Practice Test: Indian Economy -2 - UPSC MCQ

Pair 1 is incorrect: Gross National Income - It takes into account GDP along with net income from abroad.

National Income Accounting of India

• India employs a system of National Income Accounting that follows international standards, primarily based on the guidelines provided by the United Nations System of National Accounts (SNA). The central agency responsible for preparing and disseminating these accounts in India is the Central Statistics Office (CSO), which operates under the Ministry of Statistics and Programme Implementation.

Indicators of the National Income Accounting:

• Gross Domestic Product (GDP): GDP is one of the most essential measures in National Income Accounting. It represents the total value of all goods and services produced within the country’s borders over a specific time period. India calculates GDP using three approaches: the production approach, the expenditure approach, and the income approach.
• Gross National Income (GNI): GNI takes into account GDP along with net income from abroad. It considers net primary income (wages, interest, profits, etc.) earned by Indian residents from foreign sources and subtracts net primary income paid to foreign residents.
• Gross Value Added (GVA): GVA is the value of goods and services produced within an industry, minus the value of intermediate consumption. It provides a measure of the contribution of each industry to the economy.
• Net National Income (NNI): NNI is derived by subtracting depreciation (wear and tear of capital goods) from GNI. It gives a better indication of the income available for consumption and investment.
• Net Domestic Product (NDP): NDP is obtained by subtracting depreciation from GDP. It represents the value of the country’s net output of goods and services.
• Disposable Income: Disposable income is the income available to households for spending or saving after paying taxes and receiving government transfers.
• Consumption Expenditure: This includes the expenditure by households on goods and services for consumption.
• Investment Expenditure: Investment includes expenditure on capital goods that will be used for future production, such as machinery, equipment, and infrastructure.
• Government Expenditure: This includes all government spending on goods and services, as well as transfers to individuals and businesses.
• Exports and Imports: These represent the value of goods and services sold to foreign countries (exports) and bought from foreign countries (imports).
• National Disposable Income: This is the sum of all incomes earned by residents in a country, including wages, rents, profits, and taxes, minus subsidies.

Calculation of National Income in India

Calculating the national income of a country involves measuring the total economic output generated within its borders during a specific time period. In India, national income is typically calculated using three main approaches: the Production Approach, the Income Approach, and the Expenditure Approach.

Production Approach:

This approach calculates national income based on the value-added by different sectors of the economy. The formula is:

National Income = Gross Value of Output - Value of Intermediate Consumption Income Approach:

This approach calculates national income by summing up all the factor incomes earned in the economy. The main components are wages, rents, interest, and profits.

National Income = Wages + Rents + Interest + Profits Expenditure Approach:

This approach calculates national income by summing up all the expenditures in the economy, including consumption, investment, government spending, and net exports (exports - imports).

National Income = Consumption + Investment + Government Spending + Net Exports

Inflation Indices

• In India, inflation indices are used to measure and track changes in the overall price levels of goods and services over time.
• These indices provide valuable information for policymakers, businesses, and the general public to understand the rate of inflation and its impact on the economy.
• The two primary inflation indices used in India are the Consumer Price Index (CPI) and the Wholesale Price Index (WPI).

Consumer Price Index (CPI):

• The Consumer Price Index measures the changes in the prices of a basket of goods and services consumed by urban and rural households.
• It is calculated by the Central Statistical Office (CSO), Ministry of Statistics and Programme Implementation.
• The CPI is further categorized into various sub-indices based on different groups of commodities.
• CPI Urban: Reflects the price changes in urban areas.
• CPI Rural: Reflects the price changes in rural areas.
• CPI Combined: Combines both urban and rural areas to provide an overall measure of inflation.
• The CPI indices are updated on a monthly basis and are widely used as a gauge of retail inflation in the country.

Wholesale Price Index (WPI)

• The Wholesale Price Index measures the average change in the prices of a selected group of goods at the wholesale level.
• It is calculated by the Office of the Economic Adviser, Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry. The WPI includes primary articles, fuel and power, and manufactured products.
• The WPI was historically used as the primary inflation indicator in India, but over time, the focus shifted towards the CPI as it provides a more comprehensive view of inflation from the perspective of the end consumer.

Inflation Impact on Economy

• Inflation can have significant impacts on the economy of India, as it does in any other country. Inflation refers to the sustained increase in the general price level of goods and services over a period of time.

Here’s how inflation can impact the Indian economy:

Purchasing Power Reduction

• High inflation erodes the purchasing power of consumers. As prices rise, people can buy fewer goods and services with the same amount of money. This can reduce consumer confidence and lead to decreased spending on non-essential items.

Fixed-Income Groups

• Fixed-income groups, such as retirees, pensioners, and individuals with fixed salaries, are particularly vulnerable to inflation. Their income remains constant while the cost of living increases, leading to a decrease in their real income.

