Economy

Question 1

T/F: In the first 7 FYP, trade was characterised by ‘inward looking trade strategy’.

Answer 1

T

Import substitution

Question 2

GST vs earlier system of taxes?

T/F: Under GST, imports of goods is treated as inter-state supplies and thus subject to IGST.

Answer 2

• GST: on ‘supply’ of goods and services
• earlier system: on manufacture or on sale of goods or on provision of services
• T; in addition to applicable customs duties.

Question 3

WTO:

1. founded in?
2. successor to?
3. objectives?

Answer 3

1. 1995
2. GATT, established in 1948
3. obj:
   
   • establish a rule-based trading regime to obviate arbitrary trade restrictions
   • enlarge production and trade of services
   • ensure optimum utilisation of world resources
   • protect the env

Question 4

1. Automatic stabilizers?
2. Sin tax?
3. Pigovian tax?
4. proportional income tax is a component of​ which of the above mentioned?​

Answer 4

1. policies and prog to offset fluctuations in nations’ econ activity without intervention by Govt on an individual basis. eg. Corporate and personal taxes and tranfer systems like unemployment insurance.
2. levied on certain goods deemed harmful to society and individuals, for example alcohol and tobacco, candies, drugs, soft drinks, fast foods, coffee, sugar, gambling, and pornography
3. tax on any market activity that generates negative externalities, being set equal to the social cost of the negative externalities
4. Automatic stabilizers

Question 5

REITs? regulated by?

Answer 5

• Mutual fundlike insti
• can invest directly or through a SPV (>50% of equity share capital of which shall be with REIT) which invests >80% of its assets in real estate properties.
• regulated by SEBI

Question 6

NAM

1. T/F: will be a centrally sponsored scheme.
2. implemented by?
3. T/F: It seeks to abolish APMCs in wiiling states and instead create a single unified mkt.
4. pre-requisites for assistance under the scheme?

Answer 6

1. F; Central sector scheme
2. Agri Tech infra fund
3. F; doesnt seek to abolish bt just connect
4. single licence valid throughout the state; single point levy of mkt fee; provision of e-auction as a mode for price discovery

Question 7

Systemically Important FI

1. announced by?
2. names?
3. revision?

Answer 7

1. RBI
2. SBI and ICICI
3. annually

Question 8

NIIF?

Answer 8

1. It is a fund created by the GoI for enhancing infrastructure financing- both greenfield and brownfield, incl stalled projects as well as other nationally imp projects, if commercially viable.
2. announced in Budget 2015; regtd as a trust
3. Indian government has 49% stake in NIIF with the rest held by marquee foreign and domestic investors such as Abu Dhabi Investment Authority, Temasek and HDFC Group. Even cash rich PSUs can buy in.
4. envisaged as a ‘banker of the banker of the banker’ or ‘fund of funds ‘i.e. it finances infrastr fin companies like IRFC, NHB
5. regtd with SEBI as Category II AIF
6. Across its three funds — Master Fund, Fund of Funds, and Strategic Fund — NIIF manages $3 billion of capital
   
   • Master Fund: primarily investing in operating assets in the core infrastructure sectors such as roads, ports, airports, power etc
   • Fund of Funds: sectors of focus include Green Infrastructure, Mid-Income & Affordable Housing, Infrastructure services and allied sectors.
   • Strategic Investment Fund: invest largely in equity and equity-linked instruments. It will focus on green field and brown field investments in the core infrastructure sectors.
7. proposed corpus of NIIF is Rs. 40,000 Crores (around USD 6 Billion)

Question 9

NIIF vs NIF?

Answer 9

• NIIF: a quasi-sovereign wealth fund to invest in infra projects or companies. Formed in 2015
• NIF (national Investment Fund): a fund to receive disinvestment proceeds of central public sector enterprises and to invest the same to generate earnings without depleting the corpus. Formed in 2005

Question 10

NIF?

Answer 10

• Fund to receive disinvestment proceeds of central public sector enterprises and to invest the same to generate earnings
• earnings of the Fund were to be used for selected Central social welfare Schemes.
• This fund was kept outside the consolidated fund of India
• in 2013, GoI restructured the NIF; decided that frm 2013-14, the entire disinvestment proceeds will be credited to the existing ‘Public Account’ under the head NIF and they would remain there until withdrawn/invested for the approved purpose, that can be
  
  • recapitalisation of PSBs
  • investment by Govt in RRbs, NABARd etc.
  • equity infusion in metro projects, Uranium Corp of India Ltd, IR etc.
  • buying shares of PSBs to ensure 51% govt ownersip

Question 11

Alternative Investment Fund?

Answer 11

• defined in Regulation 2(1)(b) of SEBI 2012 regulations
• in India, AIFs are private funds which are otherwise not coming under the jurisdiction of any regulatory agency in India.
• includes venture Capital Fund, hedge funds, private equity funds, commodity funds, Debt Funds, infrastructure funds, etc.,while, it excludes Mutual funds or collective investment Schemes
• three categories, based on their impact on the economy
  
  • Category I AIF: AIFs with positive spillover effects on the economy, for which certain incentives or concessions might be considered by SEBI or GoI; Such funds generally invests in start-ups or early stage ventures or social ventures or SMEs or infrastructure; They cannot engage in any leverage except for meeting temporary funding requirements
  • Category II AIF are those AIFs for which no specific incentives or concessions are given. Theydo not undertake leverage or borrowing other than to meet the permitted day to day requirements
  • Category III AIF are funds that are considered to have some potential negative externalities; and which undertake leverage to a great extent; These funds trade with a view to make short term returns; receive no specific incentives or concessions from the government or any other Regulator.eg. Hedge Funds

Question 12

effective revenue deficit:

1. what?
2. since?

Answer 12

1. revenue deficit minus grants for creation of capital assets
2. introduced byBudget 2011-12; and brought in as fiscal parameter frm 2012-13
3. eg. discounts grants given under PMGSY, AIBP, JNNURM, MGNREGA etc.

Question 13

Green GDP?

Answer 13

GDP bt adjusted for env damage

Question 14

Types of disinvestment?

Answer 14

1. Token disinvestment: aka minority stake sale
   
   • sell upto max 49% i.e. govt maintaining ownership
   • listed PSUs to be taken to min 25% disinvest target; new profit earning-PSUs to be listed
   • DIPAM to identify
2. Strategic disinvestment:
   
   • 1999: Govt announed to reduce its satke in ‘nonstrategic’ PSEs to 26% or below and in ‘strategic’ (arms&ammunition, atomic energy and railways) PSEs, it will retain its majority stakes
   • wholesale sale of shares will be done to a ‘strategic partner’ havinf international class expertise in the sector
   • NITI Aayog to identify

Question 15

Price stabilisation fund?

Answer 15

• for fighting price volaatility
• 2015; for perishable agri and horticultural commodities; corpus of 500cr
• initially ltd to support potato and onion prices only; later pulses added; later non-perishable products like cereals, pulses, edible oil, sugar, salt and tea
• Central sector scheme
• operative in both directions of price movements, subject to crossing some price thresholds
• not part of MSP

Question 16

T/F: NABARD is also engaged in extending direct credit to rural farmers.

Answer 16

F

NABARD mainly provide loans to RRBs, cooperatives and SGs in area of rural development and agri dev

Question 17

NABARD?

Answer 17

• apex banking institution to provide finance for Agriculture and rural development
• statutory body established in 1982
• RBI and NABARD: RBI can supervise NABARD as it comes under Banking regulations act 1949; RBI provides 3 directors to NABARD’s Board of Directors; NABARD provides recommendations to RBI on issue of licenses to Cooperative Banks, opening of new branches by State Cooperative Banks and Regional Rural Banks (RRBs).
• fns: refinance short term loans; long-term refinanceto FIs; Rural Infrastructure Development Fund (RIDF) (out of the shortfall in lending to priority sector by scheduled commercial banks for supporting rural infrastructure projects); Long-Term Irrigation Fund (LTIF) (corpus of Rs 20,000 crore for funding 99 irrigation projects during 2016-17); PMAY-G; CG created Warehouse Infrastructure Fund (WIF), KCC, etc.

Question 18

Land development bank?

Answer 18

• are essentially co-operative institutions. All the LDBs are registered under the Co-operative Societies Act. In a strict sense, however, they are semi co-operatives. In fact, they are limited liability associations of agricultural borrowers
• LDBs provide long-term loans to the agriculturists for permanent improvements on land against the security of land or other agricultural property.

Question 19

Banking correspondents: facilities? who can be BC?

Answer 19

1. sales of micro insurance, pension products, other 3rd party products
2. receipt and delivery of small value remittances/ other payment instruments

• retired bank employees/ techers/govt employees/ex-servicmen
• individual kirana shops/ PCO operators, those operating CSC etc
• authorised, well-run SHGs
• NGOs, MFIs set up under Societies/ Trusts act
• Coop societies
• post offices
• companies regtd under Companies act 2013
• NBFCs, earlier nt allowed, bt since 2014, NBFC-ND are allowed subject to certain conditions

Question 20

Current daily status and current weekly status are approaches to measure?

Answer 20

level of unemployment

Question 21

SHC:

1. parameters tested?
2. issuing frequency?
3. % requirement of urea met by import?

Answer 21

1. 12 parameters
   
   • Macro nutrients:
     
     • N
     • P
     • K i.e. Potash
   • micro nutrients
     
     • Zn
     • Ferrous
     • Mn
     • Cu
     • Bo
   • Secondary nutrient: S
   • Physical parameters:
     
     • pH
     • Organic content
     • Electrical conductivity
2. issued to farmers once every three yrs
3. 25-30%

Question 22

MUDRA gives priority to?

Answer 22

• under-privileged sections esp SC/ST
• first gen entrepreneurs
• existing small businesses

Question 23

Society for Worldwide Interbank Financial Telecommunication (SWIFT)?

