US$27.7 billion in 2018-19 compared to US$28.7 billion in 2017-18.

• All statements are correct
Commercial Banks
• According to the RBI, “Commercial Banks refer to both scheduled and non-scheduled commercial banks which are regulated under Banking Regulation Act, 1949.” Commercial banks operate on a ‘for-profit’ basis.
• They primarily engage in the acceptance of deposit and extend loans to the general public, businesses and the government.
Scheduled Banks
• By definition, any bank which is listed in the 2nd schedule of the Reserve Bank of India Act, 1934 is considered a scheduled bank.
• The list includes the State Bank of India and its subsidiaries (like State Bank of Travancore), all nationalized banks (Bank of Baroda, Bank of India, etc), regional rural banks (RRBs), foreign banks (HSBC Holdings Plc, Citibank NA) and some cooperative banks. These also include private sector banks, both classified as old (Karur Vysya Bank) and new (HDFC Bank Ltd).
• To qualify as a scheduled bank, the paid-up capital and collected funds of the bank must not be less than Rs. 5 lakh.
• Scheduled banks are eligible for loans from the Reserve Bank of India at bank rate, and are given membership to clearinghouses.
Non-Scheduled Banks
• Non-Scheduled banks by definition are those which are not listed in the 2nd schedule of the RBI act, 1934. 
• Banks with a reserve capital of less than 5 lakh rupees qualify as non-scheduled banks.
• Unlike scheduled banks, they are not entitled to borrow from the RBI for normal banking purposes, except, in emergency or “abnormal circumstances.” 

• Statement 4 is incorrect: Legal Sector Reform was not the part of first generation reform.
Economic Reforms
• A total of three generations of reforms have been announced till date, while experts have gone to suggest the fourth generation, too.
First Generation Reforms (1991–2000)
• The broad coordinates of the First Generation of reforms may be seen as under:
1. Promotion to Private Sector
2. Public Sector Reforms
3. External Sector Reforms
4. Financial Sector Reforms
5. Tax Reforms
• It was in the year 2000–01 that the government, for the first time, announced the need for the Second Generation of economic reforms and it was launched in the same year.
• The ones which had been initiated by then (i.e., from 1991 to 2000) were called by the government as the reforms of the First Generation. 

• Statement 2 is incorrect: The scheme covers all the parts of the country.
Soil health card
• SHC is a printed report that a farmer will be handed over for each of his holdings. It will contain the status of his soil with respect to 12 parameters, namely N,P,K (Macro-nutrients); S (Secondary- nutrient); Zn, Fe, Cu, Mn, Bo (Micro - nutrients); and pH, EC, OC (Physical parameters). Based on this, the SHC will also indicate fertilizer recommendations and soil amendment required for the farm.
• The card will contain an advisory based on the soil nutrient status of a farmer’s holding. It will show recommendations on dosage of different nutrients needed.
• It will advise the farmer on the fertilizers and their quantities he should apply, and also the soil amendments that he should undertake, so as to realize optimal yields.
• Features of Soil Health Card
1. The government is planning to cover as many as all farmers under the scheme.
2. The scheme will cover all the parts of the country.
3. In the form of soil card, the farmers will get a report.
4. This report will contain all the details about the soil of farmer’s particular farm.
5. A farm will get the soil card once in every 3 years.

• Option (d) is correct: The agreement mentioned in the passage is Repurchase agreement or repo.
Open Market Operations
• There are two types of open market operations
1. Outright
2. Repo
Outright open market operations
• Outright open market operations are permanent in nature, when the central bank buys these securities (thus injecting money into the system), it is without any promise to sell them later.
• Similarly, when the central bank sells these securities (thus withdrawing money from the system), it is without any promise to buy them later. As a result, the injection/ absorption of the money is of permanent nature. Repurchase agreement or repo
• However, there is another type of operation in which when the central bank buys the security, this agreement of purchase also has specification about date and price of resale of this security.
• This type of agreement is called a repurchase agreement or repo.
• The interest rate at which the money is lent in this way is called the repo rate. 
Reverse repurchase agreement or reverse repo
• Similarly, instead of outright sale of securities the central bank may sell the securities through an agreement which has a specification about the date and price at which it will be repurchased. This type of agreement is called a reverse repurchase agreement or reverse repo .
• The rate at which the money is withdrawn in this manner is called the reverse repo rate. The Reserve Bank of India conducts repo and reverse repo operations at various maturities: overnight, 7-day, 14- day, etc. These types of operations have now become the main tool of monetary policy of the Reserve Bank of India.