Savings and Investments

• Inflation can impact savings and investments negatively. If the rate of return on investments is lower than the inflation rate, the real value of savings and investments can decline over time.
• Interest Rates: To combat inflation, central banks might raise interest rates. Higher interest rates can lead to increased borrowing costs for businesses and individuals, potentially slowing down economic growth.

Business Uncertainty

• Rapidly changing prices can create uncertainty for businesses in terms of production costs and pricing strategies. This uncertainty can affect long-term planning and investment decisions.

Wage-Price Spiral

• High inflation can trigger a wage-price spiral. As prices rise, workers may demand higher wages to maintain their purchasing power. However, if businesses pass on increased labor costs to consumers through higher prices, it can further fuel inflation.

Exports and Imports

• Inflation can affect a country’s trade balance. If domestic prices rise faster than international prices, a country’s exports might become more expensive, leading to reduced demand from other countries. Conversely, imports can become relatively cheaper, potentially harming domestic industries.

Central Bank Policies

• Central banks, like the Reserve Bank of India (RBI), often use monetary policy tools to manage inflation. They may increase interest rates, reduce money supply, or implement other measures to curb inflation. However, these measures can also impact economic growth.

Income Redistribution

• Inflation can result in a redistribution of income and wealth. For instance, borrowers may benefit from repaying loans with cheaper money, while lenders lose out. Those who hold physical assets like real estate or precious metals might see the value of their holdings rise.

Impact on Government Finances

• Inflation can impact government finances as well. If government expenditures rise due to inflation, there might be pressure to increase revenue through higher taxes or borrowing, which can have broader economic implications. • In India, managing inflation has been a priority for economic policymakers. The Reserve Bank of India (RBI) employs various monetary policy tools to control inflation and maintain price stability.

Statement 2 is incorrect: Core inflation excludes food and fuel items from headline inflation.

Inflation in various sectors

• Retail price inflation mainly stems from the agriculture and allied sector, housing, textiles, and pharmaceutical sectors.
• Further, the global spillovers, representing the imported inflation channel, driven by price pressures in energy, mining, chemicals, trade, basic and machinery, reaches the retail segment mainly through the wholesale price inflation.
• During FY23, ‘food & beverages’, ‘clothing & footwear’, and ‘fuel & light’ were the major contributors to headline inflation: o Headline inflation refers to the change in value of all goods in the basket.
• Core inflation excludes food and fuel items from headline inflation.
• Since the prices of fuel and food items tend to fluctuate and create ‘noise’ in inflation computation, core inflation is less volatile than headline inflation.
• In a developed economy, food & fuel account for 10-15% of the household consumption basket and in developing economies it forms 30-40% of the basket.
• Headline inflation is more relevant for developing economies than developed economies.

• Statement 1 is incorrect: The relationship between inflation and unemployment is often described using the Phillips curve, which illustrates an inverse relationship between the two in the short run.
• Statement 4 is incorrect: Central banks often use monetary policy tools, such as raising interest rates, to control inflation.

Inflation and unemployment

• Inflation and unemployment are two interconnected macroeconomic phenomena that can influence each other through various channels. 
• The relationship between inflation and unemployment is often described using the Phillips curve, which illustrates an inverse relationship between the two in the short run.
• However, in the long run, this trade-off is not as straightforward due to various factors such as expectations, supply-side dynamics, and policy interventions. In the context of India, here’s how inflation can lead to unemployment: Cost-Push Inflation
• nflation can be caused by factors such as rising commodity prices, supply disruptions, or increases in production costs. When the cost of production rises, businesses may cut back on production and reduce their workforce to maintain profitability. This can result in higher unemployment rates, as businesses adjust their operations in response to increased costs.

Reduced Consumer Spending 

• High inflation erodes the purchasing power of consumers. When prices rise rapidly, consumers may cut back on discretionary spending and focus on essential goods and services.
• This reduction in consumer spending can lead to reduced demand for various products, which in turn can cause businesses to cut back on production and employment.
• Uncertainty and Investment
• High and volatile inflation can create uncertainty in the economy. Businesses may become hesitant to invest in new projects or expand operations due to uncertainty about future costs and revenues. This reduced investment activity can lead to lower job creation and increased unemployment.

Interest Rate Impact

• Central banks often use monetary policy tools, such as raising interest rates, to control inflation. Higher interest rates can lead to reduced borrowing by businesses and consumers, which can dampen economic activity and lead to job losses.
• If businesses face higher borrowing costs, they might delay or cancel expansion plans, leading to decreased job opportunities.

Income Redistribution Effects

• Inflation can lead to redistributive effects on income and wealth. If wages do not keep up with rising prices, workers’ real incomes decrease.
• This can lead to reduced demand for goods and services, affecting business sales and potentially leading to layoffs.