Answer 23

1. It is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes. Under SWIFT, each financial organization has a unique code which is used to send and receive payments.
2. SWIFT does not facilitate funds transfer: rather, it sends payment orders, which must be settled by correspondent accounts that the institutions have with each other.
3. Its core role is to provide a secure transmission channel so that Bank A knows that its message to Bank B goes to Bank B and no one else. Bank B, in turn, knows that Bank A, and no one other than Bank A, sent, read or altered the message en route. Banks, of course, need to have checks in place before actually sending messages.
4. SWIFT India is a joint venture of top Indian public and private sector banks and SWIFT. The company was created to deliver high quality domestic financial messaging services to the Indian financial community
   
   1. SWIFT is a global member-owned cooperative that is headquartered in Brussels, Belgium.
   2. It was founded in 1973 by a group of 239 banks from 15 countries which formed a co-operative utility to develop a secure electronic messaging service and common standards to facilitate cross-border payments.
   3. It carries an average of approximately 26 million financial messages each day.
   4. In order to use its messaging services, customers need to connect to the SWIFT environment.
5. Messages sent by SWIFT’s customers are authenticated using its specialised security and identification technology.
6. Encryption is added as the messages leave the customer environment and enter the SWIFT Environment.
7. Messages remain in the protected SWIFT environment, subject to all its confidentiality and integrity commitments, throughout the transmission process while they are transmitted.
8. Recent role in bank scams: One of its biggest failures in the PNB case was the missing link between SWIFT and the bank’s backend software. This allowed fraudsters to use letters of understanding or a loan request to another bank through the SWIFT network to transfer funds.
   
   • even before PNB scam, RBI cautioned the banks about the possible misuse of the SWIFT infrastructure and directed them to implement safeguards.
   • Even after the PNB scam banks failed to wake up and as a result, the RBI had to impose monetary penalty on 36 banks
   • Banking Regulation Act gives power to the RBI to impose a maximum penalty of Rs. 1 crore for a single breach.

Question 24

FPI?

Answer 24

FPI is investment by non-residents (Not same as non-citizens) in Indian securities including shares, government bonds, corporate bonds, convertible securities, infrastructure securities etc.

NRIs do not come under FPIs

FPIs are also permitted to invest in Govt securities. recently RBI increased the FPI investment limit in G-Secs.

SEBI has recently stipulated the criteria for Foreign Portfolio Investment. According to this, any equity investment by non-residents which is less than or equal to 10% of capital in a company is portfolio investment. While above this, its counted as FDI

As per SEBI regulations, FPIs are not allowed to invest in unlisted shares and investment in unlisted entities will be treated as FDI.

For a fund desirous of making investments in India, SEBI has removed the earlier criteria of at least 20 investors, nw requirement only being, ‘‘appropriately regulated’ and identification of beneficial ownership. Also, entities incorporated or established in international financial services centre are also deemed to have met the jurisdiction criteria for seeking registration as FPI.

Regulations also expressly permit non-resident Indians or overseas citizens of India or resident Indian individuals to be constituents of the applicant provided they meet conditions specified by the SEBI.

*

Question 25

Purchasing Managers’ Index?

Answer 25

1. The Purchasing Managers’ Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors.
2. It consists of a diffusion index that summarizes whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting.
3. The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available. It is, therefore, considered a good leading indicator of economic activity.
4. The manufacturing Purchasing Manager’s Index (PMI) was recorded at a 2-year low in October 2019. The score has decreased from 51.4 in September 2019 to 50.6 in October 2019.

Question 26

e-Kuber?

Answer 26

1. e-Kuber is the Core Banking Solution of RBI, implemented in 2012
2. E-Kuber provides the provision of a single current account for each bank across the country, with decentralised access to this account from anywhere-anytime using portal based services in a safe manner.
3. The system also benefits state /central Governments as users. Some of the facilities offered include the provision of portal based access which allows Government departments to access on anywhere-anytime basis and view their balances – of all types including the Ways and Means Advances, drawings, funds positions and the like – all in a consolidated manner so as to help them in better funds management.
4. The e-kuber system can be accessed either through INFINET or Internet.
5. Auction of Government securities is done through e-kuber system. Sovereign Gold Bonds are available for subscription at the branches of scheduled commercial banks and designated post offices through RBI’s e-kuber system. Goods and Service Tax (GST) settlements are also proposed to be done through e-kuber.

Question 27

Under Statutory Liquidity Ratio (SLR) all Scheduled Commercial Banks in India must maintain an amount in which of the following forms?

Answer 27

• Cash.
• Gold; or
• Investments in un-encumbered Instruments that include;

(a) Treasury-Bills of the Government of India.
(b) Dated securities including those issued by the Government of India from time to time under the market borrowings programme and the Market Stabilization Scheme (MSS).
(c) State Development Loans (SDLs) issued by State Governments under their market borrowings programme.
(d) Other instruments as notified by the RBI.

Question 28

current values of

1. SLR?
2. CRR?

Answer 28

1. 18.5%
2. 3%

Question 29

P2P lending?

Answer 29

1. P2P lending is a form of crowdfunding used to raise unsecured loans which are re-paid with interest.
2. small amounts of money raised from a large number of people, with a online portal serving as an intermediary. none of the lending/borrowing gets reflected in their balance sheets.
3. RBI allowed P2P entities as NBFCs in 2017 under NBFC-P2P (RBI) Directions,2017. However, an existing NBFC will not be able to oprate as NBFC-P2P
4. Minimum networth requirement for these platforms is kept at Rs. 2 Cr.
5. The borrower can either be an individual or a legal person (say a body of individuals, a HUF, a firm, a society or any artificial body, whether incorporated or not) requiring a loan.
6. The interest rate is not to be fixed by the platform. The interest rate for each and every loan is to be fixed separately over the electronic platform by way of a mutual agreement between the borrower and lender.
7. Fund transfer between participants on the P2P lending platform will happen through escrow account mechanisms. All fund transfers shall be through and from bank accounts, and cash transactions are strictly prohibited.
8. A NBFC-P2P cannot raise deposits, lend or cross sell products except fr loan specific insurance products.
9. Internationla Flow of funds not allowed
10. Prudential norms:
    
    1. The aggregate exposure of a lender to all borrowers at any point of time, across all P2Ps, shall be subject to a cap of Rs 10 lakh.
    2. The aggregate loans taken by a borrower at any point of time, across all P2Ps, shall be subject to a cap of Rs 10 lakh.
    3. The exposure of a single lender to the same borrower, across all P2Ps, shall not exceed Rs 50,000.
    4. Maturity of loan shall nt exceed 36 months.

Question 30

Consider the following statements about Inflation Indexed Bond (IIB)

1. It is a bond issued by the Government and the Corporate sector.
2. There are no special tax concessions for these bonds.
3. They are eligible to be kept as part of Statutory Liquidity Ratio requirements of banks.

Which of the above statements is/are correct?

Answer 30

2&3 only

1. IIB is a bond issued by the Sovereign, which provides the investor a constant return irrespective of the level of inflation in the economy.
2. There are no special tax concessions for these bonds.
3. IIBs are treated as government securities (G-Sec) and therefore, would be eligible for short-sale and repo transactions and gets SLR status
4. initially, they were linked to WPI, but when WPI went negative, thheir demand plummeted. IN 2014, RBI adopted CPI(combined) indexed IIBs.
5. A predecessor of Inflation Indexed Bonds (IIBs) was Capital Indexed Bonds (CIBs) issued during 1997. However, the CIBs issued in 1997 provided inflation protection only to principal and not to interest payment.
6. IIBs provide inflation protection to both principal and interest payments.

Question 31

Consider the following statements about Reserve Bank of India.

1. The bank was set up based on the recommendations of the Hilton–Young Commission.
2. Performs merchant banking function for the central and the state governments; also acts as their banker.
3. Manages the Foreign Exchange Management Act, 1999.
4. Issues and exchanges or destroys currency and coins not fit for circulation.

Which of the above statements is/are correct?

Answer 31

All correct

Question 32

Rural Infrastructure Development Fund (RIDF)?

Answer 32

1. set up by GoI in 1995-96 for financing ongoing rural Infrastructure projects.
2. Fund is maintained by NABARD
3. Domestic commercial banks contribute to the Fund to the extent of their shortfall in stipulated priority sector lending to agriculture.
4. The main objective of the Fund is to provide loans to State Governments and State-owned corporations to enable them to complete ongoing rural infrastructure projects.Eligible institutions include:
   
   • SGs/UTs
   • State owned corporations/State govt undertakings
   • State sponsored/supported organisations
   • PRIs/SHGs/NGOs
5. 37 eligible activities under RIDF classified under : (i) Agri and allied (ii) Social sector and (iii) Rural connectivity

Question 33

Consider the following statements about fugitive economic offender.

1. It is an individual who has committed some specified offence(s) involving an amount of Fifty crore rupees or more and has absconded from India.
2. He is declared so by a ‘Special Court’ set up under the Prevention of Corruption Act, 1988.
3. The property of a fugitive economic offender, resulting from the proceeds of crime, including benami property, can be confiscated once he is declared so by the Court.
4. Properties abroad are not liable for confiscation.

Which of the above statements is/are correct?

Answer 33

only 3

1. 100cr
2. set up under PMLA 2002 + against whom an arrest warrant has been issued in respect of any of the economic offences provided in the schedule to Fugitive Economic Offenders Bill, 2018
3. Properties abroad are also liable for confiscation.

Question 34

Consumer Food Price Index (CFPI)?

Answer 34

1. CFPI is a measure of change in retail prices of food products consumed by a defined population group in a given area with reference to a base year.
2. CSO started releasing CFPI for three categories -rural, urban and combined – separately on an all India basis with effect from May, 2014. on a monthly basis
3. methodology same as CPI
4. base yr 2012
5. Cereals and products constitute the maximum weight within CFPI in all three categories -rural, urban and combined, BUT LESS THAN 50%

Question 35

white label ATMs vs Brown label ATMs?

Answer 35

White Label ATMs – ATMs set up, owned and operated by non-bank entities are called “White Label ATMs” (WLAs).

Brown Label ATMs – ATMs where hardware and the lease of the ATM machine is owned by a service provider, but cash management and connectivity to banking networks is provided by a sponsor bank whose brand is used on the ATM.

Question 36

Sunil Mehta Committee is related to?

Answer 36

to examine the setting up of an Asset Reconstruction Company (ARC) and/or Asset Management Company (AMC) for faster resolution of stressed assets.

Question 37

Task force fr drafting new direct tax legislation?

Answer 37

committee headed by CBDT member Akhilesh Ranjan

Question 38

Consider the following statements:

1. India’s tax-GDP ratio is very low compared to other developing countries or emerging markets
2. Lower tax-GDP ratio can be addressed by mobilising greater tax revenues

Which statements are true?

Answer 38

2 only

India’s tax-GDP ratio does not appear low when compared to other developing countries or emerging markets. India’s tax-GDP ratio appears respectable when compared to other developing countries or emerging markets.

INdia’s tax-GDP ratio has generally been around 17-18% . However it fell to 11% in FY2019-20. OECD countries’ tax-GDP ratio is ~34%

Question 39

APMCs are intended to be responsible for?

