Test: Indian Economy -2 - UPSC MCQ

All are the objectives of the new methodology. RBI decided to shift from base rate to MCLR because the rates based on marginal cost of funds are more sensitive to changes in the policy rates. This is very essential for the effective implementation of monetary policy.PriortoN CLR system,different banks were following different Methodology for calculation of base rate/ minimum rate – that is either on the basis of average cost of funds or marginal cost of funds or blended cost of funds.

Thus, MCLR aims:

• Statement 1 is correct. To improve the transmission of policy rates into the lending rates of banks.

• Statement 4 is correct. To bring transparency in the methodology followed by banks for determining Interest rates on advances.

• Statement 3 is correct. To ensure availability of bank credit act interest rates which are fair to borrowers As well as banks.

• Statement 2 is correct. To enable banks to become more competitive and enhance the long run value and contribution to economic growth.

However, the venture is its own entity, separate from the participants' other business interests.

Example: Boeing and Tata Advanced Systems have a joint venture company, Tata Boeing Aerospace (TBAL), Kalyani Rafael Advanced Systems (KRAS), a joint venture between Kalyani Strategic Systems Ltd. and Rafael Advanced Defense Systems Ltd. of Israel.

Mergers are a way for companies to expand their reach, expand into new segments, or gain market share. · The five major types of mergers are conglomerate, congeneric, market extension, horizontal, and vertical. · Example: Vodafone – Idea merger

Benefits to Firms: Prospects for higher profits, Increased capacity utilisation, Prospects for growth, Way out to intense competition in domestic market, Improved business vision

The broad objectives of the MAI Scheme are:

To display and promote India’s capabilities as a provider of world class goods and services.

To project India as an attractive sourcing destination.

To create a strong brand image for India.

To facilitate exporters / industry bodies to participate in major events abroad in identified markets, to create an impact of Indian goods and services.

To facilitate exporters to get exposure to new/ potential markets and access information on global trade.

In order to facilitate market access to Pharma/ Chemical/ Cosmetics/ Agro Chemical/ Agricultural/ Animal/ Marine/ Food/ Engineering products, there are provisions under the MAI Scheme for supporting individual exporters by reimbursing expenses incurred on registration of products abroad and on other statutory compliances abroad. With effect from 7th January, 2019, the Government has enhanced the upper ceiling of reimbursement of expenditure on statutory compliances abroad from Rs.50 lakh per exporter per annum to Rs.2 crore per exporter per annum

Statement 1 is correct. Pradhan Mantri Suraksha Bima Yojana offers a renewable one-year accidental death- Cum-disability cover to all the subscribing bank account holders in the age group of 18 to 70 years for a premium of Rs 12 per annum per subscriber. Rs 2 lakh for accidental death and Rs 1 lakh for permanent partial disability is the risk cover available for a one-year period.

Statement 2 is correct. Pradhan Mantri Jeevan Jyoti Bima Yojana offers a renewable one-year term life cover of Rs 2 lakh to all subscribing bank account holders in the age group of 18-50 years with the annual premium of Rs 330.

Statement 1 is incorrect. SEQI has been developed by NITI Aayog to evaluate the performance of States and Union Territories (UTs) in the school education sector. It has been developed through a collaborative process including key stakeholders such as the Ministry of Human Resource Development (MHRD), the World Bank and sector experts.

Statement2 Correct. Among The Large states, Kerala bagged the top spot while Uttar Pradesh scored the lowest. Among the smaller states Manipur bagged the top spot whereas Arunachal Pradesh came last. KB) NITI Aayog has released the first edition of the School Education Quality Index (SEQI).

About SEQI:

• SEQI has been developed by NITIAayog to evaluate the performance of States and UnionTerritories (UTs) in the school education sector.

• It has been developed through a collaborative process including key stakeholders such as the Ministry of Human Resource Development(MHRD), the World Banking Sector Experts.

Thus, the Speaker may put the whole Budget to vote (i.e., allowing ‘no discussion’ on the Budget by the House). In Recent years ,this route was taken time and again by the Government of India, to avoid the aggressive mood of the Opposition. KB) Policy Cut motion intends to ‘reduce the demand to Re. 1’. This represents disapproval of the policy underlying the demand—the discussion remains confined to the particular policy and is open to members to advocate an alternate policy.

Simple Closure is a Closure motion, where a member moves the motion that the ‘matter having been sufficiently discussed be now put to vote’. Kangaroo Closure is a Closure motion,where only important clauses are taken up for discussion and voting and intervening clauses are skipped and taken as passed.

The Economic and Social Commission for Asia and the Pacific (ESCAP) serves as the United Nations’ regional hub promoting cooperation among countries to achieve inclusive and sustainable development.