Exchange Rate Effects

• High inflation can also affect a country’s exchange rate. If a country’s inflation rate is significantly higher than that of its trading partners, its currency may depreciate. A weaker currency can lead to increased import costs, including the cost of raw materials and intermediate goods.
• This can negatively impact industries that rely heavily on imports, potentially leading to reduced production and employment.

• Pair 1 is incorrect: Real GDP - This is the year that serves as a reference point for prices (Select a base year).
• Pair 2 is incorrect: Nominal GDP - This is the GDP calculated using the prices of the current year.

Nominal and Real GDP

• Real GDP stands for “Real Gross Domestic Product,” and it is a crucial economic measure used to assess the overall economic performance and health of a country. GDP itself represents the total monetary value of all goods and services produced within a country’s borders during a specific time period, usually a year or a quarter.
• However, GDP can be affected by changes in prices over time, which can make it difficult to accurately compare economic performance across different time periods. This is where the concept of “real GDP” comes into play.
• Real GDP adjusts for changes in prices by using a constant set of prices from a base year as a reference point. By doing this, it allows economists and policymakers to focus on changes in the physical volume of goods and services produced, rather than changes in their prices.
• To calculate real GDP, the following steps are typically taken:
• Select a base year: This is the year that serves as a reference point for prices.
• Calculate nominal GDP: This is the GDP calculated using the prices of the current year.
• Real GDP is a valuable economic indicator because it provides a more accurate representation of a country’s economic growth or contraction, as it strips away the influence of inflation or deflation. This allows for better comparisons of economic performance across different time periods and among different countries.

GDP Deflator

• The GDP deflator is a measure used to estimate the overall price level changes in an economy over a specific period of time. It’s one of the key indicators used to track inflation and to adjust the nominal GDP (Gross Domestic Product) for inflation, providing a more accurate understanding of economic growth or contraction in real terms.
• The GDP deflator takes into account the prices of all final goods and services produced within a country’s borders. It compares the value of output at current prices (nominal GDP) to the value of the same output at constant prices (real GDP).

The ratio of nominal GDP to real GDP, multiplied by 100, gives the GDP deflator:

• GDP Deflator = (Nominal GDP / Real GDP) * 100
• The GDP deflator is considered a broader measure of inflation than other indices like the Consumer Price Index (CPI) or the Producer Price Index (PPI), as it accounts for price changes across the entire economy, including consumption, investment, government spending, and net exports.

Corporate tax in India

• Corporate tax in India is a tax levied on the income earned by corporations or companies operating within the country. The tax is applied to the profits generated by these entities during a financial year.
• Corporate tax rates can vary based on factors such as the type of company, its annual turnover, and any applicable tax incentives or exemptions.
• In India, corporate tax rates can be different for domestic companies and foreign companies. The rates may also be influenced by the company’s turnover or revenue. The government may revise these rates periodically through budget announcements.

• Statement 1 is incorrect: While cryptocurrencies like Bitcoin and Ethereum are indeed forms of digital money, digital money is a broader concept that includes various forms of electronic currency and payment methods. Not all digital money is based on blockchain technology, and there are centralized digital payment systems as well.
• Statement 2 is correct: Mobile wallets and electronic payment systems like Paytm and PayPal are indeed examples of digital money. They enable cashless transactions using digital platforms, making it convenient for users to make payments and manage their funds electronically.
• Statement 3 is incorrect: While digital money transactions often use advanced encryption techniques to enhance security, they are not immune to security risks and fraud. Cyberattacks, phishing, and other forms of online fraud can still pose a threat to digital money transactions, highlighting the importance of cybersecurity measures.
• Statement 4 is correct: Central Bank Digital Currency (CBDC) is a concept where central banks issue digital currency, which functions as a legal tender regulated by the government. CBDC is an emerging area of interest for central banks worldwide, and it represents a form of digital money directly issued and regulated by the Central Bank of Country.

Digital Currency

• Digital currency is a form of currency that is available only in digital or electronic form. It is also called digital money, electronic money, electronic currency, or cybercash.
• Typical digital currencies do not require intermediaries and are often the cheapest method for trading currencies.
• All cryptocurrencies are digital currencies, but not all digital currencies cryptocurrencies.
• Some of the advantages of digital currencies are that they enable seamless transfer of value and can make transaction costs cheaper.
• Some of the disadvantages of digital currencies are that they can volatile to trade and are susceptible to hacks.

• Statement 1 is correct: Open Market Operations are a common tool used by central banks to control the money supply. By buying government securities, the central bank injects money into the economy, increasing the money supply. Conversely, by selling government securities, the central bank absorbs money from the economy, reducing the money supply.
• Statement 2 is incorrect: The central bank does issue currency notes and coins; this is not primarily done to directly regulate the money supply. Currency issuance is a part of the central bank's responsibilities, but it is not a tool that is typically used to control the money supply on a day-to-day basis.