Answer 39

1. ensuring transparency in pricing system and transactions taking place in market area;
2. providing market-led extension services to farmers;
3. ensuring payment for agricultural produce sold by farmers on the same day;
4. promoting agricultural processing including activities for value addition in agricultural produce;
5. Publicizing data on arrivals and rates of agricultural produce brought into the market area for sale; and
6. Setup and promote public private partnership in the management of agricultural markets

Question 40

In India, Alternative Investment Funds (AIFs) include:

1. Mutual funds
2. Venture Capital Fund
3. Private equity funds
4. Infrastructure funds

Select the correct code:

Answer 40

2,3 and 4

1. defined in Regulation 2(1) (b) of Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012.
2. includes venture
   
   • Capital Fund, hedge funds, private equity funds, commodity funds,
   • Debt Funds,
   • infrastructure funds, etc, while,
3. it excludes
   
   • Mutual funds or collective investment Schemes,
   • family trusts,
   • Employee Stock Option / purchase Schemes,
   • employee welfare trusts or gratuity trusts,
   • ‘holding companies’ within the meaning of Section 4 of the Companies Act, 1956,
   • securitization trusts regulated under a specific regulatory framework, and
   • funds managed by securitization company or reconstruction company which is registered with the RBI under Section 3 of SARFAESI

Question 41

NPCI?

Answer 41

1. an umbrella organisation for operating retail payments and settlement systems in India
2. an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust Payment & Settlement Infrastructure in India.
3. incorporated as a “Not for Profit” Company under Sec 8 of Companies Act 2013 with an intention to provide infrastructure to the entire Banking system in India for physical as well as electronic payment and settlement systems.
4. National Financial Switch (NFS) and Cheque Truncation System (CTS) continues to be the flagship products of NPCI.
5. other innovations:
   
   1. UPI,
   2. BBPS (Bharat Bill Payment system),
   3. RuPay Credit Card,
   4. National Common Mobility CArd (NCMC) and
   5. National Electronic Toll Collection (NETC)

Question 42

MPLADs?

Answer 42

1. formulated in 1993 to enable Members of Parliament (MPs) to recommend development works in their constituencies with emphasis on the creation of durable community assets based on the locally felt need.
   
   • Durable assets of national priorities and community needs viz. drinking water, primary education, public health, sanitation and roads, etc.
2. Initially, the Scheme was under the control of the Ministry of Rural Development and Planning. In October, 1994, the scheme was transferred to the MoSPI
3. Under this scheme,every MP is entitled to spend Rs 5 crore annually.
4. MPLAD funds can also be used for implementation of the schemes such as Swachh Bharat Abhiyan, Accessible India Campaign (Sugamya Bharat Abhiyan), conservation of water through rain water harvesting and Sansad Aadarsh Gram Yojana, etc.
5. Recently, GoI has suspended MPLADS funds fr two yrs: 2020 and 2021 and directed these funds to be transferred to Consolidated Fund of India

Question 43

Agriculture: significance?

Answer 43

70% rural households still depend primarily on agriculture for their livelihood, with 82 percent of farmers being small and marginal

Question 44

Agriculture: share in GVA? break-up?

Answer 44

at current prices, share in GVA has declined frm 18.2% in 2014-15 to 16.5% in 2019-20

In total GVA for 2017-18

share of crops: 10%

share of livestock: 5%

Share of forestry and logging: 1.2%

share of fishing: 1.1%

Question 45

Growth of GVA of agriculture and allied sectors?

Answer 45

fluctuating trend

In 2015-16, when GVA of total economy grew @ 8%, Agri and allied sectors’ GVA grew at 0.6%

Similiar values fr

2016-17: 7.9% and 6.3%

2017-18: 6.9% and 5%

2018-19: 6.6% and 2.9%

Question 46

Gross Capital Formation in Agri?

Answer 46

showing a fluctuating trend

GCF of agriculture & allied sector as percentage of GVA (in percentage):

2015-16: 14.7%

2016-17: 15.6%

2017-18: 15.2%

Question 47

EBRD

Answer 47

European Bank for Reconstruction

1. an international financial institution founded in 1991.
2. uses investment as a tool to build market economies.
3. Initially focused on the countries of the former Eastern Bloc it expanded to support development in more than 30 countries from Central Europe to Central Asia.
4. Headquartered in London, the EBRD is owned by 69 countries and two EU institutions, the 69th being India since July 2018.
5. Investing primarily in private sector clients whose needs cannot be fully met by the market, the EBRD promotes entrepreneurship and fosters transition towards open and democratic market economies.
6. it was the first multilateral development bank to have an explicit environmental mandate in its charter (since 1995)
7. it will not finance thermal coal mining and coal-fired electricity generation due to their environmental impact.
8. biggest shareholder being the United States
9. The mandate of the EBRD stipulates that it must only work in countries that are committed to democratic principles.

Question 48

WPI:

1. by?
2. periodicity?
3. base year?

Answer 48

1. Office of Economic Adviser, Department for promotion of industry and internal trade, Ministry of Commerce & Industry
2. monthly
3. 2011-12

Question 49

Features of WPI?

Answer 49

1. ~700 items in the basket; increased in 2017 changes
2. New definition of wholesale price index does not include taxes in order to remove the impact of fiscal policy. This also brings new WPI series closer to the Producer Price Index and is in consonance with the global practices.
3. changed to weighted GM frm weighted AM; prior to 1952, WPI used to be GM as well
4. As a part of the revised WPI series, a separate WPI Food Index has been launched.

Question 50

WPI:

Breakup of the basket?

Answer 50

• Three major Groups:

1. Primary Articles: weight 23%
   
   • subcomponents: food articles, non-food articles, minerals and Crude Petroleum and Natural Gas
2. Fuel and power: weight 13%
   
   • subcomponents: coal, mineral oils and Electricity
3. Manufactured Products: weight 64%
   
   • sub-components: Food Products, beverages, textiles, paper products, chemical products etc.

Question 51

WPI: significance?

Answer 51

1. WPI is used as a deflator for many sectors of the economy for estimating GDP by CSO. It is also used to deflate nominal values of production in high frequency IIP
2. WPI is also used for indexation by users in business contracts.
3. Global investors also track WPI as one of the key macro indicators for their investment decisions

Question 52

WPI Food index?

Answer 52

As a part of the revised WPI series (base year 2011-12), a separate WPI Food Index has been launched.

WPI food index measures the changes in prices of food items at the level of producers.

The WPI Food index is compiled by taking the aggregate of WPI for Food Products under Manufacture Products and Food Articles under Primary Article using weighted arithmetic mean.

Food Articles under Primary Article — 15.26

Food Products under Manufactured Products — 9.12

WPI Food Index (1 +2) – 24.38

The combined index number of WPI Food indices together with the Consumer Food Price Index published by CSO, would help monitor the food inflation effectively

Question 53

WPI weights logic?

Answer 53

weighting diagram of WPI is not drawn on the basis of gross value added which is a concept followed in GDP. The WPI weights are derived on the basis of turnover or value of output adjusted for net imports

Question 54

WPI: first published in?

Answer 54

1942

base yr: 1939

Question 55

CPI: types? released by?

Answer 55

CPI (Urban, Rural and All India) is released by National Statistics Office (NSO), MoSPI

CPI (Industrial Workers), CPI (Agricultural Labour) and CPI (Rural Labour) released by the Labour Bureau, Ministry of Labour.

Question 56

CPI: which index was discontinued? when?

Answer 56

CPI-Urban Non Manual Employees CPI(UNME)

since 2010

was used to be compiled by CSO

Question 57

CPI-R, U & C: base yr? revision? why?

Answer 57

Currently, 2012

was revised to 2012 frm 2010 since 2015

For 2010 series, Consumer Expenditure Survey (CES) 2004-05 was used which was felt too outdated.

So 2012 series was started using Consumer Expenditure Survey (CES), 2011-12

Question 58

CPI-R, U and C: periodicity?

Answer 58

Monthly

Question 59

CPI-IW: base year? released by? feature?

Answer 59

1. 2001
2. Labor Bureau
3. Oldest among indices
4. used in calculation of Dearness Allowances

Question 60

CPI-AL: base year? released by? use?

Answer 60

1. 1986-87
2. Labor Bureau
3. used for calculation of Rural Employment wages

Question 61

CPI-RL: base year? released by?

Answer 61

1. 1986-87
2. Labour Bureau

Question 62

CPI-C: basket break-up?

Answer 62

1. Food and Beverages – 45.86
2. Housing – 10.07
3. Fuel and Light – 6.84
4. Clothing and Footwear – 6.53
5. Pan, tobacco and intoxicants – 2.38
6. Miscellaneous – 28.32

Question 63

Consumer Food Price INdex?

Answer 63

It is a component of CPI (C) . It measures the change in the retail prices of the food products only. The Weightage of the Consumer Food Price Index is 39%

Question 64

CPi-significance?

Answer 64

1. Since, RBI has adopted Inflation Targeting, CPI (C) is used as nominal anchor for conduct of monetary policy in India. [Monetary Policy Committee is mandated to keep CPI (C) in range 2% – 6%. So CPI is used for inflation targeting.
2. CPI is also used as deflators in the National Accounts.
3. CPI is also used for calculating Dearness Allowance

Question 65

WPI vs CPI?

Answer 65

1. WPI: weights based on Production Values; CPI: weights based on avg HH expenditure taken frm COnsumer expenditure surveys
2. WPI: doesn’t include services; CPI: includes
3. WEightage of Food grp: 24.4% in WPI; 39% in CPI
4. A significant proportion of WPI item basket represents manufacturing inputs and intermediate goods like minerals, basic metals, machinery etc. whose prices are influenced by global factors but these are not directly consumed by the households and are not part of the CPI item basket. Thus even significant price rise or decline in items included in WPI basket need not necessarily translate into CPI immediately

Question 66

Producer Price index: what?

Answer 66

PPI) measures the average change in the price of goods and services which is received by the producers.

Question 67

PPI vs WPI?

Answer 67

1. WPI captures the price changes at the point of bulk transactions and may include some taxes levied and distribution costs up to the stage of wholesale transactions. PPI excludes indirect taxes.
2. WPI does not cover services and whereas PPI includes services.
3. Weights of items in WPI are based on net traded value whereas in PPI weights are derived from Supply Use Table.
4. PPI removes the multiple counting biases inherent in WPI. PPIs can be compiled separately for Out PPIs, Input PPIs and Export and ImportPPIs. In build Stage of Processing indices can be compiles to avoid multiple counting.

