Test: Indian Economy -2 - UPSC MCQ

The monetized deficit is the monetary support the Reserve Bank of India (RBI) extends to the Centre as part of the Government's borrowing programme. In other words, the term refers to the purchase of government bonds by the central bank to finance the Government's spending needs. Monetisation of Deficit means printing more money. Monetization of deficit was in practice in India till 1997, whereby the central bank automatically monetized government deficit by issuing adhoc treasury bills. Two agreements were signed between the Government and RBI in 1994 and 1997 to completely phase out funding through ad hoc treasury bills. And later, with the enactment of the FRBM Act 2003, RBI was completely barred from subscribing to the primary issuances of the Government from April 2006. The important consequence of Deficit monetization is that it triggers a spike in the inflation rate. It won't immediately translate into a higher inflation rate in India due to the demand slowdown the economy is experiencing. However, an increased money supply could proportionately lead to a higher inflation rate when the economy enters the recovery path. So, Option (d) is correct.

• Primary deficit refers to the difference between the current year's fiscal deficit and interest payments on previous borrowings. It indicates the borrowing requirements of the government, excluding Interest. It also shows how much of the government's expenses, other than interest payments, can be met through borrowings. A fiscal deficit is a difference between the government's total expenditure and total income. When the government spends more than its total income, such a situation is called a fiscal deficit. So, Statement 1 is not correct.
• Off-Budget borrowings are loans obtained by government entities, such as P.S.U.s or special purpose vehicles, on behalf of the government to finance its expenditure. According to the Comptroller and Auditor General of India, these borrowings are not included while computing the debt and the fiscal deficit of the State governments. However, the State government is responsible for repaying the loan and servicing the debt from its Budget. So, Statement 2 is correct.
• A proportional tax is a taxing mechanism in which the taxing authority charges the same rate of tax from each taxpayer, irrespective of income. This means that lower, middle, or upper-class people pay the same tax. Since the tax is charged at a flat rate for everyone, whether earning higher income or lower income, it is also called a flat tax. Indian Income-tax levies tax on individual taxpayers on the basis of a slab system. A slab system means different tax rates are prescribed for different ranges of income. It means the tax rates keep increasing with an increase in the income of the taxpayer. This type of taxation enables progressive and fair tax systems in the country. Such income tax slabs tend to undergo a change during every Budget. Thus, the tax slabs of the new tax regime are not an example of proportional taxation. So, Statement 3 is not correct.

• Revenue expenditures refer to the day-to-day expenditures incurred by the government to ensure its normal functioning. Interest payments on the debt incurred by the government, defense purchases, administrative expenditures, and wage bills are all a part of the government’s revenue expenditure. So, Statements 1 and 3 are correct.
• Loans are given to the state government by the central government for various purposes. Such loans are considered the Centre’s capital expenditure as these are treated as assets from which the Centre derives interest. On the contrary, all grants given to State Governments/Union Territories and other parties are also treated as revenue expenditure, even though some of the grants may be used for the creation of assets. So, Statement 2 is not correct. 

• Public sector banks or nationalized banks are those in which the Government holds more than 50% of the total stock. There are 12 public sector banks in India, where the Government has retained most of its share with the primary aim of public interest. Public sector banks were not granted 'Ratna status.' So, Statement 1 is not correct.
• Life Insurance in its modern form came to India from England in 1818. Life Insurance Corporation (LIC) is not granted 'Ratna status.' So, Statement 2 is not correct.
• Central Public Sector Enterprises (CPSEs) are those companies in which the direct holding of the Central Government or other CPSEs is 51% or more. Under the Articles of Association, the board of directors of Central Public Sector Enterprises (CPSEs) enjoys autonomy in respect of recruitment, promotion and other service conditions of below-board-level employees. The board of directors of a CPSE exercises delegated powers subject to broad policy guidelines issued by the government from time to time. The government has granted enhanced powers to the Boards of profit-making enterprises under various schemes like Maharatna, Navratna and Miniratna. So, Statement 3 is correct.
• State government-owned companies are not given ‘Ratna status’. So, Statement 4 is not correct. Private owned companies were not granted 'Ratna status.' The following were some of the Private owned companies
  • Reliance Industries Limited
  • Tata Consultancy Services (TCS)
  • Hindustan Lever Limited
  • Bharti Tele-Ventures Limited
  • ITC Limited

So, Statement 5 is not correct.