Tools to control Money supply

• To ensure a nation's economy remains healthy, its central bank regulates the amount of money in circulation.
• Influencing interest rates, printing money, and setting bank reserve requirements are all tools central banks use to control the money supply.
• Other tactics central banks use includes open market operations and quantitative easing, which involve selling or buying up government bonds and securities.

• Statement 1 is correct: In economics, the quantity theory of money suggests that when the money supply grows faster than the production of goods and services (real GDP), it can lead to an increase in the overall price level, resulting in inflation.
• This is because there is more money chasing the same amount of goods, creating excess demand and driving prices upward.
• Therefore, an increase in the money supply without a corresponding increase in production can indeed lead to inflationary pressures.
• Statement 2 is incorrect: Central banks often use interest rate adjustments, known as monetary policy, to manage liquidity in the economy.
• When central banks raise interest rates, it becomes more expensive for businesses and individuals to borrow money, which can lead to a reduction in spending and investment.
• This, in turn, can help control the growth of the money supply and mitigate inflationary pressures.
• Higher interest rates can also make saving more attractive, reducing the amount of money flowing through the economy and curbing inflation.

Liquidity-Inflation relationship

• Inflation reduces the real value of money, and thus makes the liquidity constraint more binding.
• This problem can be resolved by having a financial intermediary which channels the funds from entrepreneurs with excess liquidity to those lacking liquidity.

• Option (a) is correct: Commercial banks grant loans to individuals and businesses. The setting of tax rates is a government function, usually performed by the legislative bodies or relevant government departments. Commercial banks are not involved in this process.
• Monetary policy implementation: This function is primarily carried out by central banks, not commercial banks. Reserve Bank of India (RBI) is responsible for implementing monetary policy, which includes controlling the money supply and interest rates to achieve macroeconomic goals.
• Commercial banks may buy government bonds as part of their investment activities, but they do not issue government bonds. Issuing government bonds is the responsibility of the government, specifically the treasury department.

Functions of Commercial banks

• The main purpose of commercial banks is to provide financial services to the general public and also provide loan facilities to the business which helps in ensuring economic stability and growth of the economy.
• Commercial banks perform various functions that are as follows:
• Accepting deposits
• Granting loans and advances
• Agency functions Discounting bills of exchange
• Credit creation

• Statement 1 is correct: Scheduled Commercial Banks (SCBs) in India are indeed required to maintain a certain percentage of their net demand and time liabilities as Cash Reserve Ratio (CRR) with the Reserve Bank of India (RBI).
• Statement 2 is incorrect: While co- operative banks in India do play a significant role in providing banking services in rural and semi-urban areas, they are not solely regulated by State Governments.
• Co-operative banks are regulated by both the Reserve Bank of India (RBI) and the National Bank for Agriculture and Rural Development (NABARD), depending on their size and operations.

Types of banks

• Banks can be classified into various types. Given below are the bank types in India:-
• Central Bank
• Cooperative Banks
• Commercial Banks
• Regional Rural Banks (RRB)
• Local Area Banks (LAB)
• Specialized Banks
• Small Finance Banks
• Payments Banks

Commercial Banks: Organized under the Banking Companies Act, 1956.

• They operate on a commercial basis and its main objective is profit.
• They have a unified structure and are owned by the government, state, or any private entity.
• They tend to all sectors ranging from rural to urban
• These banks do not charge concessional interest rates unless instructed by the RBI
• Public deposits are the main source of funds for these banks

• Statement 1 is correct: The Banking Regulation Act, 1949 provides the RBI with the authority to issue licenses to new banks and regulates the functioning of banks in India, including matters related to their management, capital requirements, operations, and more. The RBI plays a crucial role in supervising and overseeing the banking sector to ensure its stability and proper functioning.
• Statement 2 is incorrect: The Banking Regulation Act, 1949 does not explicitly grant the RBI the authority to directly control the interest rates offered by commercial banks on savings accounts.
• Interest rates on savings accounts are typically determined by individual banks based on various factors, including market conditions and the bank's policies.
• However, the RBI does have indirect influence over interest rates through its monetary policy decisions, which impact the overall money supply and interest rate environment.
• Statement 3 is correct: The Banking Regulation Act, 1949 does provide the RBI with the authority to inspect the books and accounts of scheduled cooperative banks, ensuring that these banks operate in a sound and transparent manner.

Banking Regulation Act, 1949

• Banking Regulation act, 1949 regulates commercial banking in India.
• The Act gives power to RBI in licensing of banks, voting rights of shareholders, appointment of boards and management.
• RBI also conducts the audits, mergers, gives liquidation directives to banks and imposing penalties.
• It was amended in 1965 to bring cooperative societies under its preview but not all provision are applicable to them as they do on commercial banks.
• Banking related function of cooperative societies is undertaken by RBI whereas management related functions are carried out by the centre and states together.