ESCAP is the most comprehensive of the United Nations five regional commissions. It is also the largest United Nations body serving the Asia-Pacific region.

Made up of 53 Member States and 9 Associate Members, with a geographical scope that stretches from Turkey in the west to the Pacific island nation of Kiribati in the east, and from the Russian Federation in the north to New Zealand in the south.

The APEDA with its headquarters at New Delhi, is headed by Chairman.

In order to reach out to the exporters in different parts of the country, APEDA has set up 5 Regional Offices at Mumbai, Bengaluru, Hyderabad, Kolkata and Guwahati.

APEDA, which comes under the Ministry of Commerce and Industries, has been entrusted with the responsibility of export promotion and development of 14 agricultural and processed food products groups listed in the First Schedule of the APEDA Act. Rice has been included in the Second Schedule of APEDA Act.

In addition to this, APEDA has been entrusted with the responsibility to monitor the import of sugar as well.

'Organic Products’ for export are to be certified only if produced, processed and packed as per the standards laid down in the document `National Programme for Organic Production (NPOP).

Statement 1 is correct. Those who can promote a Payments Bank can be non-bank PPIs, NBFCs, corporate mobile telephone companies, supermarket chains, real sector cooperative companies and public sector entities. Even banks can take equity in Payment Banks. Statement 2 is incorrect.

Payment banks can issue only debit cards. It cannot issue credit cards. Statement 3 is correct. No credit lending is allowed for payment banks. KB) Payment banks can accept demand deposits. They would initially be restricted to holding a maximum balance of rupees 1 lakh per customer. Based on performance, RBI could enhance this limit.

• The banks can offer payments and remittance services, issuance of prepaid payment instruments, internet banking, functioning as business correspondent for other banks.

• Payment banks cannot set up subsidiaries to undertake NBFC business.

• As in the case of small banks, other financial and non-financial services activities of the promoters should be ring-fenced.

• The objective of payment banks is to increase financial inclusion by providing small savings accounts, Payment /remittance services to migrant labour, low income households, small businesses, other unorganised sector entities etc.

Statement 1 and 2 are not correct : PM Kisan is a Central Sector scheme with 100% funding from Government of India.Under the scheme an income support of 6,000/- per year in three equal instalments will be provided.

Statement 3 is correct: Under this scheme, all landholder farmers' families are eligible to obtain the benefits. The landholder farmers' family is defined under the scheme guidelines as a family consisting of a husband, wife and minor children who own cultivable land as per the land records of the respective State or UT. Definition of family for the scheme is husband, wife and minor children.

Statement 1 is correct. Foreign Currency Non-resident (Bank) Account (FCNRA) can be opened by NRIs and Overseas CorporateBodies (OCBs) with an authorised dealer.The accounts can be opened in the form of term deposits. Deposits of funds are allowed in Pound Sterling, Japanese Yen, US Dollar and Euro.

Rate of interest Applicable to these accounts are in accordance with the directives issued by the RBI from time to time.

Statement 2 is incorrect. When a resident becomes an NRI, her existing rupee accounts are designated as Non- Resident Ordinary Rupee Account (NRO Account).

Non-Resident External Account (NRE) can be opened by NRIs and Overseas Corporate Bodies (OCBs) with an authorised dealer and with banks authorised by RBI. They can be in the form of savings, current, recurring or fixed deposit accounts. Also, the deposits are allowed in any permitted currency. Rate of interest Applicable to the accounts are in accordance with the directives issued by the RBI from time to time.

The summit is being held by the World Economic Forum in collaboration with the CII (Confederation of Indian Industry). Statement 2 is correct. The theme of the summit is ‘innovating forIndia: Strengthening South Asia, Impacting the World’. The summit aims to accelerate the Fourth Industrial Revolution. It will also have special focus on collaboration with South Asia and ASEANcountries.

• The growth in GDP during 2021-22 is estimated at 8.7 percent as compared to a contraction of 6.6 percent in 2020-21.

• The Gross Value Added (or GVA) grew by 8.1% in FY22

HSN code stands for “Harmonized System of Nomenclature”. This system has been introduced for the systematic classification of goods all over the world. It is a six-digit identification code. Of the six digits, the first two denote the HS Chapter, the next two give the HS heading, and the last two give the HS subheading.

Therefore, ‘Fiscal policy ’denotes the use of taxes and government expenditures.It is formulated by the Ministry of Finance (Central Government).

Statement 1 is incorrect. The short-term financial market is known as the money market, while the long-term financial market is known as the capital market.

Statement 2 is incorrect- The short-term financial market i.e. the money market fulfils the requirements of funds for a period up to 364 days while long-term financial marketi.e.the capital market does the same for the period above 364 days.