Question 68

IIP?

Answer 68

It is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period

published monthly, six weeks after the reference month ends

by CSO i.e. NSO (now)

base year: 2011-12

Question 69

IIP: breakup?

Answer 69

• IIP is a composite indicator that measures the growth rate of industry groups classified under:
  
  • Broad sectors, namely, Mining, Manufacturing, and Electricity.
    
    • Mining: weight % increased marginally to 14%
    • Manufacturing: weight % marginally increased to 77%
    • electricity: weight % decreased to 8%
  • Use-based sectors, namely
    
    • Primary goods: 34%
    • INtermediate goods: 17%
    • Capital Goods: 8%
    • INfrastrucuture/construction goods: 12%
    • Consumer durables: 13%
    • Consumer non-durables: 15%
• eight core industries of India represent about 40% of the weight of items that are included in the IIP.

Question 70

Breakup of weightage of the Core sectors within IIP?

Answer 70

1. Refinery products: 28%
2. Electricity: 20%
3. Steel: 18%
4. Coal: 10%
5. Crude oil: 9%
6. Natural Gas: 7%
7. Cement: 5%
8. Fertilisers: 3%

Question 71

New definitions of MSMEs?

Answer 71

now defined on the composite basis of turnover + investment

Manufacturing & Services

1. Micro: INvestment: <1cr AND Turnover <5cr
2. Small: INvestment: <10cr AND Turnover <50cr
3. Medium: INvestment: <20cr AND Turnover <250cr (this limit was revised upward frm 100 cr originally announced in May package)

Question 72

New definition of MSMEs: features?

Answer 72

1. a new composite formula of classification for manufacturing and service units has been notified. Now, there will be no difference between manufacturing and service sectors.
2. Criteria based on Investment + Turnover
3. As part of new definition, Exports will not be counted in turnover for any enterprises whether micro, small or medium.
4. Ministry of MSME has put in place a very strong handholding mechanism for MSMEs and new entrepreneurs in the name of Champions

Question 73

External debt of India:

1. debtors?
2. creditors?

Answer 73

1. CG,SG, Corporations or Citizens of India
2. private commercial banks, foreign governments, or international financial institutions such as IMF and WB

Question 74

External debt of India:

1. periodicity?
2. published by?

Answer 74

1. quarterly with a lag of a quarter
2. Statistics for the first two quarters of the calendar year are compiled and published by the Reserve Bank of India. Data for the last two quarters is compiled and published by the Ministry of Finance.

Question 75

India’s external debt: value?

Answer 75

As on 31 December 2019, India’s external debt stock totaled US$563.9 billion

Although size of India’s external debt has increased since 2017-18, it has remained about 20 per cent of GDP.

Question 76

INdia’s external debt: long term vs short term?

Answer 76

Long-term borrowings (more than a year to maturity) dominate India’s external debt.

1. Long term: 81%; sub-divided into
   
   1. Commercial borrowings: 40%
   2. NRI Deposits: 24%
   3. Multilateral like ADB, IDA, IBRD: 10%
   4. Bilateral: 5% (owed to foreign govt) (~80% of it to JAPAN, 11% to Germany, 5% to RUSSIA)
   5. Rupee debt: 2%
   6. Export credit: 1%
   7. IMF loans: 1% (Not counted under Multi-lateral)
2. short term: 19%

Question 77

INdia’s external debt: currency break-up?

Answer 77

As on 31 December 2017, 48.2% of the country’s debt was held in U.S. dollars. The rest of the debt is held in Indian rupees (37.3%), special drawing rights (5.7%), Japanese yen (4.6%), Euros (3.2%)

Question 78

T/F: GFCF is not a measure of total investment

Answer 78

T

because only the value of net additions to fixed assets is measured, and all kinds of financial assets are excluded, as well as stocks of inventories and other operating costs

Question 79

T/F: land sales and purchases are excluded form GFCF

Answer 79

T

The original reason, leaving aside complex valuation problems involved in estimating the value of land in a standard way, was that if a piece of land is sold, the total amount of land already in existence, is not regarded as being increased thereby; all that happens is that the ownership of the same land changes. Therefore, only the value of land improvement is included in the GFCF measure as a net addition to wealth. In special cases, such as land reclamation from the sea, a river or a lake (e.g. a polder), new land can indeed be created and sold where it did not exist before, adding to fixed assets.

Question 80

Fixed assets in GFCF constitutes?

Answer 80

Fixed assets are produced assets that are used repeatedly or continuously in production processes for more than one year. The stock of produced fixed assets consists of tangible assets (e.g. residential and non-residential building, roads, bridges, airports, railway, machinery, transport equipment, office equipment, vineyards and orchards, breeding livestock, dairy livestock, draught animals, sheep and other animals reared for their wool).

It may also include intangible assets like mineral exploration, computer software, copyright protected entertainment, artistic originals etc.

Question 81

T/F: major source of funding investment is domestic savings

Answer 81

T

The gross domestic savings rate has fallen from 34.65 per cent of GDP in 2011-12 to 29.98 per cent in 2016-17. This is mirrored in falling investment rate as well: 34.31 per cent of GDP in 2011-12 to 28.53 per cent by 2016-17

Question 82

Break-up of savings rate trend?

Answer 82

1. breakup of the savings shows that the steepest decline has been with respect to the household sector where the total savings have fallen from 23.64 per cent of GDP in 2011-12 to 16.26 per cent in 2016-17.
   
   • In the case of households both financial savings and savings in physical assets have declined quite sharply over the six-year period.
2. The private corporate sector savings as a proportion of GDP have actually increased by almost 2.5 percentage points.
3. The savings rate of the public sector including general government shows no change.

Question 83

Agricultural census: about?

Answer 83

1. every 5 years
2. by the Department of Agriculture, Cooperation and Farmers Welfare.
3. Agri census 2015-16 is tenth in the series.
4. as a part of the World Agriculture Census Programme.
5. first comprehensive Census was carried out with Agriculture year 1970-71 as the reference.
6. carried out by the States/Union Territories.
7. It is a Central Sector Scheme being financed completely by the GoI
8. For the collection of Census data, the States have been grouped into two categories viz., the Land Record States (22 states/UTs) and the Non-Land Record States (13 states/UTs).
   9.

Question 84

Agri census 2015: total number of operational holdings? state wise break-up?

Answer 84

increased from 138.35 million in 2010-11 to 146.45 million in 2015-16

highest in UP (24mn) followed by Bihar (16mn) and MH (15mn)

Question 85

Agri census 2015: total operated area? state wise break-up?

Answer 85

total operated area in the country has decreased from 159.59 million ha. in 2010-11 to 157.82 million ha. in 2015-16 showing a decrease of 1.11%

highest operated area was contributed by Rajasthan (20.87 million ha), followed by Maharashtra (20.51 million ha.), Uttar Pradesh (17.45 million ha.)

14 out of 36 States/UTs in the country accounted for about 91.01% of the total number of operational holdings and about 88.19% of the total area operated in the country

Question 86

Agri census 2015: avg size of operational holding?

Answer 86

declined to 1.08 ha. in 2015-16 as compared to 1.15 in 2010-11

Question 87

Agri census 2015: female operational holders?

Answer 87

percentage share of female operational holders has increased from 12.79% in 2010-11 to 13.96% in 2015-16 with the corresponding figures of 10.36% and 11.72% in the operated area.

Question 88

Agri census 2015: size wise break-up?

Answer 88

1. Marginal (<1 Ha) and small (1-2 Ha): 86.08% of the total holdings in 2015-16 (marginal increase over 2010); share in the operated area stood at 46.94% (decline since 2010)
2. Semi-Medium (2-4 Ha) and Medium (4-10 Ha): only 13.35% of total no. of land holdings with 43.99% operated area
3. Large (>10 Ha): merely 0.57% of total number of holdings in 2015-16 and had a share of 9.07% in the operated area
4. average size of operational holdings is highest in Nagaland (5 hectares) and lowest in Kerala (0.18 hectares).

Question 89

% in total no. of land holdings and area operated of

1. SCs
2. STs

Answer 89

1. 12%; 8.5%
2. 9%; 11%

Question 90

avg size of landholding for

1. SCs
2. STs

Answer 90

1. 0.78 Ha
2. 1.4 Ha

Question 91

Current account convertibility: IMF?

Answer 91

1. Article VIII, section 2, section 3 and section 4 of the IMF puts an obligation on the member countries for restoring the current account convertibility of their currencies.
2. It puts obligation for removing the restrictions on current payments, avoiding any kind of discriminatory currency practices such as multiple exchange rates etc.
3. However, capital account restrictions are allowed.

Question 92

Current account convertibility: Indian Rupee?

Answer 92

1. After the collapse of the Bretton Woods system in 1971, many countries switched over to the system of free currency convertibility on current account.
2. In India, after the economic reforms of 1991, the rupee was made partially convertible under the liberalised exchange rate management scheme from March 1992 onwards.
   
   1. Under this scheme, 60% of all receipts on current account was to be freely converted into rupees whereas 40% was on the basis of official exchange rate fixed by the RBI.
   2. 40% of fixed exchange rate convertibility was meant for fulfilling the government’s exclusive requirements for the import of essential commodities.
   3. India acquired the article VIII status of IMF in 1994.
3. In March 1993, the foreign exchange budget was abolished and the exchange rate was unified i.e. LERMS exchange rate system was replaced by ‘Managed Floating’ system. It introduced Rupee convertibility in Trade acct only within current acct.
4. In August 1994 rupee was made fully convertible on the current account.
5. In January 1997, the RBI removed the monetary ceilings prescribed for remittances of foreign exchange for various purposes. The authorised dealers could not allow remittances without having to take prior clearance from the Reserve Bank of India.
6. Indian rupee is now fully convertible in any foreign currency for the current account transactions.
7. However, some restrictions remain from
   
   1. FEMA 1999: non-convertibility for activities such as betting, gambling and on prohibited items.
   2. limits have been imposed on convertibility in the current account for traveling to other countries, sending gifts, educational purposes, employment, and medical treatment etc.

Question 93

Capital account convertibility: Indian Rupee?

Answer 93

1. It is the freedom to convert the local financial assets into foreign financial assets at the market determined exchange rates.
2. India adopted a cautious approach in the full capital account convertibility of rupee in the view of the Mexican crisis and East Asian crisis
3. Since attaining full current account convertibility, India has gradually moved towards easing capital acct convertibility as well:
   
   1. NRI deposits have been made fully convertible
   2. ECB ceilings raised
   3. outward remittances ceiling also raised

Question 94

Tarapore committee on capital account convertibility?