Basel Norms

• The Basel Committee on Banking Supervision, under the auspices of the Bank for International Settlements (BIS), indeed formulated the Basel norms to promote international standards for banking regulation.
• These norms aim to improve the stability and soundness of the global banking system by setting guidelines for risk management, capital adequacy, and liquidity.
• Basel II is a set of international banking regulations that primarily focus on capital adequacy.
• It defines different risk categories and assigns specific capital requirements to each category, ensuring that banks have sufficient capital to cover various types of risks, including credit, market, and operational risks.
• Basel III, introduced as an extension of Basel II, indeed introduced regulations aimed at addressing liquidity risks within the banking system.
• It emphasizes the importance of maintaining sufficient liquidity buffers and promotes improved risk management practices within banks to enhance their resilience during periods of financial stress.

• Option (a) is incorrect: NBFCs, unlike traditional commercial banks, are not allowed to accept demand deposits. Demand deposits are a type of deposit that can be withdrawn on-demand without any notice, and this privilege is generally restricted to banks with specific regulatory requirements and safeguards.
• Option (b) is incorrect: While the primary regulatory authority for NBFCs in India is the Reserve Bank of India (RBI), NBFCs engaged in certain financial activities, such as securities trading, may also come under the purview of the Securities and Exchange Board of India (SEBI).
• The RBI regulates various aspects of NBFCs, including their capital adequacy, lending practices, and overall functioning.
• Option (c) is correct: NBFCs primarily engage in lending and investment activities, offering various financial services such as loans, advances, asset financing, and investment in securities.
• They do not accept demand deposits, which is a distinct feature that separates them from traditional banks.

Non-Banking Financial Institutions (NBFCs)

• A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition ofshares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities.
• A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).

Features of NBFCs:

• NBFC cannot accept demand deposits.
• NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on it.
• Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs.

• Statement 1 is correct: The Insolvency and Bankruptcy Code (IBC) was indeed enacted in 2016 to provide a comprehensive legal framework for the insolvency resolution process in India. It covers a wide range of entities, including corporate entities, individuals, and partnership firms.
• Statement 2 is correct: Under the IBC, a financial creditor has the authority to initiate the insolvency resolution process against a corporate debtor when a default occurs, subject to certain conditions specified in the IBC.
• Statement 3 is correct: The Insolvency and Bankruptcy Board of India (IBBI) is indeed the regulatory body responsible for overseeing various aspects of the insolvency process in India, including insolvency professionals, insolvency professional agencies, and information utilities.

Insolvency and Bankruptcy Code (IBC)

• Insolvency and Bankruptcy Code 2016 was implemented through an act of Parliament.
• The law was necessitated due to huge pile- up of non-performing loans of banks and delay in debt resolution.
• IBC applies to companies, partnerships and individuals. It provides for a time-bound process to resolve insolvency.
• When a default in repayment occurs, creditors gain control over debtor's assets and must take decisions to resolve insolvency.
• Under IBC debtor and creditor both can start 'recovery proceedings against each other.

• Statement 1 is correct: CBDC is not issued by private banks. It is a form of digital currency issued by the central bank of a country, making it a part of the official currency. CBDC is indeed aimed at promoting cashless transactions, but its issuance and regulation are under the control of the central bank.
• Statement 2 is incorrect: CBDC is legal tender issued by the central bank, and it operates as a digital form of currency that can be used for various transactions. It is designed to function similarly to physical currency but in digital form.

Central Bank Digital Currency (CBDC)

• CBDC operates on decentralized blockchain technology, making it resistant to any form of regulation by the central bank.
• While CBDC can be used to replace physical cash, it has significant implications for a country's monetary policy.
• CBDC affects how money is created, distributed, and managed, and it has the potential to impact various aspects of the financial system, including monetary policy and banking.

• Statement 1 is incorrect; Structural unemployment is caused by fundamental shifts in the economy that make it difficult for workers to find employment.
• Statement 2 is incorrect: If a person has left his current job and is looking for another job, then he is facing Frictional unemployment.

Types of Unemployment

• Structural unemployment is caused by fundamental shifts in the economy that make it difficult for workers to find employment.
• Structural unemployment occurs when there is a mismatch between the jobs that are available and the people looking for work.
• This mismatch could be because job seekers don't have the skills required to do the available jobs, or because the available jobs are a long way from the job seekers.
• Structural unemployment occurs for a number of reasons - workers lacking the requisite job skills, change in government policy or change in technology, or they may be far from regions where jobs are available but are unable to move there or simply unwilling to work because existing wage levels are too low.
• So, while jobs are available, there is a serious mismatch between what companies need and what workers can offer. Structural unemployment exists when there are jobs available and people willing to do work, but there is not a sufficient number of people qualified to fill the vacant jobs.
• Frictional unemployment arises due to people moving between jobs, careers or locations or people entering and exiting the labor force, or workers and employers having inconsistency or incomplete information.
• Actually, people first leave job and then try to find a new job according to their choice and this process takes some time to apply for new jobs and for employers to make a selection and hence they remain unemployed for this transition period.
• That is why frictional unemployment is also called transitional unemployment and it is always present in the economy.

