Indian Economy Mixed Quiz: Set 1

The correct answer is B. GDP measures production inside the borders of a country in one accounting year, whoever the producer may be. A foreign firm making cars in India adds to India's GDP, because the test is the place of production and not the nationality of the producer.

Option A describes Gross National Product, which counts what the residents of a country produce anywhere in the world; the two differ by net factor income from abroad. Option C is wrong because GDP covers the whole economy, private and public, organised and, as far as it can be estimated, unorganised. Option D contradicts the definition: only final goods are counted, since including intermediate goods would count the same value more than once, as with wheat, flour and bread. This idea of value added at each stage is the basis of the product method of measurement.

The correct answer is A, the Bombay Plan. The Bombay Plan of 1944 was drawn up by a group of eight, mostly leading industrialists such as J. R. D. Tata, G. D. Birla, Purushottamdas Thakurdas, Lala Shri Ram and Kasturbhai Lalbhai, with John Mathai among them. It proposed a fifteen-year plan to double per-capita income and treble national income, with the state taking the lead in heavy industry and infrastructure and the private sector working under its guidance. It showed that even big business wanted the state to plan the economy and to run a large public sector, and this consensus shaped the Planning Commission of 1950 and the mixed-economy model. B, the demand of peasants, and C, the demand of workers' unions, were not the origin of the planning idea; they were groups the plans tried to serve. D, the Gandhian vision, favoured village industries and decentralisation and was set out separately in the Gandhian Plan of 1944 by S. N. Agarwal. Exam tip: Bombay Plan 1944 by eight industrialists; People's Plan 1945 by M. N. Roy; Gandhian Plan 1944 by S. N. Agarwal.

The correct answer is A, M1 and M2. The Reserve Bank of India measures money supply in four grades, M1 to M4, in decreasing order of liquidity. M1 is currency with the public plus demand deposits of banks plus other deposits with the RBI, and M2 is M1 plus savings deposits with post offices. Both consist of money that can be spent at once, so they are called narrow money. M3 adds the time deposits of banks to M1, and M4 adds all post office deposits to M3; these two are broad money because they include savings locked for a period. M3 is the measure the RBI usually quotes as "money supply". B, M2 and M4, mixes a narrow and a broad measure. C, M3 and M2, does the same in the other order. D, M1 and M4, pairs the narrowest with the broadest. Exam tip: M1, M2 narrow; M3, M4 broad; M3 is the headline figure.

The correct answer is B, April 1935. The Reserve Bank of India started working on 1 April 1935 under the Reserve Bank of India Act, 1934, following the recommendation of the Hilton Young Commission of 1926. It began as a privately owned shareholders' bank with its central office in Calcutta, which moved permanently to Bombay (Mumbai) in 1937. Its first Governor was Sir Osborne Smith, and C. D. Deshmukh became the first Indian Governor in 1943. The bank was nationalised on 1 January 1949, after which it has been fully owned by the Government of India. A is wrong because nothing about the RBI's founding happened in April 1948; 1949 is the nationalisation year. C is wrong because April 1945 was still wartime and the bank had already existed for ten years. D is wrong because April 1936 is a year too late; the bank had already completed its first year. Exam tip: RBI Act 1934, RBI born 1 April 1935, nationalised 1 January 1949.

The correct answer is A, stagflation. Stagflation is a blend of the words stagnation and inflation: output stops growing, unemployment rises, and yet prices keep climbing. Normally inflation and unemployment move in opposite directions, as the Phillips curve shows, so stagflation is a puzzle for policy makers, because raising interest rates to cool prices worsens unemployment while spending to create jobs pushes prices higher. The classic example is the 1970s, when the oil price shocks of 1973 and 1979 hit western economies with slow growth and double-digit inflation at the same time. B is wrong because an inflation premium is the extra return lenders demand to make up for expected inflation. C is wrong because an inflationary gap is the amount by which total demand exceeds full-employment output, a situation of too much demand, not of high unemployment. D is wrong because reflation is a deliberate policy of boosting demand to lift an economy out of a slump. Exam tip: stagflation equals high inflation plus high unemployment plus stagnant growth, remembered by the 1970s oil crisis.