Answer 94

First Tarapore committee set up in 1997, but recommendations could not be accepted coz of financial instability and East Asian crisis

Second Tarapore committee was set up in 2006, but again recommendations not implemented coz of 2008 Global fin crisis

Conditions to be fulfilled before full capital account convertibility acc to Tarapore:

1. reduce the fiscal deficit to 3.5 percent of the GDP
2. recommended for setting up the Consolidated Sinking Fund (CSF) for the reduction of government debt.
3. mandated inflation targeting between 3% to 5
4. recommended for strengthening the financial sector by deregulating the interest rates, reducing the non-performing assets to 5 , and the cash reserve ratio to 3%. It recommended for either the liquidation of weak banks or their merger with other strong banks.
5. current account deficit should be brought down to manageable limits and the debt service ratio to be reduced to 20 % from the present 25% of the export earnings.
6. should have the exchange rate band of 5 of the real effective exchange rate. The RBI should intervene in the exchange rate market only when the real effective exchange rate is outside this band.
7. have adequate foreign exchange reserves: 2-32 Bn $
8. restrictions on the movement of gold need to be removed completely by the government.

Question 95

Features under full capital account convertibility proposed by the Tarapore committee?

Answer 95

1. Indian corporate sector to be allowed to issue the foreign currency denominated bonds to the domestic investors, to issue the Global depository receipts, to invest in such securities and deposits, and to go for external commercial borrowings with certain limitations without the approval of RBI
2. Allowing Indian residents to have foreign currency denominated deposits with Indian banks, allowing capital transfer to other countries with certain limitations etc
3. allow the Indian banks to borrow from the foreign markets for short term and long term within certain limits, to accept and extend loans denominated in any foreign currency, and allowing them to invest in the foreign money markets etc.
4. All India Financial Institutions which fulfill the specified prudential and regulatory requirements would be allowed to participate in the forex market with the authorized dealers.
5. banks and financial Institutions which would be allowed to participate in the international markets would also be allowed to freely purchase and sell gold and offer the gold denominated deposits and loans.

Question 96

Debt service ratio?

Answer 96

1. a country’s debt service ratio is the ratio of its debt service payments (principal + interest) to its export earnings
2. A country’s international finances are healthier when this ratio is low. For most countries the ratio is between 0 and 20%.
3. This ratio is reciprocal of Debt service coverage ratio
4. In fiscal year 2019, the debt services ratio in India was around 6.4 percent. This was a decline compared to the previous fiscal year, when the ratio stood at around 7.5 percent.

Question 97

NEER and REER?

Answer 97

1. NEER and REER are indices used as indicators of external competitiveness
2. NEER is the weighted geometric average of the bilateral nominal exchange rates of the home currency in terms of foreign currencies.
   
   1. reflects the trade of India with other countries. weight is greater for countries with which India trades more.
3. REER is the weighted average of NEER adjusted by the ratio of domestic price to foreign prices.
4. REER is always higher than NEER and is also the more important one
5. REER index has two types:
   
   1. basket of six currencies
   2. basket of 36 currencies
6. REER factors in CPI for price level calculations
7. Base yr for both NEER and REER is 2004-05
8. Euro has highest trade weights of 12.69 followed by the UAE Dirham, Chinese Yuan and the US Dollar
9. RBI publishes these indices in its monthly bulletin.

Question 98

RBI’s Liabilities?

Answer 98

Currency

• Currency notes in circulation
• Currency held by banks

Deposits:

• cash balances maintained with the Reserve Bank by the Central and State Governments
• deposits of SCBs, Scheduled State Co-op banks
• deposits of other banks like RRBs, other scheduled CO-op, Non-scheduled Commercial banks and other co-op banks including Central Co-operative Banks and primary co-operative banks that have been permitted to open accounts with the Reserve Bank.
• deposits of Foreign CBs, domestic and international FIs, deposits placed by MFs, balances of Clearing Corporation of India Ltd, primary dealers, employee credit societies, etc. transaction under Reverse repo is now treated as part of “Other Deposit.”

internal reserves and provisions of the Reserve Bank (These liabilities are also called non-monetary liabilities of the Reserve Bank.) such as

• Currency and Gold Revaluation Account (CGRA): unrealised gains/losses on valuation of Foreign Currency Assets (FCA) and gold due to movements in the exchange rates and/or price of gold are not taken to the Profit & Loss Account but instead booked under this head.
• , Contingency Reserve : represents the amount set aside on a year-to-year basis for meeting unexpected and unforeseen contingencies including depreciation in value of securities, exchange guarantees and risks arising out of monetary/exchange rate policy compulsions.
• Investment Revaluation Account (IRA): The Reserve Bank values foreign dated securities at market prices prevailing on the last business day of each month and the appreciation/ depreciation arising there from is transferred to the IRA.
• Paid-up Capital and Reserve Fund: The Capital of the Bank, of ` 0.05 billion, is held by the Government of India and reserve funds i.e. Credit (Long-term Operations) Fund, National Agricultural Credit (Stabilisation) Fund, National Industrial Credit (Long-term Operations) Fund of the Bank are part of other liability.

Question 99

T/F: It has been agreed by the Central Government, to maintain a minimum balance of ` 10 crore daily and ` 50 crore as on Fridays.

Answer 99

F

It has been agreed by the Central Government, to maintain a minimum balance of ` 10 crore daily and ` 100 crore as on Fridays.

Whenever, the actual cash balance goes down below the minimum level, the replenishment is made by creation of WMA and overdraft.

Question 100

Beveridge Curve?

Answer 100

It is a graphical representation of the relationship between unemployment (x-axis) and job vacancy rate (number of unfilled jobs expressed as a proportion of the labour force) (on y-axis).

hyperbolic-shaped and slopes downward, as a higher rate of unemployment normally occurs with a lower rate of vacancies.

If it moves outward over time, a given level of vacancies would be associated with higher and higher levels of unemployment, which would imply decreasing efficiency in the labour market.

position on the curve can indicate the current state of the economy in the business cycle. For example, recessionary periods are indicated by high unemployment and low vacancies

Question 101

Engel curve?

Answer 101

It displays how household expenditure on a particular good or service varies with change in household income.

Eg. As income of a household increases its expenditure of food as a percentage declines. However, its expenditure on status goods increases.

Question 102

Kuznets curve?

Answer 102

shows the relationship between economic growth and inequality. It is inverted U shaped meaning that as initially economic growth leads to greater inequality, followed later by the reduction of inequality.

Question 103

Laffer curve?

Answer 103

Laffer Curve is a theory that states lower tax rates boost economic growth. It underpins supply-side economics, Reaganomics

The Laffer Curve describes how changes in tax rates affect government revenues in two ways. One is immediate, which Laffer describes as “arithmetic.” Every dollar in tax cuts translates directly to one less dollar in government revenue.

The other effect is longer-term, which Laffer describes as the “economic” effect. It works in the opposite direction. It eventually replaces any revenue lost from the tax cut.

Question 104

Phillips Curve?

Answer 104

stating that inflation and unemployment have a stable and inverse relationship. The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.

However, the original concept has been somewhat disproven empirically due to the occurrence of stagflation in the 1970s, when there were high levels of both inflation and unemployment.

Question 105

Rahn curve?

Answer 105

displays the relationship between g overnment spending (on the horizontal) and GDP growth rate (on the vertical) of an economy. It is an inverted U shaped, thus displaying there is a level of government spending at whiich economic growth theoretically maximises.

Question 106

Environmental Kuznet’s curve?

Answer 106

As countries develop initiallly, pollution increases, but later, with further development pollution begins to come down. Thus, it is an inverted U-shaped curve.

Question 107

Lorenz curve?

Answer 107

Lorenz curve is a graphical representation of income inequality or wealth inequality

graph plots percentiles of the population on the horizontal axis according to income or wealth. It plots cumulative income or wealth on the vertical axis

Question 108

Consider the following statements regarding Devaluation of currency.

1. Devaluation decreases the prices of imports purchased in the home country. 2. Devaluation can be employed to eliminate balance-of-payments deficits.
2. Devaluation will not be effective if the balance-of-payments disequilibrium is a result of basic structural flaws in a country’s economy.

Which of the above statements is/are correct?

Answer 108

All are correct

• Devaluating will boost exports, thereby theoretically easing BoP

Question 109

Viability gap funding?

Answer 109

1. a grant one-time or deferred, provided to support infrastructure projects that are economically justified but fall short of financial viability
2. scheme is designed as a Plan Scheme to be administered by the Ministry of Finance and amount in the budget are made on a year-to- year basis.
3. launched in 2004 to support projects that comes under Public Private Partnerships.
4. available only for infrastructure projects where private sector sponsors are selected through a process of competitive bidding.
5. The VGF grant will be disbursed at the construction stage itself but only after the private sector developer makes the equity contribution required for the project.
6. usual grant amount is upto 20% of the total capital cost of the project.
7. If the sponsoring Ministry/State Government/ statutory entity aims to provide assistance over and above the stipulated amount under VGF, it will be restricted to a further 20% of the total project cost.
8. project agreements must also follow the best practices that would secure value for public money. Regular monitoring and evaluation should be done by the lead financial institutions for the disbursal of the grants.

Question 110

GDP Deflator?

Answer 110

1. GDP Deflator is a measure of general price inflation.
2. It is calculated by dividing nominal GDP by real GDP
3. GDP deflator is a much broader and comprehensive measure than CPI and WPI. GDP deflator reflects the prices of all domestically produced goods and services in the economy whereas, other measures like CPI and WPI are based on a limited basket of goods and services, thereby not representing the entire economy.
4. GDP deflator also includes the prices of investment goods, government services and exports, and excludes the price of imports.
5. While WPI and CPI are available on monthly basis whereas deflator comes with a lag (yearly or quarterly, after quarterly GDP data is released). Hence, monthly change in inflation cannot be tracked using GDP deflator, limiting its usefulness.

Question 111

Disinflation?

Answer 111

Reduction in the rate of inflation

Question 112

Deflation?

Answer 112

Persistent decrease in price level (negative inflation)

Question 113

types of inflation based on its value?

Answer 113

• Creeping inflation – If rate of inflation is low (upto 3%)
• Walking/Trotting inflation – Rate of inflation is moderate (3-7%)
• Running/Galloping inflation – Rate of inflation is high (>10%)
• Runaway/Hyper Inflation – Rate of inflation is extreme

Question 114

Stagflation?