• Four approaches to the definition, measurement and eradication of poverty are proposed in general: the monetary, capability, social exclusion and participatory approaches.
• This is a major Contemporary issue as Capability approach is an emerging theme in poverty reduction across the world.
• These statements define the monetary approach. It identifies poverty with a shortfall in consumption (or income) from some poverty line.
• The valuation of the different components of income or consumption is done at market prices, which requires identification of the relevant market and the imputation of monetary values for those items that are not valued through the market.
• For economists, the appeal of the monetary approach has in its being compatible with the utility-maximizing behavior assumption that underpins microeconomics, i.e. that the objective of consumers is to maximize utility and that expenditures reflect the marginal value or utility people place on commodities.
•  Welfare can then be measured as the total consumption enjoyed, proxied by either expenditure or income data, and poverty is defined as a shortfall below some minimum level of resources, which is termed the poverty line.
• In the Capability approach, development should be seen as the expansion of human capabilities, not the maximization of utility or its proxy, money income.
• The capability approach (CA) rejects monetary income as its measure of well-being, and instead focuses on indicators of the freedom to live a “valued” life.
• In this framework, poverty is defined as deprivation in the space of CA, or failure to achieve certain minimal or basic capabilities, where “basic capabilities" are “the ability to satisfy certain crucially important functionings up to certain minimally adequate levels',
• Social exclusion approach used in EU. The concept of social exclusion (SE) was developed in industrialized countries to describe the processes of marginalization and deprivation that can arise even in rich countries with comprehensive welfare provisions.

Statement 1 is incorrect: Ministry of MSME, through Khadi and Village Industries Commission (KVIC), launched a unique pilot project named Project BOLD (Bamboo Oasis on Lands in Drought).

Project BOLD

• Project Bamboo Oasis on Lands in Drought (BOLD) Ministry of MSME, through Ivhadi and Village Industries Commission (KVIC), launched a unique pdot project named Project BOLD (Bamboo Oasis on Lands in Drought). The project aims to fulfil the combined national objectives of preventing land degradation, reducing desertification and providing hvehhood and multidisciplinary rural industry support to the people living in dry/arid and drought-prone regions of the country. There is no budgetary provision for this project under KVIC.
• Ministry of MSME, through Ivhadi and Village Industries Commission (KVIC). launched a unique pdot project named Project BOLD (Bamboo Oasis on Lands in Drought).
• The Project BOLD (Bamboo Oasis on Lands in Drought) of Khadi and ViUage Industries Commission (KVIC) has received Indian Army's support in Leh. This is the first ever attempt to grow bamboo trees in the high Himalayan terrains with the objective of preventing land degradation and developing green cover. In continuation with this effort, 1000 bamboo saplings wid be planted at village Chuchot in Leh on 18th August. These bamboo plants wdl be ready for harvest in 3 years.
• Whde this wid create sustainable income for the local tribal population; it wdl also contribute to environment and land protection as envisaged by the Prime Minister. The objective of this initiative is to scientificady harness the environmental benefits and economic potential of bamboo cultivation to protect environment and strengthen rural economy through various vidage industries.

• Statement 3 is incorrect: Under the NPS, the government does not provide any guaranteed pension. Instead, OPS provide a guaranteed pension that is based on the individual's last drawn salary and the number of years of service.
• Statement 5 is incorrect: Under OPS, employees are not required to contribute to their pensions. In NPS, those employed by the government contribute 10 percent of their basic salary to NPS, while their employers contribute up to 14 percent.

National Pension System (NPS)

• National Pension System (NPS) is a pension cum investment scheme to provide old age security to Citizens of India.
• Any individual citizen of India (both resident and Non-resident) in the age group of 18-70 years can join NPS.
• However, OCI (Overseas Citizens of India) and PIO (Person of Indian Origin) card holders and Hindu Undivided Families are not eligible for opening of NPS account.
• It is being administered and regulated by Pension Fund Regulatory and Development Authority (PFKDA). Old Pension system does not have any such regulator.
• The NPS is a defined contribution scheme that allows individuals to invest in a variety of pension funds. Under the NPS, the government does not provide any guaranteed pension. Instead, the pension received is based on the investment returns generated by the pension funds. The OPS, on the other hand, is a defined benefit scheme that provides a pension based on the inchvidual’s last drawn salary and the number of years of service. Under the OPS, the government provides a guaranteed pension that is based on the individual’s last drawn salary and the number of years of service.
• Under Old Pension Scheme (OPS), there is no tax on pension. However, under New Pension Scheme (NPS), 60% of the NPS Corpus is tax-free while the remaining 40% is taxable.
• Under OPS, employees are not required to contribute to their pensions. An incentive for taking on government employment was the guarantee of a pension post-retirement and a family pension. OPS have become unsustainable for governments due to rises in hfe expectancy. In NPS, those employed by the government contribute 10 percent of their basic salary to NPS, while their employers contribute up to 14 percent.