The correct answer is C, GST collected by the government. A revenue receipt is money the government gets without creating a liability for itself or selling off an asset; tax collections such as GST, income tax and excise, and non-tax income such as interest, dividends and fees, all fall in this class. A capital receipt is the opposite: it either creates a liability, like a loan, or reduces an asset, like selling shares. Apply that two-part test to each option and only GST passes. A, sale of shares of public sector companies, is disinvestment, which reduces the government's assets, so it is a capital receipt. B, recovery of loans, also reduces an asset, the loan owed to the government, so it too is capital. D, borrowings from the public, create a liability that must be repaid, the clearest capital receipt of all. Exam tip: revenue receipt = tax and non-tax income; capital receipt = borrowings, disinvestment and loan recoveries.

The correct answer is D, Progressive. In a progressive tax the rate rises as income rises, so each extra rupee is taxed at a higher rate than the rupees before it. The marginal rate is the tax on the last rupee earned, and the average rate is total tax divided by total income. When every new slab carries a higher rate, the marginal rate stays above the average. India's income tax, with slabs rising from nil to 30 percent, is the everyday example. A is wrong because a digressive tax is only mildly progressive: its rate rises slowly and then levels off at a flat rate, so it is treated as a diluted form, not the standard case. B is wrong because a proportional tax charges the same rate at every income, so the marginal and average rates are equal. C is wrong because in a regressive tax the rate falls as income rises, so the marginal rate is below the average. Exam tip: marginal above average means progressive, equal means proportional, below means regressive.

The correct answer is B, KC Neogy. Kshitish Chandra Neogy chaired the First Finance Commission, set up by the President in November 1951, which gave its report in 1952 for the period 1952 to 1957. The Finance Commission is a constitutional body under Article 280. It is formed every five years, or earlier if needed, with a chairman and four other members, and it recommends how the taxes collected by the Union are shared with the States and how grants-in-aid are given. The qualifications of its members are laid down in the Finance Commission (Miscellaneous Provisions) Act of 1951. Neogy had earlier been a member of the Constituent Assembly and a minister in Nehru's first Cabinet. A is wrong because Ashok Kumar Chanda chaired the Third Finance Commission. C is wrong because K Santhanam chaired the Second Finance Commission. D is wrong because PV Rajamannar chaired the Fourth Finance Commission. Exam tip: the first four chairmen in order are Neogy, Santhanam, Chanda, Rajamannar; Article 280 is the Finance Commission article.

The correct answer is B, Only two. The government bond market and the stock market deal in long-term funds, so they are capital markets; call money and treasury bills belong to the money market. The dividing line is maturity: the capital market handles funds for more than one year, and the money market handles funds for up to one year. Government bonds, or dated securities, run for 5 to 40 years, and shares have no maturity at all. Call money is overnight lending between banks, with notice money for 2 to 14 days, and treasury bills are short-term government borrowing for 91, 182 or 364 days. The capital market is regulated by SEBI, while the money market is regulated mainly by the RBI. Option A is wrong because both bonds and shares are capital market segments. Option C is wrong because it would add one short-term market. Option D is wrong because call money and treasury bills are money market segments. Exam tip: over one year is capital market, up to one year is money market; T-bills are 91, 182 and 364 days.

The correct answer is B, Tendulkar Committee. The expert group headed by Suresh Tendulkar, which reported in 2009, recommended measuring poverty through MPCE on the Mixed Reference Period. Under this method, spending on five rarely bought items, namely clothing, footwear, durable goods, education and institutional medical care, is recorded over the last 365 days, and all other items over the last 30 days. Tendulkar also moved away from the old calorie norm and used one poverty line basket for rural and urban India, covering spending on health and education. By this method, India's poverty ratio came to 21.9 per cent in 2011-12. A is wrong, because the Lakdawala group of 1993 used the Uniform Reference Period and state-wise poverty lines. C is wrong, because the Dandekar and Rath study of 1971 based poverty on an intake of 2,250 calories a day. D is wrong, because the Alagh task force of 1979 fixed calorie norms of 2,400 rural and 2,100 urban. Exam tip: Alagh 1979 calories, Lakdawala 1993 URP, Tendulkar 2009 MRP, Rangarajan 2014.