Answer 114

• Inflation + Recession (Unemployment)
• The most important difference between the Demand Pull and Cost Push Inflation is that while in the case of Demand Pull Inflation the overall output in the economy does not fall. Whereas, in case of Cost Push Inflation, along with an increase in prices the output level of the economy also falls.
• The fall in output will cause employment to fall in the economy along with fall in growth. The falling growth along with rising prices makes cost push inflation more dangerous than the demand-pull inflation and may lead to Stagflation

Question 115

Misery index?

Answer 115

Rate of inflation + Rate of unemployment

Question 116

Inflationary, Deflationary and Suppressed gap?

Answer 116

Inflationary gap: Aggregate demand > Aggregate supply (at full employment level)

Deflationary gap: Aggregate supply > Aggregate demand (at full employment level)

Suppressed / Repressed inflation: Aggregate demand > Aggregate supply. Here govt will not allow rising of prices.

Question 117

Full employment level?

Answer 117

Full employment is an economic situation in which all the available resources of the economy are fully utilised, and there exists no further scope of improvement in the economy.

The Full employment level represents that economy is operating at its maximum potential.

The level of unemployment is minimum, the prices in the economy are stable, resources are fully utilised, whatever firms are producing is getting sold, and there exist no shortages in the economy.

Question 118

IFSC?

Answer 118

1. An IFSC caters to customers outside the jurisdiction of the domestic economy. Such centres deal with flows of finance, financial products and services across borders.
2. In India, IFSC has been defined in SEZ Act, 2005. As per the act:
   
   1. The Central Government may approve the setting up of an International Financial Service Centre in a Special Economic Zone and may prescribe the requirements for setting up and operation of such centre.
   2. The Central Government shall approve only one International Financial Services Centre in a Special Economic Zone.
3. GIFT (Gujarat International Finance Tec-City), located in Gandhinagar is India’s first International Financial Services Centre.
4. Currently, the banking, capital markets and insurance sectors in IFSC are regulated by multiple regulators, i.e. RBI, SEBI and IRDAI.
5. IFSC Authority Bill, 2019 which seeks to establish a unified authority for regulating all financial services in International Financial Services Centres (IFSCs) in India.

Question 119

Gini coefficient?

Answer 119

1. popular statistical measure to gauge the rich-poor income or wealth divide.
2. It measures inequality of a distribution — be it of income or wealth — within nations or States. Its value varies anywhere from zero to 1; zero indicating perfect equality and one indicating the perfect inequality
3. A general rise in Gini Coefficient indicates that government policies are not inclusive and may be benefiting the rich more than the poor.

Question 120

RBI Board?

Answer 120

1. officials from the central bank and the Government of India, including officials nominated by the government
2. According to the RBI, the “general superintendence and direction of the affairs and business of the RBI is entrusted to the Central Board” and the Board exercises all powers and does all acts and things that are exercised by the RBI.
3. The Board is also to recommend to the government the design, form and material of bank notes and also when and where they can serve as legal tender.
4. Board consists of official directors, who include the Governor and up to four Deputy Governors, non-official directors, who include up to ten directors from various fields and two government officials, and one director from each of four local boards of the RBI.
5. Section 7 of the RBI Act basically empowers the government to supersede the RBI Board and issue directions to the central bank if they are considered to be “necessary in public interest”.

Question 121

Sustained high revenue deficit in the Union budget can lead to gradual weakening of the rupee because?

Answer 121

1. The confidence of foreign investors in the economy reduces.
2. Injection of high liquidity for consumption purposes may inflate prices rendering our exports uncompetitive.

Question 122

T/F: ‘remittances’ and ‘charities’ are parts of current account in Balance of Payments.

Answer 122

T

Question 123

T/F: Both NEER and REER are subject to devaluation and depreciation due to destabilizing speculation.

Answer 123

T

Question 124

INternationalisation of Rupee?

Answer 124

1. When Indians import, they should be able to pay in rupees
2. When they export, they should accept payments in rupees
3. when they issue bonds globally, they should be able to repay in rupee regardless of the fact that they borrowed in foreign currency
4. All over the world individuals, companies and central banks should accumulate Indian rupee as a reserve currency because of its global demand.

Question 125

A negative trade balance with a large current account deficit (CAD) can have which of the following consequences for India?

1. High inflation in the economy
2. Depreciation of the domestic currency
3. Pulling out of FII from the economy

Answer 125

All

High inflation can increase prices of some imported raw materials (eg. oil for INdia) that can increase overall price levels

An overall consequence is that FII and other investors will not find the domestic market worthy enough to invest and pull off from it.

Question 126

The Capital account in the external sector consists of

1. External assistance
2. External Commercial Borrowings (ECBs)
3. Short-term debt
4. NRI deposit
5. Invisibles
6. Portfolio investment

Answer 126

All except 5

Question 127

T/F: NBFCs with asset size more than 1000 cr are classified as systemically important NBFCs.

Answer 127

F

>500cr

Question 128

Transfer Payments?

Answer 128

process used by govts to redistribute money

• old age or disability pensions
• student grants
• unemployment compensations
• education and training assistance
• interest payment on student loans

Does not include subsidies to agri or mfg and exporters

Question 129

1. T/F: Govt expenditure on widow pensions and scholarships are not counted in National Income accounting/GDP calculation.
2. T/F: Govt expenditure on defence is counted as part of National income accounting/GDP calculation
3. T/F: expenditure on shares and bonds are not counted for National income accounting/GDP calculation

Answer 129

1. T; transfer payments do not cause any value addition
2. T: durable consumption expenditure by govt
3. T; these are mere paper claims

Question 130

T/F: cash deposit ratio is a purely behavioural parameter.

Answer 130

T

cdr= CU/DD

Question 131

RBI’s measures to deepen Corporate bond market

Answer 131

aka Khan committee recommendations

1. Commercial banks permitted to issue masala bonds for their capital requirements and for financing infra and affordable housing
2. Brokers regtd with SEBI and authorised as money-makers in corporate bond market are permitted to undertake repo/reverse repo transactions wrt corporate debt securities. This will make the corp bond securities fungible
3. banks allowed to increase partial credit they provide fr corporate bonds to 50% frm 20%
4. permitting primary dealers to act as market makers for govt bonds, making them more accessible to retail investors
5. allowed entities exposed to exchange rate risk to undertake hedge transactions upto 30mn$ at a given time.

Question 132

FDI is prohibitd in which sectors in INdia?

Answer 132

1. Lotteries: govt, pvt or online
2. Gamblin, Betting, Casinos
3. Chit funds
4. Nidhi company
5. real estate business including construction of farm houses
   
   • Does not include construction of townships, residential or commercial properties, roads bridges, REITs regtd with SEBI
6. cigars, cigarette
7. sectors not open to pvt sector altogether:
   
   1. atomic energy
   2. rly ops: other than permitted activities
8. Trading in Tranferable developmental rights (TDRs)

Question 133

Tobin tax?

Answer 133

penalizing short term currency speculation; places a tax on all spot conversions of currency

Question 134

Types of unemployment?

Answer 134

1. open
2. Cyclical
3. Structural
4. Classical
5. Seasonal
6. Frictional
7. Voluntary

Question 135

open unemployment?

Answer 135

a situation where a country’s employed forces doesn’t get opportunities for adequate empoyment

Question 136

Cyclical unemployment?

Answer 136

Cyclical unemployment exists when individuals lose their jobs as a result of a downturn in aggregate demand (AD).

If the decline in aggregate demand is persistent, and the unemployment long-term, it is called either demand deficient, general, or Keynesian unemployment.

Question 137

Structural unemployment?

Answer 137

occurs when certain industries decline because of long term changes in market conditions.

It is a category of unemployment arising from the mismatch between the jobs available in the market and the skills of the available workers in the market.

Many people in India do not get job due to lack of requisite skills and due to poor education level, it becomes difficult to train them.

Globalisation is an increasingly significant cause of structural unemployment in many countries.

Question 138

Classical unemployment?

Answer 138

Classical unemployment is caused when wages are ‘too’ high.

This explanation of unemployment dominated economic theory before the 1930s, when workers themselves were blamed for not accepting lower wages, or for asking for too high a wage.

Classical unemployment is also called real wage unemployment.

Question 139

Seasonal unemployment?

Answer 139

Seasonal unemployment exists because certain industries only produce or distribute their products at certain times of the year. Industries where seasonal unemployment is common include farming, tourism, and construction.

Question 140

Frictional unemployment?

Answer 140

Frictional unemployment, also called search unemployment, occurs when workers lose their current job and are in the process of finding another one.

There may be little that can be done to reduce this type of unemployment, other than provide better information to reduce the search time.

This suggests that zero unemployment is impossible at any one time because some workers will always be in the process of changing jobs.

Question 141

Voluntary unemployment?

Answer 141

• Voluntary unemployment is defined as a situation when workers choose not to work at the current equilibrium wage rate.
• For one reason or another, workers may elect not to participate in the labour market.
• There are several reasons for the existence of voluntary unemployment including excessively generous welfare benefits and high rates of income tax.
• Voluntary unemployment is likely to occur when the equilibrium wage rate is below the wage necessary to encourage individuals to supply their labour.

Question 142

Natural rate of unemployment?

Answer 142

This is a term associated with new Classical and monetarist economists.

It is defined as the rate of unemployment that still exists when the labour market it in equilibrium, and includes seasonal, frictional and voluntary unemployment.

The US economist Milton Friedman first used the concept to help explain the connection between unemployment and inflation. Friedman argued that if unemployment fell below the natural rate there would be an increase in the rate of inflation.

Question 143

spot exchange?

Answer 143

1. Spot Exchanges refer to electronic trading platforms which facilitate purchase and sale of specified commodities, including
   
   • agricultural commodities,
   • metals and
   • bullion
2. This is an innovative Indian experiment in the trading of goods and is distinct from what is commonly known as “commodity exchanges” which trade in futures contracts in commodities
3. Originally meant for dealing in warehouse receipts only.
4. there are four spot exchanges currently operating in the country:
   
   1. national spot exchnage ltd: promoted by FTIL and NAFED
   2. NCDEX Spot exchange ltd
   3. Reliance spot exchange ltd
   4. Indian Bullion Spot exchange ltd
5. Spot Exchange is presently recognized by Ministry of Consumer Affairs, Food & Public Distribution, Government of India. Further the spot exchanges have to obtain licenses from various state governments and thus come under regulatory powers of SG

Question 144

India’s forex reserves: how much? break-up?