Statement 2 is incorrect: The Smart India Hackathon is organized by the HDR/ Ministry of Education of India since 2017 onwards.

Scheme for Facilitating Start-Ups Intellectual Property Protection (SIPP)

• Under the scheme. Fee was borne by the Office of the Controller General of Patents Designs and Trademarks, Department for Promotion of Industry and Internal Trade.
• To further encourage the IP facilitators to provide quality services to startups in order to increase the number of IP applications filed by startups, the scheme has now been revised and facilitation fees has been notably increased by at least 100%.
• To protect and promote Intellectual Property Rights (IPR) of startups and to encourage innovation and creativity among them, the Government of India had launched a scheme for facilitating start-ups Intellectual Property Protection (SIPP) in 2016.
• The scheme facihtated startups in filing and processing of their patent, design or trademark application through the assistance of IP facilitators.
• The Smart Incha Hackathon is organized by the HRD/ Ministry of Education of Incha since 2017 onwards. Since 2019, College students are asked to give innovative ideas to solve the challenges faced by public sector organisations, industries and even NGOs, 36 hours software development competition, 5 clays hardware development competition etc.

• Statement 2 is incorrect: Transactions can be both person to person (P2P) and person to merchant (P2M).
• Statement 5 is incorrect: E-Rupee will be a bearer instrument i.e., whoever is holding the e-Rupee wdl be assumed to be the owner at any given point of time.

E-rupee

• Unlike our savings in commercial banks which rely on the bank's promise to fulfil, CBDCs are recognized by law and backed by Central Bank which cannot go bankrupt.
• For example, if a commercial bank collapses, then our savings could potentially be wiped out, but this would not be the case with CBDCs, which we can hold on to our own in digital form and could be as trusted as cash. CBDCs would be as convenient as payment apps and it also benefits from the same blockchain technology (Distributed Ledger Technology) which support s crypt o currency.
• E-rupees will be issued in the same denominations as paper currency and coins, and wdl be distributed through the intermediaries, that are banks.
• Transactions can be both person to person (P2P) and person to merchant (P2M), For P2M transactions (such as shopping), there will be QR codes at the merchant location. A user wdl be able to withdraw digital tokens from banks in the same way she can currently withdraw physical cash. She wdl be able to keep her digital tokens in the wadet, and spend them online or in person, or transfer them via an app.
• E-rupee or the Central Bank Digital Currency (CBDC) is a legal tender issued by the RBI in digital form. It is the same as the fiat currency, and is exchangeable one-to-one with the fiat currency. The e-rupee wid be representing a claim on the central bank, and wdl effectively function as the chgital equivalent of a banknote that can be transferred electronicady from one holder to another. It is a fungible legal tender, for which holders need not have a bank account.
• E-rupee wdl be distributed through intermediaries i.e,, banks and it can be converted to other forms of money like deposits with bank. If I am holding cash and making pay men I to someone then it does not require any kind of settlement with a third party and the RBTs liabihty moves from me to the other person, whom I have paid. But when I make payment through cheque/card then it requires inter-bank settlement (through RBI in case of different banks). E-rupee would just be hke cash, and I can make payment to anyone through the e-Rupee and the RBI’s liabihty wid move to the other person. And the requirement of inter-bank settlement would chsappear.
• E-Rupee wdl be a bearer instrument i.e., whoever is holding the e-Rupee wdl be assumed to be the owner at any given point of time.

• Statement 2 is incorrect: One Stop Centres (OSCs) are to be set up within 2 kms radius of the hospitals or medical facilities either in new constructed budehng in an approved design or in pre-existing buddings.

Nirbhaya Fund

• The Government of India had set up the ‘Nirbhaya Fund’ for implementation of initiatives aimed at enhancing the safety and security for women in the country.
• An Empowered Committee of officers constituted under Nirbhaya Fund recommends proposals for funding under Nirbhaya Fund in conjunction with the concerned Ministries/ Departments/ Implementing Agencies.
• Under the Nirbhaya Fund, one of the schemes namely “One Stop Centre (OSC) Scheme" is implemented across the country since 1st April 2015, It is a Non-lapsable fund administered by the Department of Economic Affairs of the Finance ministry.
• OSCs are to be set up within 2 kms rachus of the hospitals or medical facilities either in new constructed building in an approved design or in pre-existing buildings.
• Under the scheme. One Stop Centres are being set up in all districts of the country. So far, 704 OSCs have been operationalised and more than three lakh women have been assisted through them. These centres were set up using Nirbhaya Fund.
• These centres provide assistance to women victims of domestic abuse /rape /prostitution / trafficking etc and depending on case they may be sent to Swadhar Greh Shelter homes or reconnected with family.