• Poverty can be defined as a condition in which an individual or household lacks the financial resources to afford a basic minimum standard of living. The conventional approach to measuring poverty is to specify a minimum expenditure (or income) required to purchase a basket of goods and services necessary to satisfy basic human needs. This expenditure is called the poverty line. The basket of goods and services necessary to satisfy basic human needs is the Poverty Line Basket (PLB). Poverty can be measured in terms of the number of people living below this line (with the incidence of poverty expressed as the headcount ratio (HCR) or the poverty ratio – the number of poor to the total population expressed as a percentage). So, Statement 1 is correct.
• Poverty estimation in India is now carried out by a task force of the NITI Aayog through the calculation of poverty lines based on data collected by the National Sample Survey Office under the Ministry of Statistics and Programme Implementation (MOSPI). So, Statement 2 is not correct. 

• Investment in health is considered an important input for the development of a nation as much as it is important for the development of an individual. A sick labourer without access to medical facilities is compelled to abstain from work, and productivity is lost. Hence, expenditure on health is an important source of human capital formation. So, Statement 1 is correct.
• Investment in education is considered one of the main sources of human capital. Spending on education by individuals is similar to spending on capital goods by companies with the objective of increasing future profits over a period of time. Likewise, individuals invest in education with the objective of increasing their future income. So, Statement 5 is correct.
• Firms spend on giving on-the-job training to their workers. This may take different forms: the workers may be trained in the firm itself under the supervision of a skilled worker; two, the workers may be sent for off-campus training. In both these cases, firms incur some expenses. Firms will, thus, insist that the workers work for a specific period after their on-the-job training, during which they can recover the benefits of the enhanced productivity owing to the training. Expenditure regarding on-the-job training is a source of human capital formation as the return of such expenditure in the form of enhanced labor productivity is more than the cost of it. So, Statement 2 is correct.
• Price support and input subsidy have proved to be the most effective instruments in accelerating agricultural growth in the country. However, some economists are of the view that subsidies consumed most of the surpluses leaving little to invest. They have argued that the increasing burden of subsidy is the most important factor· responsible for declining public investment over the years in capital formation, not only in the form of agricultural infrastructure but also human capital formation. So, Statement 3 is not correct.
• In October 2018, India signed a USD 5 billion deal with Russia to buy five units of the S-400 air defense missile systems, which are considered to be one of the most advanced air defense systems available in the world. While these missiles serve the purpose of protecting the sovereignty, security and territorial integrity of India, they do not serve as a source of human capital formation. So, Statement 4 is not correct.

• Fiat money is a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government rather than the worth of a commodity backing it. Cheques are not fiat money because the central bank or R.B.I. does not back them. Other parties can refuse to accept it as a mode of payment. So, Statement 1 is not correct.
• Money that has a legal sanction by the government or central bank behind it is called legal tender or legal tender money. It is money issued by the monetary authority or the government, which any person cannot refuse in payment for transactions. So, Statement 2 is correct.

In terms of Section 22 of the RBI Act of 1934, Reserve Bank has the sole right to issue banknotes in India. Section 25 states that the design, form and material of bank notes shall be such as may be approved by the Central Government after consideration of the recommendations made by the Central Board of RBI. The Reserve Bank, in consultation with the Central Government and other stakeholders, estimates the number of banknotes that are likely to be needed denomination-wise in a year and places indents with the various currency printing presses for the supply of banknotes. The Reserve Bank, in terms of its clean note policy, provides good quality banknotes to the members of the public. With this objective in view, the banknotes received back from circulation are examined, and those fit for circulation are reissued. In contrast, the others (soiled and mutilated) are destroyed so as to maintain the quality of banknotes in circulation. In respect of coins, the role of RBI is limited to the distribution of coins that are supplied by the Government of India. The Government of India is responsible for designing and minting coins in various denominations as per the Coinage Act 2011. So, Option (a) is correct.