Answer 144

at the end of July 2020, worth 522 BN $ (highest ever)

foreign exchange assets (FCA): US$480.482 billion

gold reserves: US$36.10billion

US$4.585 billion reserve position

SDRs (Special Drawing Rights with the IMF) :US$1.464 billion and

India is at 5th position (May 2020) in List of countries by foreign-exchange reserves , just below Russia

Question 145

Masala bonds: RBI regulations?

Answer 145

1. Any corporate and Indian bank is eligible to issue rupee denominated bonds overseas.
2. The money raised through such bonds cannot be used for real estate activities other than for development of integrated township or affordable housing projects.
3. It also cannot be used for investing in capital markets, purchase of land and on-lending to other entities for such activities as stated above.
4. The rupee denominated bonds can only be issued in a country and subscribed by a resident of such country that is a member of the financial action task force (FATF) and whose securities market regulator is a member of the International Organisation of Securities Commission.
5. While residents of such countries can subscribe to the bonds, it can also be subscribed by multilateral and regional financial institutions where India is a member country.
6. The minimum maturity period for masala bonds raised up to rupee equivalent of USD 50 million in a financial year should be 3 years and for bonds raised above USD 50 million equivalent in INR per financial year should be 5 years.
7. Recently, the state-owned Kerala Infrastructure Investment Fund Board (KIIFB) debuted its ‘masala bond’ issue of ₹ 2,150 crore on the London Stock Exchange. this made Kerala first Indian state to issue masala bonds.
8. The first Masala bond was issued in 2014 by IFC for the infrastructure projects in India.

Question 146

INdia INX?

Answer 146

India INX is the country’s first international exchange, located at International Financial Services Centre, GIFT City in Gujarat.

Question 147

T/F: A threshold of 10 percent of equity ownership is required to qualify an investor as a FDI

Answer 147

T

Question 148

FPIs?

Answer 148

1. FPI is investment by non-residents (Not same as non-citizens) in Indian securities including shares, government bonds, corporate bonds, convertible securities, infrastructure securities etc.
2. Foreign Portfolio investment is the passive holdings of securities such as foreign stocks, bonds, or other financial assets
   
   • Investment in the shares of a foreign company.
   • Investment by Purchasing the bonds issued by a foreign government.
   • Acquisition of assets in a foreign country.
3. FDI and FPI are similar except the fact that foreign investors have no role to play in active management and day to day business.
4. FII refers to the group of investors who helps to bring the FPI in a country.eg. Pension funds, MFs, Investment Trust, insurance companies etc.

Question 149

Issues with states’ financial management?

Answer 149

1. Although the state governments have regularly met their fiscal deficit target of 3% of the GDP (except during 2016-17), it was mainly on account of reducing their expenditure (mostly towards social & infrastructural sectors) and increasingly borrowing from the market. Additionally, overall level of debt-to-GDP has increased to the 25% in 2019 compared to 22% in 2015.
2. Erosion of development expenditure indicated that the quality of expenditure was compromised by a combination of higher revenue expenditure (more than 80% of the total expenditure) and lower capital expenditure.
3. Political class has the tendency to make fiscal policy over-expansive, which increases burden
4. Various cesses and surcharges, in which States’ have no share, are becoming a disproportionate portion of overall divisible revenue. This is against the spirit of fiscal federalism and financial devolution process.
5. For State Govt., Art 293(3) provides a constitutional check over market borrowings while no such restriction is there for the centre.
6. States have constraints in managing their finances as the RBI controls their deficit and cannot float a bond on a state’s behalf without the Centre’s approval.
7. With the advent of GST framework, revenue autonomy of states has shrunk considerably as states have lost decision making power on tax rates.
8. Poor taxation practices: for instance, many states don’t levy property tax, which is a more buoyant source of income.
9. Impact of UDAY on State finances is expected to continue beyond interest payments, as outstanding dues of DISCOMs have risen sharply in the recent period
10. State governments provide off-budget support to State Public Sector Enterprises (SPSEs) through guarantees on their borrowings from financial institutions. But, weak cost recovery mechanism poses a systemic risk to the States’ finances

Question 150

CSR: eligibility criteria for companies?

Answer 150

1. net worth of 500cr+ or turnover of 1000cr+ or a net profit of 5cr+ during any FY

Question 151

tax concessions provision under Comapnies Act 2013?

Answer 151

1. no specified tax concession for CSR spending
2. Some activities, mentioned in Schedule VII of Companies Act, may qualify for tax exemptions under relevant provisions of IT Act 1961 subject to fulfillment of any specified conditions. These activities include:
   
   1. Rural development project
   2. skill development project
   3. agricultural extension project
   4. contri to PMNRF

Question 152

informal sector vs unorganised sector?

Answer 152

• informal sector can be considered as a subset of unorganinzed sector
  
  • Informal sector comprises of all unincorporated proprietary and partnership enterprises
  • unorganized sector includes all unincorporated proprietary and partnership enterprises PLUS enterprises run by cooperative societies, trusts, pvt ltd companies.
• NSSO survey shows that nearly 82% of rural workers and 72% urban workers were engaged in informal sector
• Informal/unorganised sector contributes 50-60% of India’s GDP

Question 153

component Documents? of Union Budget

Answer 153

1. Annual FInancial statement
2. Budget speech
3. Finance bill
4. Appropriation Bill
5. Demand for Grants
6. Documents submitted under FRBM Act like macroeconomic framework statement, medium term fiscal policy statement etc

Question 154

Management of public debt is done by?

Answer 154

by INternal Debt management deptt at Central Office and Public debt offices of RBI.

It also includes floating of new loans

Question 155

BoP: transactions considered?

Answer 155

trade in

• goods, services and assets
• between residents (citizens as well as non-citizens living in the country) of a country with the rest of the world

Question 156

formal sector includes?

Answer 156

1. All public sector establishments
2. thse pvt sector establishments which employ 10 hired workers or more

Question 157

PSL:

1. which banks have to follow?
2. shortfall in achievement of PSL targets?

Answer 157

1. • mandated at 40% of total bank credit for
   • domestic SCBs excluding RRBs and SFBs
   • foreign banks with 20 branches and more
     * foreign banks with less than 20 branches are to achieve PSL norms of 40% in a phased manner by 2020
     * Payment banks: 75%
2. banks are reqd to invest in

• RIDF (established with NABARD), or
• other funds with NABARD, or
• NHB, or
• SIDBI, or
• MUDRA Ltd, or
• purchase PSL-Certi

Question 158

Reserve Deposit ratio?

Answer 158

proportion oftotal deposits CBs keep as reserves.

Consist of two things: Vault cash in bank and deopsits of Cb with RBI

Baknks use this reserve to meet demand for cash by account holders

Question 159

Securities Transaction tax?

Answer 159

1. levied on purchase or sale of securities that are listed on the iNdian stock exchange
2. includes shares, derivatives or equity-oriented mutual funds
3. a type of direct tax
4. aims at discouraging excessive speculation
5. STT is not applicable to
   
   1. preference shares,
   2. govt securities,
   3. bonds,
   4. debentures,
   5. currency derivatives,
   6. units of MF other than an equity oriented MF and
   7. Gold exchange traded funds

Question 160

‘Make in India’ : about?

Answer 160

1. launched in 2014
2. objectives:
   
   1. improve EoDB
   2. open the FDI regimes
   3. improve qlty of infrastr
   4. make india a globally competitive mfg destination
   5. foster innovation, protect intellectual property
3. Targets:
   
   1. To increase the manufacturing sector’s growth rate to 12-14% per annum in order to increase the sector’s share in the economy.
   2. To create 100 million additional manufacturing jobs in the economy by 2022.
   3. To ensure that the manufacturing sector’s contribution to GDP is increased to 25% by 2022 (revised to 2025) from the current 15-16%.
4. managed and facilitated by Invest India
5. NO specific tax concessions announced, more focus on EoDB

Question 161

‘Make in India’ : evaluation?

Answer 161

1. Investment: The last five years witnessed slow growth of investment in the economy. Slow down was more prominent in capital investments in the manufacturing sector.
   
   • According to Economic Survey 2018-19, Gross fixed capital formation of the private sector, declined to 28.6% of GDP in 2017-18 from 31.3% in 2013-14.
2. Output: Monthly IIP pertaining to manufacturing has registered double-digit growth rates only on two occasions during the period April 2012 to November 2019.
   
   • In fact, the data show that for a majority of the months, it was 3% or below and even negative for some months.
3. Employment: According to a government report, the unemployment rate in India is highest in 45 years.
4. Manufacturing’s share of GDP, currently a shade under 15-16%
5. India’s share in the global exports of manufactured products remains around 2% which is far less than 18% share of China.
6. However, India emerged as the top destination for foreign direct investment, surpassing the U.S. and China.
7. improvement i EoDB rankings

Question 162

Money multiplier?

Answer 162

ratio of stock money to the stock of high powered moneyin an economy.

Total stock of money: All the money held with the public, RBI as well as the govt

High powered money: Consists of currency held by the public and reserves of CBs, which include vault cash and banks’ deposits with RBI

Question 163

National Career service?

Answer 163

A nationla level online portal developed primarily to connect job opportunities with the aspirations of the youth.

facilitates regtn of job seekers, job providers, skill providers, career counsellors etc.

Question 164

Digital employment exchange?

Answer 164

online job portal launched by office of Development Commissioner, Ministry of MSMEs

enables industrial units to find suitable manpower and job seekers to find suitable jobs

caters mainly to MSMEs

Question 165

Swayamsidha scheme?

Answer 165

launched in 2001

dedicated to women’s empowerment

SHG based programme, ensuring that they get benefits of all schemes and services in an integrated and holistic manner

Question 166

SFIO?

Answer 166

1. a statutory corporate fraud investigating agency
2. set up by a resolution adopted by the GoI in 2003. Later, Section 211 of the Companies Act, 2013, accorded the statutory status to it.
3. under the jurisdiction of the Ministry of Corporate Affairs
4. Need: Based on the recommendation of Naresh Chandra Committee on corporate governance (which was set up by the Government on 21 August 2002) and in the backdrop of stock market scams as also the failure of non-banking companies resulting in huge financial loss to the public
5. gets into the investigation only upon receiving an order frm CG. Thus, it cannot take up cases suo moto.
6. If any case has been assigned by CG to SFIO, no other investigating agency of CG or any SG can proceed with the investigation in such case

Question 167

Different exchange rate systems?