• Option (a) is correct: Unemployment trap is a situation when unemployment benefits discourage the unemployed to go to work. People find the opportunity cost of going to work too high when one can simply enjoy the benefits by doing nothing.

Unemployment Trap

• While the purpose of social security and welfare systems is to provide relief to the unemployed, they end up providing them with an incentive not to return to work.
• An unemployment trap arises when opportunity cost of going to work is higher than the income received, chscouraging people from returning to work and being productive.
• Therefore, we can summarise, Unemployment trap as a situation when unemployment benefits discourage the unemployed to go to work.
• People find the opportunity cost of going to work too high when one can simply enjoy the benefits by doing nothing.

Statement 4 is incorrect: MGNREGA mandates that minimum one-third of the workers should he women. Thus, it has promoted high female participation and empowerment.

Mahatma Gandhi National Rural Employment Guarantee Scheme

• The Scheme was introduced in 2005. The Ministry of Rural Development (MRD) in association with the state governments monitors the implementation of the scheme.

Key Features of the Scheme

• Demand-driven scheme
• Gram Panchayat has the mandate to provide employment within 15 days of a work apphcation. If it fails, the worker will get an unemployment allowance.
• Payment of wages within 15 days of completion of work. In case of fadure, the worker will get a delay compensation of 0.05% per day of wages earned.

Direct and Indirect benefits of MGNREGA

• Creation of Employment: increase in consumption, food security and nutrition, reduction in poverty, positive impact on health and education.
• The most important benefit according to workers is self-respect
• Positive impact on agricultural wages
• Help marginalized sections SCs and STs
• Reduction in Distress Migration
• Seasonal benefits and insurance function
• Financial Inclusion

Provisions under the scheme

• It mandates that at least 60 percent of the works undertaken must be related to land and water conservation. The creation of these productive assets in and outside agriculture boosts rural incomes as the majority of villages are agrarian.
• The scheme has led to the creation of common community assets. These assets are built by communities on common lands thereby creating a sense of responsibility towards the structure which results in better care.
• Under the scheme, 99 percent of wage seekers are receiving their wages directly into their bank accounts using Direct Benefit Transfer. It is a big step towards transparency.
• Section 17 of the MGNREGAhas mandated Social audit of all Works executed under the MGNREGA. Gram Sabhas conduct social audits to enable the community to monitor the implementation of the scheme.
• Thus, strengthening grass root processes of democracy infusing transparency and accountability in governance.
• MGNREGA mandates that minimum one-third of the workers should be women. Thus, it has promoted high female participation and empowerment.

• Statement 2 is incorrect: According to the 5th National Family Health Survey (NFHS-5) data, the percentage of Inchan women suffering from anemia has declined (and not increased) in 2020 in comparison to 2015.

National Family Health Survey - 4 & 5

• Anaemia is a condition in which a person has a lower-than-normal number of red blood cells or quantity of hemoglobin, which reduces the capacity of their blood to carry oxygen and can lead to a number of health problems, and even death. It is considered a severe public health problem if more than 40% of the population is diagnosed with anemia.
• The indicator Children under 5 years who are underweight (weight-for-age) is one of the composite indicators for child malnutrition. As per recently released data of the first round of National Family Health Survey-5, conducted in 2019-20, the rate of malnutrition in the country has increased as compared to the National Family Health Survey-4 (2015-16). In most of the 22 states and UTs covered by NFHS 5, there has been a reversal: the percentage of under-five children who are reported to be stunted has increased. Sikkim was noted to have the lowest child stunting rate.
• A comparison of NFHS 4 with NFHS 5 findings revealed that there were only three states (Bihar, Manipur and Sikkim) that reported a decline in the rate of stunting by at least 3 percentage points. Thirteen states and UTs showed a rise in the percentage of stunted children while the share of children who had low weight for their height increased in 12 states.
• According to the 5th National Family Health Survey (NFHS-5) data, Incha has the highest total prevalence of anemia at 39.86 percent in the world. NFHS-5 data also suggested that more than half of the children and women are anemic in 13 of the 22 States/ UTs in the country. In comparison, 53% of Inchan women of reproductive age (15 to 49 years) were estimated to be anemic in the fourth National Family Health Survey (NFHS-IV) in 2015-16. Thus, the percentage of Indian women suffering from anemia has decreased (and not increased) in 2020 in comparison to 2015.
• As per the latest National Family Health Survey (NFHS), India’s TFIi has decreased to 2.0 which is below the replacement level fertility. Total Fertility Bate (TFR) is defined as the total number of children that would be born to each woman if she were to live to the end of her childbearing years.