• National Payments Corporation of India (NPCI) initiates Bharat QR Code. It is a new way for merchants and customers to exchange funds using mobile phones, making it a preferred channel to expedite and grow electronic payments. Merchants have used it to accept digital payments, as not all have the resources to mandate payments through P.O.S. card swipe E.D.C. terminals. NPCI jointly worked with the I.C.S. (International Card Schemes) to develop a common standard for Q.R. code and partnered to launch Bharat QR – a QR Code-based digital payment mechanism that merchant establishments, e-Commerce and m-Commerce websites are already using. So, Statement 1 is correct.
• National Highways Authority of India launched two mobile Apps – MyFASTag and FASTag Partner, to facilitate the availability of FASTags for Electronic Toll Collection. MyFASTag is a consumer App that can be downloaded from the App Store for both Android and iOS systems. A consumer can purchase or recharge FASTags on this App. The App also helps to keep track of transactions and provides for online grievance redressal. FASTag Partner is a merchant App. Agencies like Common Services Centre, banking partners and vehicle dealers can sell and enroll FASTag through this App. In addition to this, the App can also be used to activate the RFID tags that came built-in with around 74 lakh cars in the country following the 2013 Gazette Notification in this regard. These RFID tags are already fixed on the cars but are dormant. This App will convert these RFID tags into E.T.C. Tag (FASTag). So, Statements 2 and 3 are not correct.
• National Payments Corporation of India (NPCI) has developed the National Electronic Toll Collection (NETC) program to meet the electronic tolling requirements of the Indian market. It provides an electronic payment facility for the customer to make payments at national, State and city toll plazas by identifying the vehicle uniquely through a FASTag. FASTag is Radio-Frequency Identification (RFID) sticker that is affixed on the vehicle windshield and enables the driver to make toll payments electronically while the vehicle is in motion without stopping at the Toll plazas by saving Fuel and Time.

So, Statement 4 is correct. 

The merchant discount rate, or MDR, is charged to a merchant for processing debit and credit card transactions. The merchant sets up the service and must agree or commit to the rate before accepting and/or authorizing debit or credit cards for payment processing. The merchant bank charges a fee (MDR). The MDR fee collected by the merchant bank is then split with the bank that issued the credit card, the payment network (Visa, Mastercard, etc.), and the bank that provided the POS terminal or device. The POS terminal is a device used for handling credit and debit card payments at merchant outlets. So, Option (d) is correct.

A blockchain is a distributed database or ledger that is shared among the nodes of a computer network. The World Bank launched bond-i (blockchain-operated new debt instrument) in 2018. It is considered to be the world's first bond to be created, allocated, transferred and managed through its life cycle using distributed ledger technology. The new bond was created through Australia's Commonwealth Bank (CBA). So, Option (d) is correct. 

• A Formosa bond is issued in Taiwan but denominated in a currency other than the New Taiwan Dollar. They are issued by the Taiwan branches of publicly traded overseas financial institutions, and to be traded must have a credit rating of BBB or higher. In January 2022, the State Bank of India fundraised US $300 million through the issuance of Formosa Bonds. The lender became the first Indian entity to raise money through Formosa Bond. So, Pair (1) is not correct.
• Masala Bonds are rupee-denominated bonds issued outside India by Indian entities. They are debt instruments that help raise money from foreign investors in local currency. Both the government and private entities can issue these bonds. Investors outside India who want to invest in India’s assets can subscribe to these bonds. Any resident of that country can subscribe to these bonds, which are members of the Financial Action Task Force. The investors who subscribe should be whose securities market regulator is a member of the International Organisation of Securities Commission. Multilateral and Regional Financial Institutions, of which India is a member country, can also subscribe to these bonds. So, Pair (2) is correct.
• A Panda bond is a Chinese renminbi-denominated bond from a non-Chinese issuer sold in the People's Republic of China. Recently Deutsche Bank announced today that it had issued its inaugural Panda bond, raising CNY 1 billion via 3-year senior preferred notes. This transaction enables the bank to directly tap into China’s deep onshore bond market, accessing a new investor base at attractive funding levels. So, Pair (3) is correct.
• While Masala Bonds are rupee-denominated off-shore bonds, Maharaja Bonds are onshore rupee bonds. The bonds are listed on India’s National Stock Exchange (NSE). In 2014, the International Finance Corporation issued it for the first time under a $2.5 billion program to support India’s domestic capital markets.