Answer 167

1. Fixed exchange rate systems; where the price of a currency is “fixed” with respect to another currency, a pool of currencies, or a precious metal such as gold.
2. Systems of floating exchange rates; where the price of a currency with respect to other currencies is set by the market’s demand and supply forces. In this case, the exchange rate is said to have a clean float (variability in price). AKA Clean floating system.
3. Managed float regime is the current international financial environment in which exchange rates fluctuate from day to day, but central banks attempt to influence their countries’ exchange rates by buying and selling currencies to maintain a certain range. Under such a system, the exchange is allowed to move freely and determined by the forces of the market (Demand and Supply). But when a difficult situation arises, the central banks of the country can intervene to stabilise Three sub-categories under Managed Floating exchange rate:
   
   1. Adjusted Peg System: In this system, a country should try to hold on to a fixed exchange rate system for as long as it can, i.e. until the country’s foreign exchange reserves got exhausted. Once the country’s foreign exchange reserves got exhausted, the country should undergo devaluation of currency and move to another equilibrium exchange rate.
   2. Crawling Peg System: In this system, a country keeps on adjusting its exchange rate to new demand and supply conditions. The system requires that instead of devaluing currency at the time of crisis, a country should follow regular checks at the exchange rate and when require must undertake small devaluations.
   3. Dirty Floating: In the dirty float system, the exchange rate is to a very large extent is determined by the market forces, but occasionally the central banks of the countries intervene in foreign exchange markets to smoothen or remove excessive fluctuations

Question 168

Bretton Woods system of exchange rate?

Answer 168

Bretton Woods system of exchange rate which was in operation from 1944 till 1971, was one of relative fixed exchange rate as opposed to rigid fixed exchange rate.

Question 169

T/F: rigid fixed exchange rate is never been used in history

Answer 169

T

Even under the system of Gold Standard 1870-1941, the exchange was relatively fixed and not rigidly fixed.

Question 170

Exchange rate management in India since independence?

Answer 170

1. Par Value System (1947-1971): After Independence Indian followed the ‘Par Value System’ whereby the rupee’s external par value was fixed with gold and UK pound sterling. This system was followed up to 1966 when the rupee was devalued by 36 percent.
2. Pegged Regime (1971-1992): India pegged its currency to the US dollar (1971-1991) and to pound (1971-75). Following the breakdown of Breton Woods system, the value of pound collapsed, and India witnessed misalignment of the rupee. To overcome the pressure of devaluation India pegged its currency to a basket of currencies. During this period, the exchange rate was officially determined by the RBI within a nominal band of +/- 5 percent of the weighted average of a basket of currencies of India’s major trading partners.
3. since 1991: India introduces partial convertibility of rupee in 1992-93 under LERMS. Under this system, India followed a dual exchange rate policy, where 40 percent of the exchange rate were to be converted at the official exchange rate and the remaining 60 percent were to be converted at the market-based exchange rate. The exchange rate converted at the official rate were to be used for essential imports like crude, oil, fertilizers, life savings drugs etc. All other imports should be financed at the market-based exchange rate.
4. Market-Based Exchange rate Regime (1993- till present):In the 1994 budget, 60:40 ratio was removed, and 100 percent conversion at market-based rate was allowed for all goods and capital movements.

Question 171

Exchange rate management in India: before independence?

Answer 171

• From 1931 onwards, rupee was pegged to the “sterling standard” (Britain’s currency), which was a depreciating one at that time.
• rupee, which was completely convertible into any currency before, was made inconvertible into any other currency from 1939 (2nd WW). Fund transfers outside British territory were severely restricted and dollar securities held by private individuals were also compulsorily acquired. This was done to enhance Britain’s dollar reserves, and people were compensated in rupees at an arbitrary rate, resulting in losses to many. Dollars for the war were also raised by selling silver bullion from India’s reserves to governments outside the sterling area. Dollars were spent on imports of essential consumables as dictated by the war requirements. India had accumulated a sizeable sterling balance of £1,300 million in 1946, as almost all forms of consumer imports were curtailed.Subsequently, the corresponding increase in rupee circulation which was stocked up during the war, caused inflation in India.
• The two currencies were delinked in 1975 and have functioned independent of each other in monetary terms ever since.
• The sterling was floated against the major international currencies in the early 1970s, but rupee was floated only in 1993-1994, after liberalisation policies.

Question 172

Official Reserve transaction will always be zero in which exchage rate regime?

Answer 172

Flexible exchange rate system i.e. floating ER system as in this system, CB never intervenes and let the market forces play out.

IN the managed ER system, CB occasionally engages in transactions while in Fixed ER system, CB intervenes tomaintain a fixed ER system. So, official reserve transaction may be zero in former, while almost never zero in latter.

Question 173

Domestic procurement operations for buffer stock are undertaken by?

Answer 173

FCI

NAFED

SFAC

any other agency as decided by PSFMC

SG may also be authorized to undertake the procurement in a manner similar to a decentralized procurement of foodgrains

Question 174

Food corporation of India?

Answer 174

1. FCI) is a Public Sector Undertaking, under the Department of Food & Public Distribution, Ministry of Consumer Affairs
2. FCI is a statutory body set up in 1965 under the Food Corporations Act 1964. It was established against the backdrop of major shortage of grains, especially wheat.
3. Simultaneously, Commission for Agricultural Costs and Prices (CACP) was created in 1965 to recommend remunerative prices to farmers.
4. Functions:

• to undertake purchase, store, move/transport, distribute and sell food grains and other foodstuffs.
• Central Government extends price support for procurement of wheat, paddy and coarse grains through the FCI and State Agencies.
• Quality Control Division of FCI ensures procurement of food grains from procurement centres strictly in accordance with Govt. of India’s uniform quality specifications.
• FCI has also been nominated as an additional nodal Agency for procurement of Pulses and Oilseeds.

Question 175

CACP?

Answer 175

CACP is an attached office of the Ministry of Agriculture

came into existence in 1965; upto 1985 known as Agricultural Prices commission

Question 176

MSPs announced for?

Answer 176

As of now, CACP recommends MSPs of 23 commodities, which comprise

• 7 cereals: paddy, wheat, maize, sorghum, pearl millet, barley and ragi
• 5 pulses: gram, tur, moong, urad, lentil
• 7 oilseeds: groundnut, rapeseed-mustard, soyabean, seasmum, sunflower, safflower, nigerseed
• 4 commercial crops: copra, sugarcane, cotton and raw jute

Additionally, Union Cabinet, in 2013, approved a Centrally Sponsored Scheme for marketing of non-nationalized / non monopolized Minor Forest Produce (MFP) and development of a value chain for MFP through MSP. Recently, Min of tribal affairs has announced inclusion of 23 additional MFP items in MSP list. They include Van Tulsi seeds, Van Jeera, Mushroom, Black Rice and Johar Rice among others.

Question 177

NAFED?

Answer 177

1. established in 1958, is registered under the Multi State Co-operative Societies Act.
2. Nafed was setup with the object to promote Co-operative marketing of Agricultural Produce to benefit the farmers.
3. Composition: Agricultural farmers are the main members of Nafed, who have the authority to say in the form of members of the General Body in the working of Nafed.
4. The objectives of the NAFED shall be to organize, promote and develop marketing, processing and storage of agricultural, horticultural and forest produce, distribution of agricultural machinery, implements and other inputs, undertake inter-state, import and export trade etc.

Question 178

SFAC?

Answer 178

1. established in 1994 under Societies Registration Act, 1860 as an autonomous body promoted by the Ministry of Agriculture
2. Objectives:
   
   • Promoting agribusiness by encouraging institutional and private sector investments and linkages
   • Organising small and marginal farmers as Farmer Interest Groups, Farmer Producer Organisations and Farmer Producer Company for endowing them with bargaining power and economies of scale
3. Important Schemes Implemented by SFAC:
   
   1. Equity Grant & Credit Guarantee Fund (EGCGF) Scheme: to enhance viability and sustainability, credit worthiness of Farmer Producer Companies (FPCs),
   2. Venture Capital Assistance (VCA) Scheme: interest free loan provided by SFAC to meet the shortfall in the capital requirement for implementation of the project
   3. Farmer Producer Organization (FPO) Scheme,
   4. National Agriculture Market (NAM) Scheme, etc.
4. Recent Initiatives/Developments: SFAC launched the Kisan Rath app with the help of officials of the Ministry of Agriculture which lessened the problem of transport of farm produce during lockdown.

Question 179

Price Stabilization Fund?

Answer 179

1. set up in 2014-15 under the Department of Agriculture, Cooperation & Famers Welfare (DAC&FW) to help regulate the price volatility of important agri-horticultural commodities like onion, potatoes. Pulses were added subsequently.
2. Procurement of these commodities will be undertaken directly from farmers or farmers’ organizations at farm gate/mandi and made available at a more reasonable price to the consumers.
3. PSF Scheme provides for advancing interest-free loans to SG/UTs and Central agencies to support their working capital and other expenses they might incur on procurement and distribution interventions for such commodities. actual detection of the period when support is required and the deployment of price support measures are left to the states.
4. Sharing of the contribution: For this purpose, the States will have to set up a ‘revolving fund’ (a fund which is constantly replenished and not limited by the fiscal year considerations) to which Centre and State will contribute equally (50:50) (75:25 fr NE)
5. scheme provides for maintaining a strategic buffer of the aforementioned commodities
6. Management of the Fund: The Price Stabilization Fund will be managed centrally by a Price Stabilization Fund Management Committee (PSFMC) which will approve all proposals from State Governments and Central Agencies.
7. PSF will be maintained as a Central Corpus Fund by SFAC, that will act as Fund manager.

Question 180

Classify the following into Current or Capital expenditure of CG:

1. advances by CG to SGs/UT
2. investment for acquiring land
3. grants given by CG to SGs
4. subsidies
5. pensions

Answer 180

1. capital
2. capital
3. current
4. current
5. current

Question 181

Minimum operating price?

Answer 181

1. MOP is the actual price at which a product is made available to a retailer.
2. It is the lowest price at which a retailer can sell a product and is set by the brands or the manufacturers.
3. It is usually at a marginal discount to the MRP and is decided by the demand and supply dynamics of a product. MOP can be lower or the same as MRP.
4. consists of landing price, operational cost and reasonable profit margin
5. below the MOP no product should be sold in the market.
6. MOP ) is not printed on the product.
7. Recently, the Trader’s body Confederation of All India Traders (CAIT) requesting the Commerce Ministry for implementation of a ‘minimum operating price’ in order to create an even level playing field between online and offline retailers.