The correct answer is B, NABARD. The National Bank for Agriculture and Rural Development was set up on 12 July 1982 by an Act of Parliament, on the recommendation of the Sivaraman Committee (CRAFICARD), as the apex body for rural and farm credit. It took over the agricultural credit work of the Reserve Bank and the whole of the Agricultural Refinance and Development Corporation. Its headquarters is in Mumbai, it refinances cooperative banks and regional rural banks, and it runs the Rural Infrastructure Development Fund. The year 1982 and the words "farmers" and "national level" together point only to NABARD. A, NEDFI, the North Eastern Development Finance Corporation, was set up in 1995 to fund projects in the North-East. C, IFCI, the Industrial Finance Corporation of India, was India's first development bank, founded in 1948 for industry, not farmers. D, SIDBI, the Small Industries Development Bank of India, began in 1990 at Lucknow for small and medium enterprises. Exam tip: IFCI 1948, NABARD 1982, SIDBI 1990, NEDFI 1995.

The correct answer is C, Public sector undertakings. Maharatna, Navratna and Miniratna are status tags that the Government of India gives to central public sector enterprises on the basis of their size, profits and performance. The Navratna and Miniratna schemes began in 1997, and the Maharatna category was added later as the top tier for the very largest and most profitable companies. A higher tag means more financial freedom: the board of a Maharatna company can approve very large investments on its own, without going to the government for each project. The aim is to let strong public companies compete and expand like private firms, even abroad. Option A is wrong because Special Economic Zones are areas with special trade and tax rules, not grades of companies. Option B is wrong because India's civilian awards are the Bharat Ratna and the Padma awards. Option D is wrong because mineral-rich areas are not graded with such titles. Exam tip: the order from top is Maharatna, Navratna, Miniratna; all three are grades of central PSUs.

The correct answer is D, Tariff barriers. Globalisation means the growing integration of countries through trade, investment, technology and the movement of people, and it works by lowering barriers to trade, not by raising them. A tariff barrier is a tax placed on imports to shield domestic producers from foreign competition, so it restricts trade instead of opening it. In India, the 1991 reforms, known by the letters LPG for liberalisation, privatisation and globalisation, cut import duties sharply and opened the economy to foreign companies. Option A is wrong because foreign direct investment, in which a company sets up or buys businesses abroad, grows as countries open up. Option B is wrong because multilateral trade agreements, such as those under the World Trade Organization, are a main vehicle of globalisation. Option C is wrong because outsourcing, like Indian IT and call-centre work done for foreign firms, grew directly out of globalisation and cheap communication. Exam tip: globalisation lowers tariffs and quotas and raises FDI, trade and outsourcing; the WTO replaced GATT on 1 January 1995.

The correct answer is A, 2nd Oct 2014. Prime Minister Narendra Modi launched the Swachh Bharat Mission on 2 October 2014, Mahatma Gandhi's 145th birth anniversary, at Rajpath in New Delhi. Its target was a clean and open defecation free (ODF) India by 2 October 2019, Gandhiji's 150th birth anniversary, mainly by building household and community toilets and improving waste management. The mission has two parts, Swachh Bharat Mission (Gramin) for villages and Swachh Bharat Mission (Urban) for towns and cities. Its logo is Gandhiji's round spectacles with the words "Swachh Bharat". B is wrong because 14 November is Children's Day, Jawaharlal Nehru's birthday, and 2015 is also the wrong year. C is wrong because 14 November 2014 was Children's Day, not the launch date. D is wrong because by 2 October 2015 the mission had already completed its first year. Exam tip: Swachh Bharat = 2 October 2014, target ODF India by 2 October 2019, logo = Gandhiji's spectacles; the Swachh Survekshan ranks cities on cleanliness.

The correct answer is D, Gas and water supply. The Index of Industrial Production (IIP) covers only three sectors: mining, manufacturing and electricity. It is a monthly index released by the National Statistics Office under the Ministry of Statistics and Programme Implementation, and it shows how fast the volume of industrial output is rising or falling compared with a base year. Manufacturing carries by far the largest weight in the index, so a slowdown in factories pulls the IIP down quickly. Gas and water supply are counted in the wider industry sector of national income, together with electricity, but they are not part of the IIP basket, and that is the trap in this question. Option A is wrong because mining is one of the three sectors of the IIP. Option B is wrong because electricity is also a sector of the IIP. Option C is wrong because manufacturing is the biggest part of the index. Exam tip: IIP = mining + manufacturing + electricity; the index of eight core industries is a separate, smaller index.