So, Pair (4) is correct. 

According to the Sovereign Green Bond Framework released by the Government of India in 2022, a ‘green project’ classification is based on the following principles:

• Encourages energy efficiency in resource utilization
• Reduces carbon emissions and greenhouse gases
• Promotes climate resilience and/or adaptation 3
• Values and improves natural ecosystems and biodiversity, especially per SDG principles. The government of India will use the proceeds raised from Sovereign Green Bonds (SGrB) to finance and/or refinance expenditure (in parts or whole) for eligible green projects falling under ‘Eligible Categories.’ The projects that fall under ‘Eligible Categories’ include:
  • Grants for renewable energy sources
  • Tax cuts for the usage of electric vehicles
  • Equity investment in metro projects
  • Waste water management
  • Pollution control projects So, Option (a) is correct.
• The projects that fall under the ‘Excluded Projects’ category are excluded from being defined as ‘green project’ according to the Framework. These include:
  • Landfill projects
  • Palm oil industries

So, Statements 3 and 5 are not correct.

Hyperinflation or runaway inflation is out-of-control inflation in which the price of goods and services rises at a monthly rate of 50% or an annual rate of 1,000% or more. An oversupply of paper currency can cause hyperinflation without a corresponding rise in the production of goods and services. In other words, hyperinflation is extremely rapid inflation. So, Option (b) is correct.

• The balance of payments (BOP), or the balance of international payments, is a statement of all transactions made between entities in one country and the rest of the world over a defined period, such as a quarter or a year. It summarizes all transactions of a country's individuals, companies, and government bodies, complete with individuals, companies, and government bodies outside the country. External Commercial borrowings refer to commercial loans in the form of bank loans, buyers’ credit, suppliers’ credit, and securitized instruments availed from non-resident lenders with a minimum average maturity of 3 years. They form a part of the Capital account in the context of the Balance of Payments. So, Statement 1 is correct.
• Government transfers are usually in the form of gifts or grants, which do not have quid pro quo. This means that it need not be compensated or reciprocated. Once it is received, it need not be repaid. Hence, they form a part of the current account and not the capital account in the context of the Balance of Payments. So, Statement 2 is not correct.
• The head of invisibles in the Balance of Payments records the receipts and payments with respect to the following:
  • Import and export of Services
  • Income/ Remittances
  • Transfers These neither create an asset nor a liability. So, the head of invisibles falls under the current account and not the capital account. So, Statement 3 is not correct.
• Companies of a country can go abroad to sell their shares in the foreign capital market. When a foreign investor buys shares of domestic companies abroad (in the capital market), he is issued a receipt by a Custodian Bank. This receipt represents a certain number of underlying shares of domestic companies; hence, they are called depository receipts. The depository receipts raised by Indian companies in the American market are called American Depository Receipts (ADRs). Those raised in some other countries are called Global Depository Receipts (GDRs). They form a part of the Capital account in the context of the Balance of Payments. So, Statement 4 is correct.