• Statement 1 is incorrect: The money market is a market for short term funds which deals in monetary assets whose period of maturity is less than 365 days.
Financial markets
Financial markets are classified on the basis of the maturity of financial instruments traded in them:
• Instruments with a maturity of less than one year are traded in the money market.
• Instruments with maturity more than 365 days are traded in the capital market.
Money market
• The money market is a market for short term funds which deals in monetary assets whose period of maturity is less than 365 days. These assets are close substitutes for money.
• It is a market where low risk and short term debt instruments that are highly liquid are issued and actively traded every day.
• It has no physical location but is an activity conducted over the telephone and through the internet.
• It enables the raising of short-term funds for meeting the temporary shortages of cash and obligations and the temporary deployment of excess funds for earning returns.
• The major participants in the market are the Reserve Bank of India (RBI), Commercial Banks, Non-Banking Finance Companies, State Governments, Large Corporate Houses and Mutual Funds.

• Both statements are correct
National Highway Development Project
• National Highways Development Programme (NHDP) was launched in 1998 with the objective of developing roads of international standards which facilitate smooth flow of traffic.
• It envisages creation of roads with enhanced safety features, better riding surface, grade separator and other salient features.
• National Highways constitute only 2% of the total road length in the country but carry 40% of the total traffic.
• NHDP is being implemented by National Highways Authority of India (NHAI), an organization under the aegis of Ministry of Road, Transport and Highways. The programme is being implemented in the following seven phases;
• With about 52.32 lakh km of road network comprising National Highways, State Highways and other roads, India has the second largest road network in the world. 
• The NH in the country covers a total length of 1, 00,475 km and carry about 40 per cent of the road traffic.
• Financing of the NHDP: A part of the fuel cess imposed on petrol and diesel is allocated to the NHAI for funding the implementation of the NHDP.

• Option (c) is correct: M1 is the currency with public plus demand deposits with the banking system.
Money Multiplier 
• It is the ratio of broad money (M3) divided by Reserve Money (M0)
• Therefore, Broad money (M3) = Reserve Money (M0) x money multiplier
• In other words, when Reserve money increases, Broad money will also increase.
Monetary Aggregates
• The New Monetary Aggregates are as given below:
1. Reserve Money (M0) = Currency in circulation + Bankers’ Deposits with the RBI + ‘Other’ deposits with the RBI.
2. Narrow Money (M1) = Currency with the Public + Demand Deposits with the Banking System + ‘Other’ deposits with the RBI.
3. M2 = M1 + Savings Deposits of Postoffice Savings Banks.
4. Broad Money (M3) = M1 + Time Deposits with the Banking System.
5. M4 = M3 + All deposits with Post Office Savings Banks (excluding National Savings Certificates).

• Option (a) is correct: Reverse Repo Rate is the rate of interest at which central bank borrows money from the commercial banks of the country.
Reverse Repo Rate
• It is the rate of interest the RBI pays to its clients who offer short-term loan to it.
• It is reverse of the repo rate and this was started in November 1996 as part of liquidity Adjustment Facility (LAF) by the RBI.
• In practice, financial institutions operating in India deposits their surplus funds with the RBI for shortterm period and earn money. It has a direct bearing on the interest rates charged by the banks and the financial institutions on their different forms of loans.
• This tool was utilised by the RBI in the wake of over money supply with the Indian banks and lower loan disbursal to serve twin purposes of cutting down banks losses and the prevailing interest rate.
• It has emerged as a very important tool in direction of following cheap interest regime—the general policy of the RBI since reform process started.
• In June 2019, RBI cut the reverse repo rate to 5.50 percent.

