Indian Economy Mixed Quiz: Set 12

The correct answer is D, product method. The product method adds up the value of goods and services produced by all firms in the economy.

National income can be measured in three ways, and all three should give the same figure. The product or value added method adds the value added by each firm, that is output minus intermediate consumption, so that the same output is not counted twice. The income method adds the incomes earned by the factors of production, namely wages, rent, interest and profit. The expenditure method adds final expenditure in the economy as consumption, investment, government spending and net exports. In India the National Statistical Office prepares these estimates.

A is wrong: the expenditure method looks at final spending, not at output of firms. B is wrong: there is no separate consumption method; consumption is one item of the expenditure method. C is wrong: the income method counts factor incomes.

Exam tip: Three routes to the same GDP - product or value added, income, and expenditure.

The correct answer is B, 1999. The Foreign Exchange Management Act was passed in 1999 and came into force on 1 June 2000, replacing the Foreign Exchange Regulation Act of 1973. The change of one word in the title tells the story: FERA regulated and restricted dealings in foreign exchange and treated a breach as a criminal offence, while FEMA manages them in an open economy and treats a breach as a civil matter with a monetary penalty. FEMA freed most current account transactions, kept capital account transactions under the control of the Reserve Bank, and is administered by the Directorate of Enforcement. Option A is wrong because 1988 has no link with this law. Option C is wrong because 2014 relates to later changes in foreign investment policy, not to FEMA's enactment. Option D is wrong because 1992 is the year of the SEBI Act and of the first big liberalisation of trade policy. Exam tip: FERA 1973 was criminal in approach, FEMA 1999 is civil, and it took effect in June 2000.

The correct answer is B, the Consumer Price Index (Combined). When the flexible inflation targeting framework was adopted after the amendment of the Reserve Bank of India Act in 2016, the combined rural and urban consumer price index released by the National Statistical Office was made the nominal anchor, as the Urjit Patel Committee had recommended. It was chosen because it measures the prices households actually pay and includes services.

Option A, the wholesale price index, was the headline measure before this change, but it covers only goods traded in bulk and no services at all. Option C, the Index of Industrial Production, measures the volume of industrial output and is not a price index. Option D, the GDP deflator, is the broadest price measure but is published only with the national accounts, far too late for a monthly policy decision.

The correct answer is D, money. Consumer theory studies how a household decides to spend its money among the goods and services available to it.

The idea rests on three things: the wants of the consumer, the prices of goods, and the income in hand, which is the budget constraint. Since income is limited, the consumer chooses the basket that gives the greatest satisfaction, or utility, from the money spent, and is said to be in equilibrium when no rearrangement of spending can raise that satisfaction. The law of diminishing marginal utility, indifference curves and the law of demand all belong to this branch of microeconomics.

Option A is wrong because the use of time is studied separately as the labour-leisure choice. Option B is wrong because relations are social, not economic, choices. Option C is wrong because energy here has no economic meaning as a thing the consumer allocates.

Exam tip: consumer theory joins three things - wants, prices and income - and explains the demand curve.

The correct answer is C, issuance of treasury bills. A receipt is capital if it either creates a liability for the government or reduces an asset it holds. A treasury bill is a short-term borrowing instrument, so issuing it creates a liability that must be repaid, and it is therefore classified as a capital receipt along with market loans, external loans, recovery of loans and disinvestment proceeds.

Option A, commercial revenue, is earned by government departments and undertakings from the sale of goods and services and neither creates a liability nor reduces an asset, so it is non-tax revenue. Option B, interest received on loans advanced by the government, is likewise recurring non-tax revenue. Option D, dividends and profits received from public sector undertakings and the Reserve Bank, is also non-tax revenue. All three are revenue receipts.

The correct answer is D, 1977. IBM and Coca-Cola wound up their Indian operations in 1977 rather than dilute their holdings to 40 per cent. The Foreign Exchange Regulation Act, passed in 1973, required foreign companies to cut their equity in Indian subsidiaries to that level and to obtain permission for most dealings in foreign exchange. This was the high point of a closed, licence based economy, and the exit of two well known American firms became its symbol. Coca-Cola returned only after the reforms of 1991, and FERA itself was replaced by the milder Foreign Exchange Management Act of 1999. Option A is wrong because 1964 falls well before FERA was enacted. Option B is wrong because 1981 is after both companies had already left. Option C is wrong because 1956 is the year of the Industrial Policy Resolution, unrelated to this exit. Exam tip: remember FERA 1973, the IBM and Coca-Cola exit in 1977, liberalisation in 1991 and FEMA in 1999 as one chain.

The correct answer is C, Finance Commission. Article 280 requires the President to constitute a Finance Commission every fifth year, or earlier if needed, with a chairman and four other members. It recommends how the net proceeds of taxes should be divided between the Union and the states and shared among the states, what grants-in-aid the states should get from the Consolidated Fund of India, and how state funds can be strengthened to support panchayats and municipalities. The first Finance Commission was set up in 1951 under K C Neogy, and its advice is recommendatory, not binding. Option A is wrong because the Advocate General of a state is appointed under Article 165. Option B is wrong because the Central Vigilance Commission began as an executive body in 1964 and became statutory under an Act of 2003. Option D is wrong because the National Commission for Women is statutory, created by an Act of 1990. Exam tip: Article 280 Finance Commission, Article 148 CAG, Article 324 Election Commission.

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 D, SEBI. The Securities and Exchange Board of India regulates the securities market and protects investors.

SEBI was set up as a non-statutory body in 1988 and was given statutory powers by the SEBI Act of 1992, passed after the Harshad Mehta scam exposed how weak market supervision was. Its headquarters is in Mumbai, it is run by a chairman appointed by the central government, and appeals against its orders go to the Securities Appellate Tribunal. It registers brokers and mutual funds, checks insider trading and clears public issues.

Option A, RERA, regulates real estate projects and builders. Option B, NABARD, is the apex bank for agriculture and rural credit. Option C, IRDA, now IRDAI, supervises insurance companies.

Exam tip: match the regulator to its market - SEBI securities, RBI banking and currency, IRDAI insurance, PFRDA pensions, RERA real estate.

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 A, NSSO household consumption expenditure survey. Estimates of poverty and unemployment in India rest on the large sample surveys of the National Sample Survey Office, which since 2019 works as part of the National Statistical Office under the Ministry of Statistics and Programme Implementation. Poverty is measured from the household consumer expenditure survey: the share of people whose monthly per capita spending falls below a poverty line drawn from a calorie and cost basket, the method of the Lakdawala, Tendulkar and Rangarajan committees. The same office also runs the employment and unemployment enquiry, now the annual Periodic Labour Force Survey. Option B is wrong because the Central Statistical Office compiled the national accounts and GDP, not these household surveys. Option C is wrong because the Planning Commission only fixed the poverty line and applied it to survey data. Option D is wrong because the survey measures consumption expenditure, not family income; India has no official income survey. Exam tip: the NSSO collects the data, the committees fix the poverty line.

The correct answer is C, 1948. India's first Industrial Policy Resolution was announced on 6 April 1948 by Shyama Prasad Mukherjee, the first Industry Minister. It accepted a mixed economy for the new nation and sorted industries into four groups: those kept solely with the State, such as arms and ammunition, atomic energy and railways; those in which the State would start all new units; those under State regulation; and the rest left to private enterprise. A is wrong because 1952 is remembered for India's first general election, not for an industrial policy. B is wrong because the second Industrial Policy Resolution came in 1956, not 1955. D is wrong because no resolution was issued in 1960; the next important statements came in 1977, 1980 and 1991. Exam tip: IPR 1948 was the first, IPR 1956 is called the economic constitution of India and built on the Mahalanobis model, and the 1991 policy opened the economy up.

The correct answer is A, Silk farming. Sericulture is the rearing of silkworms to produce raw silk. Mulberry or other host plants are grown, the worms are fed on the leaves until they spin cocoons, and the cocoons are then boiled and reeled into thread. India is the second largest producer of silk in the world after China, and the only country that makes all four commercial varieties, namely mulberry, tasar, eri and muga, the last of these grown only in Assam. Karnataka leads in mulberry silk, and the Central Silk Board at Bengaluru looks after the industry. Option B is wrong because rearing fish is called pisciculture. Option C is wrong because rearing birds, mainly poultry, is aviculture. Option D is wrong because keeping bees for honey and wax is apiculture. Exam tip: learn the family together, seri for silk, api for bees, pisci for fish, horti for fruit and vegetables, viti for grapes and flori for flowers.

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 D, 1969. The Monopolies and Restrictive Trade Practices Act was passed in 1969 and came into force on 1 June 1970. It followed the report of the Dutt Committee on industrial licensing, which found that economic power had gathered in a few business houses. The Act set up the MRTP Commission, required large undertakings to get clearance before expanding, and banned restrictive and unfair trade practices. After the reforms of 1991 the licensing clauses were dropped, and the law was finally replaced by the Competition Act, 2002, under which the Competition Commission of India now works. Option A is wrong because 1977 is the year of the Janata government's Industrial Policy Statement, which favoured small and cottage industry. Option B is wrong because 1973 is the year of the Foreign Exchange Regulation Act, FERA. Option C is wrong because 1980 brought another Industrial Policy Statement, which again encouraged larger units. Exam tip: MRTP Act 1969, Competition Act 2002, Competition Commission of India in its place.

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 A, Licence-Permit-Quota Raj. The New Industrial Policy of 24 July 1991 abolished industrial licensing for all but a short list of industries, so a firm no longer needed a government permit to start production, to expand or to import. That system of licences, permits and quotas, named the Licence-Permit-Quota Raj by C. Rajagopalachari, had governed Indian industry since the Industries Act of 1951. The reforms came in a balance of payments crisis under Prime Minister P. V. Narasimha Rao and Finance Minister Manmohan Singh, and are remembered as liberalisation, privatisation and globalisation. Option B is wrong because the banks nationalised in 1969 and 1980 stayed in public hands. Option C is wrong because subsidies on fertiliser, food and power continue to this day. Option D is wrong because cooperative banks still work under the Reserve Bank and state registrars. Exam tip: 1991 reforms, licensing kept for only a handful of industries.

The correct answer is B, September 2014. Make in India was launched on 25 September 2014 at Vigyan Bhawan in New Delhi, on the birth anniversary of Deendayal Upadhyaya. Its aim is to turn India into a global manufacturing hub by making it easier to do business, drawing in investment, building skills and protecting intellectual property, and it began with twenty-five sectors from automobiles and textiles to electronics and defence production. Its logo is a striding lion made of gears, standing for strength and manufacture. Option A is wrong because November 2012 is before this government took office and no such programme existed then. Option C is wrong because January 2014 is also earlier than the launch; it is often confused with Startup India, which came on 16 January 2016. Option D is wrong because September 2016 is two years after the launch. Exam tip: Make in India 25 September 2014, Digital India 1 July 2015, Startup India 16 January 2016.

The correct answer is B, 12 percent. India's literacy rate at independence in 1947 is put at about 12 per cent.

Colonial education reached only a thin urban layer, and the figure for women was far lower, around six per cent. The first census after independence, in 1951, recorded 18.33 per cent literacy, and the number has climbed steadily since: 28.3 per cent in 1961, 52.2 per cent in 1991 and 74.04 per cent in the census of 2011. Kerala has long stood first among the states and Bihar last. A person aged seven years or above who can read and write with understanding is counted as literate.

Options A, C and D are wrong. Twenty and twenty-two per cent are higher than any figure recorded in that decade, and 18 per cent is the 1951 census reading, not the 1947 one, which is the usual trap in this question.

Exam tip: 1947 about 12 per cent, 1951 census 18.33 per cent, 2011 census 74.04 per cent.

The correct answer is C, SBI Life Insurance. It is a private sector joint venture, not a public sector insurer.

SBI Life was set up in 2001 as a partnership between the State Bank of India and BNP Paribas Cardif of France. Although the State Bank holds a large stake, the company is registered and classified as a private life insurer and its shares are listed on the stock exchanges. The only public sector life insurer in India is the Life Insurance Corporation, set up in 1956.

Option A, United India Insurance of Chennai, and option B, New India Assurance of Mumbai, are two of the four government owned general insurers, along with National Insurance and Oriental Insurance. Option D, the General Insurance Corporation of India, is the state owned national reinsurer. All of them came out of the nationalisation of general insurance in 1972.

Exam tip: public insurers - LIC plus the four general insurers and GIC Re; SBI Life, HDFC Life and ICICI Prudential are private.