• A global depositary receipt (GDR) is a negotiable financial instrument issued by a depositary bank by a foreign bank other than the United States. It represents shares in a foreign company and trades on the local stock exchanges in investors' countries. GDRs make it possible for a company (the issuer) to access investors in capital markets beyond the borders of its own country. So, Statement 1 is correct.
• Recently, the Government allowed Indian companies to have the option to list their global depository receipts at the international financial services centre in Gujarat, with the Government amending the rules. The move would help companies by having another avenue for raising funds. The corporate affairs ministry has amended the Companies (Issue of Global Depository Receipts) Rules, 2014, permitting the listing of Global Depository Receipts (GDRs) at Gujarat International Finance Tec-City (GIFT). So, Statement 2 is correct.
• Global depository receipts allow a company to list its shares in more than one country outside of its home country. For example, an Indian company could create a GDR program that issues its shares through a depository bank intermediary into the London and United States markets. Each issuance must comply with all relevant laws in the home country and foreign markets. So, Statement 3 is correct. 

• Section 3(1) of the Information Technology Act of 2000 gives legal sanctity to the usage of digital signatures in the country. A person can, if he/she wishes, use digital signatures to authenticate an electronic record, and such authentication is now recognizable under the law. Section 2(p) of the Act defines ‘digital signature’ as ‘authentication of any electronic record by a subscriber by means of an electronic method or procedure in accordance with the provisions of section 3’. Chapter II of the Act has a single section which is section 3, providing for the authentication of electronic records. Sub-section (1) of section 3 states that ‘any subscriber may authenticate an electronic record by affixing his digital signature.’ This forms the basis for the use of digital signatures. So, Statement 1 is correct.
• The IT Act of 2000 creates a hierarchy in which at the top is the Controller of Certifying Authorities, who has the power to appoint Certifying Authorities and grant them the license to issue Digital Signature Certificates. In turn, the Certifying Authorities can issue such Certificates to the subscribers. So, Statement 2 is correct.
• The IT Act of 2000 adopts the functional equivalent approach. When adopting this approach in the UNCITARL Model Law, attention was given to the existing hierarchy of form requirements, which provides a distinct level of reliability, traceability and inalterability with respect to paper-based documents. This approach singles out the basic functions of paper-based form requirements with a view to providing criteria which, once they are met by electronic documents, enable such e-documents to enjoy the same level of legal recognition as corresponding paper documents performing the same function enjoy. As per Section 18 of The Information Technology Act, 2000 provides the required legal sanctity to the digital signatures based on asymmetric cryptosystems. The digital signatures are now accepted at par with handwritten signatures and the electronic documents that have been digitally signed are treated at par with paper documents. So, Statement 3 is not correct.
• The Data Security Council of India (DSCI) is a not-for-profit industry body on data protection in India, set up by NASSCOM, a non-governmental industry organization. DSCI is committed to making cyberspace safe, secure and trusted by establishing best practices, standards and initiatives in cyber security and privacy. To further its objectives, DSCI engages with governments and their agencies, regulators, industry sectors, industry associations and think tanks for policy advocacy, thought leadership, capacity building and outreach activities. So, Statement 4 is not correct. 

• The term trademark refers to a recognizable insignia, phrase, word, or symbol that denotes a specific product and legally differentiates it from all other products of its kind. A trademark exclusively identifies a product as belonging to a specific company and recognizes the company's ownership of the brand. Trademarks are generally considered a form of intellectual property and may or may not be registered. Intellectual property rights protect trademarks. So, Statements 1 and 2 are correct.
• The Trademark Act 1999 governs the trademark regime and registration. The Act guarantees protection for a trademark registered with the Controller General of Patents, Designs, and Trademarks, also known as the trademark registry. A trademark is valid for 10 years and can be renewed by the owner indefinitely every 10 years. So, Statement (3) is not correct.
• Trademark rights are private rights, and protection is enforced through court orders. The Controller General of Patents, Designs and Trade Marks heads the TRADE MARKS Registry offices and functions as the Registrar of TRADE MARKS. From time to time, he assigns functions of the Registrar to other officers appointed by the Central Government, and such officers also function as Registrar in respect of matters assigned to them. The Office of the Controller General of Patents, Designs & Trade Marks (CGPDTM) is located in Mumbai. It functions under the Department of Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce & Industry. The Controller General supervises the working of the Patents Act of 1970, the Designs Act of 2000 and the Trade Marks Act of 1999 and also renders advice to the Government on matters relating to these subjects. The Head Office of the ‘Patent office’ is in Kolkata, the ‘Trade Mark Registry’ is in Mumbai and the ‘GI Registry’ is in Chennai. The Offices of ‘The Patent Information System’ (PIS) and ‘National Institute of Intellectual Property Management’ (NIIPM) are at Nagpur. So, Statement (4) is not correct. 