• Statement 1 is incorrect: The first Basel Accords focused only on capital adequacy of financial institutions
• Statement 2 is incorrect: The 2017 reforms to Basel III focus largely on calculation of risk-weighted assets.
Basel Accords
• The Basel Accords (i.e., Basel I, II and now III) are a set of agreements set by the Basel Committee on Bank Supervision (BCBS), which provides recommendations on banking regulations in regards to capital risk, market risk and operational risk.
• The purpose of the accords is to ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses.
• The objectives of the accords could be summed up as:
1. To strengthen the international banking system
2. To promote convergence of national capital standards
3. To iron out competitive inequalities among banks across countries of the world
• The first Basel Accord, known as Basel I (introduced in 1988) focused only on the capital adequacy of financial institutions. Banks that operate internationally were required to have a risk weight of 8 per cent or less. India adopted Basel I norms in 1999.
• The second Basel Accord, known as Basel II (published in 2004) focused on 3 main areas, including minimum capital requirements, supervisory review and market discipline. Thus Basel II focused on macro-prudential regulation.
• The third Basel Accord, known as Basel III (announced in 2010) is a comprehensive set of reform measures aimed to strengthen the regulation, supervision and risk management of the banking sector.
• The guidelines aim to promote a more resilient banking system by focusing on four vital banking parameters viz. capital, leverage, funding and liquidity.
• Basel III norms are based on renewed focus of central bankers on ‘macro-prudential stability’ i.e. global regulators are focusing on financial stability of system as a whole rather than micro regulation of any individual bank.
• The 2017 Basel III reforms complement the initial phase of the Basel III reforms announced in 2010.
• The 2017 reforms seek to restore credibility in the calculation of riskweighted assets (RWAs) and improve the comparability of banks’ capital ratios. 

• Both statements are correct
National Manufacturing Policy 2011
• The policy is based on the principle of industrial growth in partnership with the States.
• The Central Government will create the enabling policy frame work, provide incentives for infrastructure development on a Public Private Partnership (PPP) basis through appropriate financing instruments, and State Governments will be encouraged to adopt the instrumentalities provided in the policy.
• The Department has taken up the implementation of the policy in consultation with concerned Central Government agencies as well as the States.
• National Investment and Manufacturing Zones (NIMZs) are an important instrumentality of the Policy.
• These zones have been conceived as large integrated industrial townships with state-of-art-infrastructure; land use on the basis of zoning; clean and energy efficient technology; necessary social infrastructure; skill development facilities, etc. to provide a conducive environment for manufacturing industries. 

• Statement 2 is incorrect: The Committee on financial inclusion headed by C. Rangarajan recommended for constitution of financial inclusion promotion and development fund.
Nachiket Mor Committee
• The Committee on Comprehensive Financial Services for Small Businesses and Low Income Households (Chairperson: Dr. Nachiket Mor) submitted its final report on December 2013. The Reserve Bank of India (RBI), on September  2013, had appointed the Committee to propose measures for achieving financial inclusion and increased access to financial services.
The Committee proposed the following:
• Provide each Indian resident above the age of 18 with an individual, fullservice electronic bank account
• Set up widely distributed Electronic Payment Access Points offering deposit and withdrawal facilities at reasonable cost
• Provide each low-income household convenient access to formally regulated providers that can provide suitable:
1. Credit product
2. Investment and deposit products
3. Insurance and risk management
4. Products at a reasonable price,
5. Suitable financial services.
C. Rangarajan Committee
• The Committee headed by Dr. C. Rangarajan had proposed the constitution of two funds with NABARD – the Financial Inclusion Promotion & Development Fund and the Financial Inclusion Technology Fund with an initial corpus of Rs. 500 crore each to be contributed in equal proportion by GoI / RBI / NABARD.  

• Statement 1  is incorrect: The growth rate of real estate and professional services category accelerated
Trends in Service Sector
• The services sector accounts for 54 per cent of India’s Gross Value Added (GVA).
• Its growth rate moderated to 7.5 per cent in 2018-19 from 8.1 per cent in 201718.
• The segments that saw deceleration are tourism, trade, hotels, transport, communication and services related to broadcasting, public administration and defence.
• The growth rate of  Financial, real estate and professional services category accelerated

• All statements are correct
Development Financial Institutions (DFI’s)
• The RBI has recently divested its remaining stake in the National Bank for Agriculture and Rural Development (NABARD) and National Housing Bank (NHB) in February and March this year.
• With this, the Government of India now holds 100% stake in both the financial institutions.
• Divestment of RBI’s stake in NABARD and NHB has its basis in the recommendation of Narasimham Committee II and the Discussion Paper prepared by RBI on Harmonizing the Role and Operations of Development Financials Institutions and Banks.
• The National Bank for Agriculture and Rural Development (NABARD) was set up in 1982 as an apex body to coordinate the activities of all institutions involved in the rural financing system which includes commercial banks, regional rural banks (RRB’s), cooperatives and land development banks.
• e-Shakti is a pilot project of National Bank for Agriculture and Rural Development (NABARD) for digitization of Self Help Groups (SHGs). It was initiated to address certain concerns like improving the quality of book keeping of SHGs and to enable banks to take informed credit decisions about the group through a Management Information System (MIS).
• NHB RESIDEX, India’s first official housing price index, was an initiative of the National Housing Bank (NHB) undertaken at the behest of the Ministry of Finance, Government of India.
• NHB RESIDEX is built to ensure ease and clarity in decision-making within the sectors of real estate and real estate finance. It aims to provide guidance to stakeholders, not only in terms of a macroeconomic index, but also in the form of quarterly updated prices at a neighborhood level.
• The scope has been widened under NHB RESIDEX brand, to include housing price indices (HPI), land price indices (LPI) and building materials price indices (BMPI), and also housing rental index (HRI).

• Option (a) is correct: The Ministry of Tribal Affairs launched the Minimum Support Price (MSP) for Minor Forest Produce (MFP). 
Minimum Support Price (MSP) for Minor Forest Produce (MFP)
• It is centrally sponsored scheme aimed to ensure fair and remunerative prices to MFP gatherers.
• It provides direct benefits to the tribal population by institutionalizing various avenues in the value chain of MFP such as training, sustainable collection, procurement, value addition, infrastructure, marketing, etc.
• The Ministry of Tribal Affairs has now issued revised guidelines to cover the gaps in its implementation process.

• Statement  1  is incorrect: It is the rate at which only short term funds are borrowed and lend in the money market. • Statement  2  is incorrect: A tight liquidity condition leads to a rise in call money rate.
Call Money Rate
• Banks have to maintain a minimum level of cash to meet the daily transaction level and also maintain the Cash Reserve Ratio i.e. the minimum cash balance that has to be maintained by banks. It is decided by Reserve Bank of India time to time.
• When the cash in banks falls below this minimum requirement due to sudden rise in demand caused by either festival season, holidays etc. they need quick supply of cash. Also, during such times, the ATMs need to be fully funded. • Call money rate is the rate at which short term funds are borrowed and lent in the money market.
• Call money deals with day to day cash requirement of banks. Banks that are faced with cash shortage borrow from other commercial banks for a period of 1-14 days. When banks borrow for one day it is known as call-money. Any money borrowed for more than 1 day but maximum of 14 days is known as notice money.
• The rate at which these transactions take place is known as the call rate. Thus, banks resort to call money to fill temporary mismatches in funds and maintain shortterm liquidity. It is the central point by which RBI is able to influence interest rates.
• RBI, banks, primary dealers etc are the participants of the call money market. Demand and supply of liquidity affect the call money rate.
• A tight liquidity condition leads to a rise in call money rate and vice versa.

• Both statements are correct
Capital Gains Tax (CGT)
•  Any profit or gain that arises from the sale of a ‘capital asset’ (movable or immovable) is a capital gain. It is one of the examples of a corporate tax, which is direct tax in nature. Hence, CGT is also a direct tax. This gain or profit is considered as income and hence charged to tax in the year in which the transfer of the capital asset takes place. This is called capital gains tax, which can be short-term or long-term.
1. Short-term capital asset: An asset that is held for a period of 36 months or less like equity or preference shares in a company listed on a recognized stock exchange in India, securities (debentures, bonds, government securities), equityoriented mutual funds, zero-coupon bonds.
2. Long-term capital asset: An asset that is held for more than 36 months (24 months for an immovable property like land, building). The Long-term capital gain is taxable at 20%.
• If the asset is sold by the person who inherits it, capital gains tax will be applicable. Capital gains are not applicable when an asset is inherited because there is only a transfer, not a sale.

• Option (c) is correct: Gilt-edged securities are high-grade investment bonds offered by governments and large corporations as a means of borrowing funds.
Government Securities (G-Secs)
• G-Secs is a tradable instrument issued by the Central Government or the State Governments.
• Securities are issued for short term as well as long term. Short term securities with maturity less than 1 year are called Treasury Bills (T-Bills) while long term securities with a maturity of 1 year or more are called Government Bonds or dated securities.
• G-Sec Bonds features:
1. Long term maturity above 1 year and up to 40 years.
2. The interest rate paid on face value payable half-yearly
3. Effective yield return depends on the issue price.
• In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs).
• G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments. Gilt-edged securities are high-grade investment bonds offered by governments and large corporations as a means of borrowing funds.

• Optioin (d) is incorrect
Evergreen Revolution
• Swaminathan coined the term ‘’Evergreen Revolution” to highlight the pathway of increasing prouction and productivity in a manner such that short and long term goals of food production are not mutually antagonistic.
• He started working on three main areas in support of this revolution, better disease resistant crops, better soil health and fertility without having to resort to chemical fertilizers and the use of biological controls to reduce damage caused by pests

• Statements 2 is incorrect: The size of this auction is $5 billion and the tenor for swap is three years.
Dollar-Rupee (USD/INR) swap auction 
• The RBI has different tools through which it injects liquidity into financial markets. Adjusting repo rates and purchasing bonds by conducting open market operations (OMO) is a couple of tools which the RBI uses regularly either to increase or decrease the currency supply in the market.
• The recently announced ‘swap auction’ is one such tool. This is being done to increase the supply of rupees in the market. Technically, this activity is being termed as a USD/INR Buy/Sell Swap Auction.
• Through this auction, the RBI will buy US dollars from banks totaling to $5 billion. In turn the RBI will pay rupees to the participating banks at the current spot rate. At an average spot rate of 70 per dollar, the RBI will able to infuse about Rs 35,000 crore into the system through this auction process.
• Simultaneously, the banks will agree to buy-back the same amount of dollars from the RBI after three years — the tenor of this auction.
• The participating banks have to bid in the auction by quoting a forward premium in terms of paisa that they will pay to buy back the dollars.
• For example, if the spot exchange rate is 70 to a dollar, say Bank A quotes a premium of 150 paisa and bids for $25 million.
• So, the bank will get Rs 175 crore ($25 million multiplied by the exchange rate of 70). 
• After three years, the bank has to pay back approximately Rs179 crore ($25 million multiplied by the exchange rate of 71.5) to the RBI to buy back $25 million.
Why is it important?
• Indian financial markets have been undergoing liquidity problems since the IL&FS crisis emerged last year. The market is likely to see even tighter liquidity from a rush to pay advance tax as the financial year-end is less than a week away.
• For the RBI, the auction will help boost its forex reserves by another $5 billion. 

• All statements are correct
Fiscal Consolidation in India
• A number of steps were taken by the government of India at the Centre in the direction of fiscal consolidation and there had been incessant attempts to do the same in the states’ public finances too.
• Major highlights in this direction can be summed up as given below:
• Cutting down expenditure -
1. Cutting down the burden of salaries, pensions and the PFs (down-sizing/ rightsizing of the government, out of every 3 vacancies 1 to be filled up, interest cut on the PF, pension reforms-PFRDA, etc.);
2. Cutting down the subsidies (Administered Price Mechanism in petroleum, fertilizers, sugar, drugs to be rationalised, it was done with mixed successes);
3. Interest burden to be cut down (by going for lesser and lesser borrowings, pre-payment of external debts, debt swaps, promoting external lending, minimal dependence on costlier external borrowings, etc.);
4. Budgetary supports to the lossmaking PSUs to be an exception than a rule;
5. Expenditure reform started by the governments in different areas and departments;
6. General Services to be motivated towards profit with subsidized services to the needy only (railways, power, water, etc.);
7. Postal deficits to be checked by involving the post offices in other areas of profit; Higher education declared as non- priority sector; fees of institutions of professional courses revised upward; etc.
Increasing revenue receipts
• Tax reforms initiated (Cenvat, VAT, Service Tax, GST proposed, etc.);
• The PSUs to be disinvested and even privatised (if a political consensus reached which alludes today);
• Surplus forex reserves to be used in external lending and purchasing foreign high quality sovereign bonds, etc.;
• State governments allowed to go for market borrowing for their plan expenditure, etc.

• Statement 1  is incorrect: These are regulated by the Reserve Bank of India under the Banking Regulation Act, 1949 and Banking Laws (Application to Co-operative Societies) Act, 1965.
Co-operative Banks
• Co-operative banks operate in both urban and non-urban areas.
• All banks registered under the Cooperative Societies Act, 1912 are considered co-operative banks.
• These are banks run by an elected managing committee with provisions of members’ rights and a set of “communally developed and approved bylaws and amendments.”
• In the urban centers, they mainly finance entrepreneurs, small businesses, industries, self-employment and cater to home buying and educational loans.
• Likewise, co-operative banks in rural areas primarily cater to agricultural-based activities, which include farming, livestock, dairies, and hatcheries, etc. They also extend loans to small scale units, cottage industries, and self-employment activities like artisanship.
• Unlike commercial banks, who are driven by profit, co-operative banks work on a “no profit, no loss” basis.
• These are regulated by the Reserve Bank of India under the Banking Regulation Act, 1949 and Banking Laws (Application to Co-operative Societies) Act, 1965.

• Both statements are correct
SWIFT Norms
• It stands for the Society for Worldwide Interbank Financial Telecommunications.
• The  SWIFT  is a secure financial message carrier through a standardized system of codes.
• In other words, it transports messages from one bank to its intended bank recipient. Its core role is to provide a secure transmission channel so that Bank A knows that its message to Bank B goes to Bank B and no one else. Bank B, in turn, knows that Bank A, and no one other than Bank A, sent, read or altered the message en route. Banks, of course, need to have checked in place before actually sending messages.
• It assigns each financial organization a unique code or SWIFT code that has either eight characters or 11 characters.
• Aimed at services around financial crime compliance, SWIFT offers reporting and utilities like Know Your Customer (KYC), Sanctions, and AntiMoney Laundering (AML).
• The SWIFT is a global member-owned cooperative that is headquartered in Brussels, Belgium. It was founded in 1973 by a group of 239 banks from 15 countries which formed a co-operative utility to develop a secure electronic messaging service and common standards to facilitate cross-border payments.
• The Rs.14,000-crore Punjab National Bank (PNB) fraud perpetrated by Nirav Modi was a case of misuse of this SWIFT software.
• After the fraud, PNB adopted strict SWIFT controls. It has created a separate unit to reauthorize most messages sent over SWIFT by branches. Many other banks are expected to fast-track the integration between SWIFT and their backend systems.

• Statement 2 is  incorrect: Reserve Bank does not pay any interest on the CRR balances.
Cash Reserve Ratio (CRR)
• It is the amount of funds that the banks are bound to keep with Reserve bank of India as a portion of their Net Demand and Time Liabilities (NDTL). The objective of CRR is to ensure the liquidity and solvency of the Banks. The CRR is maintained fortnightly average basis.
Impacts of Reducing CRR
• When CRR is reduced, more funds are available to banks for deploying in other businesses because they need to keep fewer amounts with RBI. This means that the banks would have more money to play and this leads to a reduction of interest rates on loans provided by the Banks.
• A reduction in CRR leads to increase in the money supply in system. This may lead to inflation in the economy.
• When money supply increases, too much money chases too few goods and this leads to rising in inflation.
Impacts of Increasing CRR
• When RBI increases the CRR, fewer funds are available with banks as they have to keep larger portions of their cash in hand with RBI. This means that banks will now have less money to play with. Moreover, Reserve Bank does not pay any interest on the CRR balances.  
• Since commercial banks don’t earn any interest, the banks are left with no option than to increase the interest rates. If RBI hikes this rate substantially, banks will have to increase the loan interest rates. The home loans, car loans and EMI of floating Rate loans increase.
• Thus hike in CRR leads to increase of interest rates on loans provided by the Banks.

• Statement 2 is incorrect: The Marginal Standing Facility (MSF) rate are available only for commercial banks.
• Statement 3 is incorrect: MSF rate is always above the repo rate.
Marginal Standing Facility (MSF)
• The Reserve Bank of India in its monetary policy for 2011-12, introduced the MSF, under which banks could borrow funds from RBI at a  rate higher than the liquidity adjustment facilityrepo rate against pledging government securities.
• Co-operative banks cannot avail the facilities under MSF.
• The MSF rate is pegged 100 basis points or a percentage point above the repo rate. Banks can borrow funds through MSF when there is a considerable shortfall of liquidity.
• This measure has been introduced by RBI to regulate short-term asset-liability mismatches more effectively.
• Reducing the rate of MSF strengthens liquidity enhancement measures aimed at increasing bank access to lower-cost funds.
• Recently, on the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) decided to:
1. Reduce the policy repo rate under the liquidity adjustment facility (LAF) by 35 basis points (bps) from 5.75 percent to 5.40 percent with immediate effect.
2. Consequently, the reverse repo rate under the LAF stands revised to 5.15 percent, and the marginal standing facility (MSF) rate and the Bank Rate to 5.65 percent.
3. The MPC also decided to maintain the accommodative stance of monetary policy.