• It is Fund-term market funds.

• It’s maturity period of up to one year.

• It trades with assets that can be transformed into cash easily.

• All transactions take place through phone, email, text, etc.

• Broker not required for the Transaction

• The components of a money market are the Commercial Banks,Non- banking financial companies,and CentralBanketc.

  Important features of the capital market are:

• Unites entrepreneurial borrowers and savers

• Deals long-term investments.

• Agents are required.

• It is controlled by government rules and regulations.

• Deals in both commercial and non-commercial securities.

• Foreign Investors.

• The InvIT is designed as a tiered structure with Sponsor setting up the InvIT which in turn invests into the eligible infrastructure projects either directly or via special purpose vehicles (SPVs).

• The InvITs are regulated by the SEBI (Infrastructure Investment Trusts) Regulations, 2014.

• After the markets regulator Securities and Exchange Board of India (Sebi) introduced InvITs in 2014, markets witnessed the listing of two public InvITs in 2017 (IRB InvIT Fund and India Grid Trust).

• The India Grid Trust (IndiGrid), sponsored by Sterlite Power Grid Ventures Limited, one of India’s leading private power transmission companies, was created in 2016 to acquire operating power transmission assets. India's first infrastructure investment trust in the power sector, IndiGrid provides investors with an opportunity to invest directly in operating power transmission assets.

Money Supply in the system will change if the value of any of its components such as currency, demand deposits or time deposits changes. Various actions of the monetary authority, RBI and commercial banks are responsible for changes in values of these items. Money supply can be influenced by the following:

1. Currency Deposit Ratio (CDR) - The ratio of money held by the public in currency to that they hold in bank deposits. It reflects people’s preference for liquidity. CDR increases during the festive season as people convert deposits to cash balance for meeting extra expenditure during such periods.

2. Reserve Deposit ratio -Reserve money kept in the bank which consists of the vault cash in banks and deposits of commercial banks with RBI. RBI uses various policy instruments to bring forth a healthy rdr in commercial banks. These instruments include Cash Reserve Ratio and Statutory Liquidity Ratio.

3. High powered money - The total liability of the RBI is called monetary base or high-powered money. It includes currency (notes and coins) and deposits of commercial banks and the government of India held by RBI.

4. Statement 1 is correct - As the festive season approaches, CDR increases and people convert their deposits to cash balance to meet extra expenditure.

5. Statement 2 is incorrect - As interest rates rise, it will become difficult for people to take loans from the banks and thus reduce the money supply in the system. Or it can also encourage people to keep more money in their accounts as they will receive higher returns on their savings account.

6. Statement 3 is correct-Injection of high-powered money will lead to an increase in money supply in the system depending on the money multiplier.

7. Statement 4 is correct - A decrease in interest rates will encourage borrowing and thus lead to a higher supply of money in the economy.

• The tax-to-GDP ratio is a ratio of a nation's tax revenue relative to its gross domestic product (GDP), or the market value of goods and services a country produces. According to the Economic Survey, the gross tax to GDP ratio declined to 10.9 per cent in 2018-19.

• Statement 1 is incorrect: Lowering of the income tax limit will lead to an increase in the number of taxpayers but will put an unfair burden on those who have meagre earnings. Thus, not the most prudent way to increase tax-GDP ratio.

• Statement 2 is incorrect: This is not a prudent way to increase tax-GDP ratio as excise duty on crude oil is a form of indirect tax and thus will be applicable to everyone equally irrespective of their earnings. It will be a regressive measure.

• Statement 3 is correct: Formalisation of the labour market will lead to the creation of a valid database of people’s earnings and thus will make the formation of taxation laws easier and effective. This will increase the tax-GDP ratio in a fair and equitable manner.

• Statement 4 is correct: Introduction of a Direct Tax Code will streamline the process of collecting direct tax and thus make the process of tax filing easy and efficient. This will thus lead to an increase in tax- GDP ratio.

Prompt Corrective Action or PCA is a framework under which banks with weak financial metrics are put under watch by the RBI. The PCA framework deems banks as risky if they slip below certain norms on three parameters — capital ratios, asset quality and profitability.

As most bank activities are funded by deposits which need to be repaid, it is imperative that a bank carries a sufficient amount of capital to continue its activities. PCA is intended to help alert the regulator as well as investors and depositors if a bank is heading for trouble. PCA is applicable to only commercial banks.

The most important role of RBI is as the controller of money supply and credit creation in the economy. RBI is the independent authority for conducting monetary policy in the best interests of the economy.