Landraces refer to naturally occurring variants of commonly cultivated crops. These are as opposed to commercially grown crops, developed by selective breeding (hybrids) or through genetic engineering to express a certain trait over others. Kalbhat, a unique landrace of scented rice, is an example of Landraces. So, Option (d) is correct. 

Grievance Redressal Index (GRI) is the ranking report published by the Department of Administrative Reforms and Public Grievances (DARPG), Ministry of Personnel, Public Grievances and Pensions for all government departments/ministries, and it is a monthly report. The grievance Redressal Index has two dimensions:

• Timely Disposal of Grievance Redressal.
• Quality Disposal of Grievance Redressal. It ranks all Groups A Ministries, Departments and Autonomous Bodies for resolving public grievances.

So, Statement 1 is not correct, and Statement 2 is correct. 

• According to the Reserve Bank of India (RBI), the Real exchange rate (RER) is considered a barometer of an economy's competitiveness for international trade between two countries. If a particular product is calculated, and
  • If the Real Exchange Rate > 1, India will continue to export the products to the US.
  • If the Real Exchange Rate equals 1, then export & import will stop.
  • If the Real Exchange Rate < 1, the US will start exporting the products to India.
• For the purpose of international comparison, costs and prices need to be converted to a common reference currency, generally the U.S. Dollar. The competitiveness represented by a price or cost differential is then measured by a real effective exchange rate. Effective exchange rates (EERs) serve as a gauge for assessing the fair value of a currency and the external competitiveness of an economy and even serve as guideposts for setting monetary and financial conditions. An EER is a summary indicator of movements of the home currency against a basket of currencies of trading partners. The nominal effective exchange rate (NEER) is an index of the weighted average of bilateral exchange rates of home currency vis-à-vis currencies of trading partners, with weights derived from their shares in the trade basket of the home currency. A real effective exchange rate (REER) is the NEER adjusted by relative prices or costs, typically captured in inflation differentials between the home economy and trading partners. So, Option (c) is correct. 

• Inflation is a price rise, which can be translated as the decline of purchasing power over time. The rate at which purchasing power drops can be reflected in the average price increase of a basket of selected goods and services over some period of time. A country's financial regulator shoulders the important responsibility of keeping inflation in check. It is done by implementing measures through monetary policy, which refers to the actions of a central bank or other committees that determine the size and rate of growth of the money supply. Government Security (G-Sec) is a tradeable instrument issued by the Central or State Governments. It acknowledges the Government's debt obligation. The sale or Purchase of G Secs is done by RBI on the Government's behalf, but it is not explicitly done by RBI. It is done to carry out the fiscal deficit. So, Statement 1 is not correct.
• The standing deposit facility is a collateral-free liquidity absorption mechanism implemented by the RBI with the intention of transferring liquidity out of the commercial banking sector and into the RBI. It enables the RBI to take liquidity (deposits) from commercial banks without having to compensate them with government securities. Therefore, Increasing Standing deposit facilities leads to decreases in inflation. So, Statement 2 is correct.
• The Cash Reserve Ratio (CRR) is the percentage of total deposits a bank must have in cash to operate risk- free. The Reserve Bank of India decides the amount and kept with them for financial security. The bank cannot use this amount for lending and investment purposes and does not get any interest from the RBI. If RBI increases the CRR, inflation will be reduced. So, Statement 3 is correct.
• A marginal standing facility (MSF) is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely. Banks borrow from the central bank by pledging government securities at a rate higher than the repo rate under a liquidity adjustment facility or LAF in short. The MSF rate is pegged 100 basis points or a percentage point above the repo rate. Under MSF, banks can borrow funds up to one percent of their net demand and time liabilities (NDTL). This leads to higher inflation. So, Statement 4 is not correct. 