• Both statements are correct
Capital market 
• The term capital market refers to facilities and institutional arrangements through which long-term funds; both debt and equity are raised and invested.
•  It consists of a series of channels through which savings of the community are made available for industrial and commercial enterprises and for the public in general. It directs these savings into their most productive use leading to growth and development of the economy.
• The capital market consists of development banks, commercial banks, and stock exchanges.
• An ideal capital market is one where finance is available at a reasonable cost. The process of economic development is facilitated by the existence of a well-functioning capital market.
• It is essential that financial institutions are sufficiently developed and that market operations are free, fair, competitive and transparent. The capital market should also be efficient in respect of the information that it delivers, minimize transaction costs and allocate capital most productively.
• The Capital Market can be divided into two parts: 
1. Primary Market
2. Secondary Market

• Statement 2 is incorrect: Movement of handicraft goods or goods for job-work purposes under specified circumstances also requires the e-way bill even if the value of consignment is less than fifty thousand rupees.
E-way bill 
• It is a document required to be carried by a person in charge of the conveyance carrying any consignment of goods of value exceeding fifty thousand rupees as mandated by the Government in terms of Section 68 of the Goods and Services Tax Act.
• E-way bills are required to comply with Section 68 of the GST Act, and; rule 138 of CGST Rules, 2017
• The e-way bill is required to transport all the goods except exempted under the notifications or rules. Movement of handicraft goods or goods for job-work purposes under specified circumstances also requires the e-way bill even if the value of consignment is less than fifty thousand rupees.
• The validity of the e-way bill depends upon the distance the goods have to be transported. In the case of regular vehicle or transportation modes, for every 100 KMs or part of its movement, one-day validity has been provided.
•  And in the case of Over Dimensional Cargo vehicles, for every 20 KMs or part of its movement, one-day validity is provided. And this validity expires on the midnight of last day.
Who can generate the e-way bill?
1. The consignor or consignee, as a registered person or a transporter of the goods, can generate the e-way bill.
2. The unregistered transporter can enroll on the common portal and generate the e-way bill for the movement of goods for his clients.
3. Any person can also enroll and generate the e-way bill for the movement of goods for his/ her own use.

• All statements are correct
Indian Currency System
• In a modern economy, money consists mainly of currency notes and coins issued by the monetary authority of the country.
• In India currency notes are issued by the Reserve Bank of India (RBI), which is the monetary authority in India. RBI Act 1934 empowers RBI to issue all the banknotes except 1 Rs. note.
• However, coins and 1 Rs. notes are issued by the Government of India under the coinage act 1909.
• Apart from currency notes and coins, the balance in savings, or current account deposits, held by the public in commercial banks is also considered money since cheques drawn on these accounts are used to settle transactions. Such deposits are called demand deposits as they are payable by the bank on demand from the account-holder. Other deposits, e.g. fixed deposits, have a fixed period to maturity and are referred to as time deposits.
• The value of the currency notes and coins is derived from the guarantee provided by the issuing authority of these items. Every currency note bears on its face a promise from the Governor of RBI that if someone produces the note to RBI or any other commercial bank, RBI will be responsible for giving the person purchasing power equal to the value printed on the note. The same is also true of coins.
• Fiat money is the government-issued currency that means it is not backed by any commodity such as gold.
• Currency notes and coins are therefore called fiat money (backed by the government). They do not have intrinsic value like gold or silver coin. They are also called legal tenders as they cannot be refused by any citizen of the country for settlement of any kind of transaction. Cheques were drawn on savings or current accounts, however, can be refused by anyone as a mode of payment.
Hence, demand deposits are not legal tenders.
• RBI is also empowered to make a recommendation to government of India to withdraw any notes from circulation. This is known as demonetisation.