The instruments that the RBI uses for conducting monetary policy are as follows:

• Statement 1 is correct. Open Market Operations (OMO) - RBI purchases (or sells) government securities to the general public in a bid to increase (or decrease) the stock of high-powered money in the economy.

• Statement 2 is correct. Varying Reserve Requirements - CRR and SLR also works through the Reserve Deposit Ratio route. A high (or low) value of CRR or SLR increases (or decreases) the value of reserve deposit ratio, thus diminishing (or increasing) the value of money multiplier and money supply in the economy in a similar fashion.

• Repo Rate - The (fixed) interest rate at which the Reserve Bank provides overnight liquidity to banks against the collateral of government and other approved securities under the liquidity adjustment facility (LAF).

• Statement 4 is correct. Moral Suasion can be undertaken by RBI to persuade commercial banks to follow the monetary policy directives given by the Monetary Policy Committee.

• Statement 3 is incorrect. Sterilisation is one of the important functions of RBI where it sterilises the economy against adverse external shocks. However, it is not an instrument of monetary policy transmission.

• It lays specific focus on hard to abate sectors that are key stakeholders in the global climate action and require specific interventions.

• Japan and South Africa, the latest members of the initiative were welcomed.

  This extends the total membership of LeadIT to 37 including countries and companies together.

• It gathers countries and companies that are committed to action to achieve the Paris Agreement.

• Statements 2 and 3 are correct : LeadIT members subscribe to the notion that energy-intensive industry can and must progress on low-carbon pathways, aiming to achieve net-zero carbon emissions by 2050.

  It provides an arena for public-private collaboration, and for sectoral and cross sectoral learning for example when it comes to innovation opportunities and new technologies. It also supports governments and industries to co-produce stakeholder-led pathways to low carbon industry transformation.

Statement 1 is correct: Revenue expenditure refers to the expenses incurred by the government that do not result in the creation of physical or financial assets. These expenditures include salaries, pensions, subsidies, interest payments, and grants to states and Union Territories.

Statement 2 is also correct: Capital receipts refer to the funds raised by the government through borrowings, either from internal or external sources, and disinvestment of public sector undertakings. Loans raised by the government from the Reserve Bank and commercial banks fall under capital receipts as they represent borrowings.

Since both statements are correct, neither of them is incorrect.

Option (a) is the correct answer.

• Statement 1 is incorrect: Public goods are distinct from private goods as they cannot be provided through the market mechanism and thus must be provided by the government. This is known as the “allocation function” of the government.

• Statement 2 is incorrect: Public goods such as roads, public parks, highways, railways are for the benefit of all. The consumption of such goods by several individuals is not “rivalrous” in the sense that a person can enjoy the benefits without reducing their availability to others.

• Statement 3 is correct: In case of private goods if one does not pay then one can be excluded from enjoying its benefits. However, in case of public goods there is no feasible way of excluding anyone from enjoying its benefits. Thus, non-payers cannot be excluded. Since public goods are “non-rivalrous” and “non-excludable” it becomes difficult to collect fees for the public goods. This leads to the problem of “Free-riders”. Since consumers will not voluntarily pay for what they are getting for free it breaks the link between producers and consumers and therefore the government must step in to provide for such gods. This is known as “Public provisioning”.

Option (d) is the correct answer.

• Statement 1 is incorrect:Trade Balance is referred to as the balance of exports and imports of goods only. Adding trade in services and net transfers to the trade balance, we get the current account balance. All tourism activities come under the services sector which is not included in the ‘Trade Balance’.

• Statement 2 is correct: Depreciation of the Rupee will lead to increase in exports and reduction in imports thus it will lead to a positive trade balance

• Statement 1 is incorrect: In a market economy, all economic activities such as supply and demand interactions, individuals freely exchanging their products with each other etc. are organised through the market without any government interference. There may be some government intervention or planning, but usually it refers to an economy that is more market oriented in general. In this kind of an economy most economic decision making is done through voluntary transactions according to the laws of supply and demand. Hence the arrangement which allows people to buy and sell commodities freely are the defining features of a market economy.

• Statement 2 is correct: Most of the economies are mixed economies, where some important decisions are taken by the government and the economic activities are by and large conducted by the market. The extent of government control varies, for example in the United States of America the role of government is minimal whereas in China, the role of the government is much more interventionist.

• Statement 3 is also correct: in a centrally planned economy, the government or the central authority plans all the important activities in the economy. All important decisions regarding production, exchange, and consumption of goods and services are made by the government.

  Centrally-planned economic mandates surrounding the production of goods and services are often executed by state owned enterprises, which are government-created legal entities that engage in commercial activities on a government's behalf. The government may try to achieve a particular allocation of resources and distribution of final goods and services which is thought to be desirable for society as a whole.