• Bond prices and bond yields are inversely related. As bond prices rise, yield on it declines, and vice versa. Government bond yields indicate a country's Inflation and interest rate expectations. During periods of high Inflation, newer debt issuances are compelled to offer higher yields. So, Statement 1 is correct.
• Whenever Inflation affects the market, interest rates have steadily increased in all areas of financial activities, including purchasing and investing. When interest rates rise, newer bonds will pay investors better interest rates than existing bonds. Here, the older bonds are less attractive and will drop their prices as compensation and sell at a discounted price. Hence prices of existing bonds will decrease in the secondary market. So, Statement 2 is not correct.
• The Cost of Borrowing is the interest you have to pay on borrowing a loan. If Inflation increases, then the RBI increases the repo rate to reduce the money supply in the economy and to bring the rising inflation under control. This causes the lending commercial banks to also increase the interest rates on their loans, increasing the cost of borrowing for their customers. So, Statement 3 is correct. 

• A common method used to estimate poverty in India is based on the income or consumption levels and if the income or consumption falls below a given minimum level, then the household is said to be Below the Poverty Line (BPL).
• Poverty: According to the World Bank, Poverty is pronounced deprivation in well-being and comprises many dimensions. It includes low incomes and the inability to acquire the basic goods and services necessary for survival with dignity.
• Poverty Line: The conventional approach to measuring poverty is to specify a minimum expenditure (or income) required to purchase a basket of goods and services necessary to satisfy basic human needs and this minimum expenditure is called the poverty line.
• Poverty Line Basket: The basket of goods and services necessary to satisfy basic human needs is the Poverty Line Basket (PLB).
• Poverty Ratio: The proportion of the population below the poverty line is called the poverty ratio or headcount ratio (HCR). Hence option (b) is the correct answer. 

• Sterilization by the Reserve Bank of India (RBI): The RBI often uses its instruments of money creation for stabilizing the stock of money in the economy from external shocks. Suppose due to future growth prospects in India investors from across the world increase their investments in Indian bonds which under such circumstances, are likely to yield a high rate of return. They will buy these bonds with foreign currency.
• Since one cannot purchase goods in the domestic market with foreign currency, a person or a financial institution that sells these bonds to foreign investors will exchange its foreign currency holding into a rupee at a commercial bank. The bank, in turn, will submit this foreign currency to RBI and its deposits with RBI will be credited with an equivalent sum of money. The commercial bank’s total reserves and deposits remain unchanged (it has purchased the foreign currency from the seller using its vault cash, which, therefore, goes down; but the bank’s deposit with RBI goes up by an equivalent amount – leaving its total reserves unchanged).
• There will, however, be increments in the assets and liabilities on the RBI balance sheet. RBI’s foreign exchange holding goes up. On the other hand, the deposits of commercial banks with RBI also increase by an equal amount. But that means an increase in the stock of high-powered money – which, by definition, is equal to the total liability of RBI.
• With a money multiplier in operation, this, in turn, will result in an increased money supply in the economy. This increased money supply may not altogether be good for the economy’s health. If the volume of goods and services produced in the economy remains unchanged, the extra money will lead to an increase in the prices of all commodities.
• People have more money in their hands with which they compete each other in the commodities market for buying the same old stock of goods. As too much money is now chasing the same old quantities of output, the process ends up in bidding up prices of every commodity – an increase in the general price level, which is also known as inflation. • RBI often intervenes with its instruments to prevent such an outcome. In the above example, RBI will undertake an open market sale of government securities of an amount equal to the amount of foreign exchange inflow in the economy, thereby keeping stock of high-powered money and total money supply unchanged. Thus it sterilizes the economy against adverse external shocks. This operation of RBI is known as sterilization. Hence option (b) is the correct answer. 