The correct answer is A, Morris D. Morris. The American economic historian Morris David Morris built the Physical Quality of Life Index in the 1970s for the Overseas Development Council, and set it out in his 1979 book on measuring the condition of the world’s poor. He wanted a simple measure of well-being that did not depend on income alone. The PQLI uses three indicators, each scored from 0 to 100 and given equal weight: basic literacy, infant mortality and life expectancy at age one. Their average gives a country a score out of 100. Kerala was often cited as a place where a high PQLI came with a low income. Option B is wrong because the UNDP publishes the Human Development Index, which came later, in 1990. Option C is wrong because Mahbub-ul-Haq designed the HDI, not the PQLI. Option D is wrong because the index has a known author, Morris D. Morris. Exam tip: PQLI, Morris D. Morris, 1979, three indicators; HDI, Mahbub-ul-Haq and the UNDP, 1990.

The correct answer is A, Any privately held startup company with a value of over $1 billion. A unicorn is a startup that is not listed on the stock market and is valued at more than one billion US dollars. The term was coined in 2013 by the American venture capitalist Aileen Lee, who picked the mythical animal because such startups were then very rare. Related words follow the same pattern: a decacorn is valued at over 10 billion dollars and a hectocorn at over 100 billion dollars. Once a unicorn lists its shares through an IPO, it becomes a listed company and, strictly speaking, is no longer called a unicorn. B is wrong, because merging one public sector company with another, as done with several public sector banks, is consolidation. C is wrong, because selling a loss-making state-owned company is privatisation or disinvestment. D is wrong, because a foreign firm working with an Indian partner forms a joint venture. Exam tip: unicorn, private startup, over 1 billion dollars; decacorn, over 10 billion.

The correct answer is A. Net factor income from abroad is the income residents earn outside the country minus the income foreigners earn inside it. Adding it to GDP converts a domestic concept into a national one, which is exactly what GNP is.

Option B gives Net Domestic Product, because subtracting depreciation turns a gross figure into a net one; the word depreciation always signals the shift from gross to net, never from domestic to national. Options C and D confuse the two aggregates with the difference between market price and factor cost, where factor cost equals market price minus indirect taxes plus subsidies. Keep the two axes separate in your mind: gross against net is decided by depreciation, and domestic against national by net factor income from abroad.

The correct answer is B, Second Five Year Plan. The Second Plan (1956 to 1961) was built on the model of the statistician P. C. Mahalanobis and aimed at rapid industrialisation with a stress on heavy and basic industries such as steel, machinery and chemicals, on the belief that machines to make machines would speed up growth. The three public sector steel plants at Bhilai, Rourkela and Durgapur, set up with Soviet, German and British help, belong to this plan, and the Industrial Policy Resolution of 1956 gave the public sector the commanding heights of the economy. The plan ran into a foreign exchange crisis and its target growth of 4.5 percent was not fully met. A, the First Plan (1951 to 1956), followed the Harrod-Domar model and gave priority to agriculture, irrigation and power. C, the Fifth Plan (1974 to 1979), focused on poverty removal and self-reliance under the slogan Garibi Hatao. D, the Seventh Plan (1985 to 1990), stressed food, work and productivity. Exam tip: Second Plan means the Mahalanobis model, heavy industry, and Bhilai, Rourkela, Durgapur.

The correct answer is D, Ministry of Finance. Under the Coinage Act 2011 the Government of India alone has the right to mint coins, and the work is handled by the Department of Economic Affairs in the Ministry of Finance. Coins are struck at the four India Government Mints at Mumbai, Kolkata, Hyderabad and Noida, run by the Security Printing and Minting Corporation of India Limited (SPMCIL), and the Reserve Bank only puts them into circulation as the Government's agent under Section 38 of the RBI Act 1934. The same split explains why the one-rupee note carries the signature of the Finance Secretary, while notes of two rupees and above are issued by the RBI and signed by its Governor. Option A is wrong because the Ministry of External Affairs handles foreign relations. Option B is wrong because the Ministry of Home Affairs handles internal security and police. Option C is wrong because the Ministry of Mines deals with mining and minerals, not coinage. Exam tip: coins and the one-rupee note = Government of India (Finance Ministry); notes of two rupees and above = RBI.