• Factor cost is the cost of an item of goods or a service in terms of the various factors which have played a part in its production or availability.
• In order to arrive at the market prices, we have to add to the factor cost the total indirect taxes less total subsidies. Also, it does not generally include direct taxes. Hence option (b) is the correct answer.
• Once goods and services are produced they are sold in a marketplace at a set market price. The market price is the price that consumers will pay for the product when they purchase it from the sellers. Taxes charged by the government will be added to the factor price while subsidies provided will be reduced from the factor price to arrive at the market price.
• Taxes are added on because taxes are costs that increase the price, and subsidies are reduced because subsidies are already included in the factor cost, and cannot be double-counted when the market price is calculated. The market price will be decided, depending on the cost of production, demand for the product, and prices that are charged by competitors. In economics, the market price is identified as the price at which demand for the product or service is equal to its supply.
• Changes in the levels of demand and supply, cost of factor inputs, and other economic and environmental conditions can affect the market price of a good or service. 

• Disguised Unemployment
  • It is a situation in which more people are doing work than actually required. Even if some are withdrawn, production does not suffer. In other words, it refers to a situation of employment with surplus manpower in which some workers have zero marginal productivity. Hence option (b) is the correct answer.
  • Overcrowding in agriculture due to the rapid growth of the population and lack of alternative job opportunities may be cited as the main reasons for disguised unemployment in India.
  • Note:
    • Casual Unemployment: When a person is employed on a day-to-day basis, casual unemployment may occur due to short-term contracts, shortage of raw materials, fall in demand, change of ownership, etc.
    • Chronic Unemployment: If unemployment continues to be a long-term feature of a country, it is called chronic unemployment. The rapid growth of the population and inadequate level of economic development on account of the vicious circle of poverty are the main causes of chronic unemployment. 

• Cash Reserve Ratio (CRR) is the average daily balance that a bank is required to maintain with the Reserve Bank as a percent of its net demand and time liabilities (NDTL) as of the last Friday of the second preceding fortnight that the Reserve Bank may notify from time to time in the Official Gazette. 
• Cash Reserve Ratio (CRR) = Percentage of deposits which a bank must keep as cash reserves with the bank.
• CRR is one of the monetary policy tools that the RBI uses to control inflation. During high inflation in the economy, RBI increases the CRR to lower the bank’s loanable funds. Thus, when banks are required to deposit more cash with the RBI the total loanable funds with the banks will reduce. The less availability of funds with the banks will lead to an increase in the interest rates charged by the Banks. Hence, option (b) is the correct answer.
• The rise in interest rates decreases the liquidity in the market which further seeks to reduce the aggregate demand and thereby inflation in the economy. Hence, options (a) and (c) are not correct.
• A high-interest rate by the banks is likely to attract households to save more money with banks. Thus an increase in CRR is likely to increase household savings with the banks. Hence, option (d) is not correct. 

In News : The Ministry of Textiles has approved the Startup Guidelines for Technical Textiles - Grant for Research and Entrepreneurship across Aspiring Innovators in Technical Textiles (GREAT) providing grant-in-aid upto INR 50 Lakhs for upto a period of 18 months.

Statements 1 and 2 are correct : Technical Textiles termed as a “Sunrise” sector is finding widespread applications in diverse industries such as agriculture, medical, infrastructure development, automotive, aerospace, sports, protective clothing, packaging etc.

• Indian Technical Textiles market is the 5th largest in the world and is rapidly growing, both in terms of value and output.
• The Technical Textile segment accounts for around 15% of the overall textile and Apparel market in India and is significant in terms of employment and investment

Statement 3 is not correct : NTTM was launched to achieve a market size of $40 billion and export of $10 billion in the technical textiles segment by 2024-25. 

Both the Statements 1 and 2 are not correct:

• For GDP compilation, total tax revenue is used, that includes Non-GST Revenue as well as GST Revenue.
• Quarterly Estimates of GDP are released by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI).