Indian Economy Mixed Quiz: Set 13

The correct answer is C, Net National Product. Gross National Product minus depreciation gives Net National Product.

Depreciation is the wear and tear of machinery, buildings and other capital goods during the year. The word 'gross' means depreciation has not been taken out and 'net' means it has, so GDP minus depreciation gives Net Domestic Product and GNP minus depreciation gives Net National Product. The word 'national' brings in net factor income from abroad, that is income earned by Indians outside the country minus income earned by foreigners inside it. NNP at factor cost is what is usually called national income, and dividing it by the population gives per capita income.

A and B are wrong: both are gross domestic measures and take no account of depreciation. D is wrong: personal income is the income actually received by households, reached after further adjustments.

Exam tip: Gross minus depreciation equals net; domestic plus net factor income from abroad equals national.

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.

The correct answer is C, the Office of the Economic Adviser. The wholesale price index is compiled and released every month by the Office of the Economic Adviser in the Department for Promotion of Industry and Internal Trade, under the Ministry of Commerce and Industry. Its three groups are primary articles, fuel and power, and manufactured products, and the series released in 2017 has 2011-12 as its base year.

Option A, the Reserve Bank of India, uses price indices for monetary policy but does not compile them. Option B, the Labour Bureau under the Ministry of Labour and Employment, compiles the consumer price indices for industrial workers and for agricultural and rural labourers. Option D, the National Statistical Office, compiles the combined consumer price index and the national accounts.

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 A, the Union Budget 2021-22. It was the first union budget in India not to be printed. The customary halwa ceremony that marks the start of printing was replaced, and the documents were made available to members of Parliament and to the public in electronic form through a dedicated Union Budget mobile application and the budget website.

Option B, the 2019-20 budget, is remembered instead for the briefcase being replaced by a red cloth ledger, but the documents were still printed. Option C, the 2020-21 budget, was presented before the change and is known for the longest budget speech delivered in Parliament. Option D, the 2018-19 budget, was the first full budget after the rollout of the goods and services tax, and again was a printed budget.

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 B, thirty. The SENSEX tracks thirty large, well traded companies listed on the BSE.

The name is short for Sensitive Index. It was launched in 1986 with 1978-79 as the base year and a base value of 100, and the thirty companies are chosen from major sectors so that the index mirrors the market as a whole. Since 2003 it has been calculated by the free float market capitalisation method, which counts only shares available for trading. The BSE itself was founded in 1875 and is Asia's oldest stock exchange.

Options A, C and D are wrong: the Nifty of the National Stock Exchange has fifty companies, and the BSE has separate broader indices with one hundred, two hundred and five hundred companies. No Indian benchmark uses ten.

Exam tip: SENSEX thirty companies on the BSE, base year 1978-79; Nifty fifty companies on the NSE, base year 1995.

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 D, 1982. The National Bank for Agriculture and Rural Development was set up on 12 July 1982.

NABARD was created by an Act of Parliament of 1981 on the recommendation of the Shivaraman Committee, formally the Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development, and it began work in July 1982. It is the apex refinance institution for agriculture, small industry, handicrafts and other rural activities, and its headquarters is in Mumbai. It supervises Regional Rural Banks and cooperative banks, runs the Rural Infrastructure Development Fund, and promotes the self-help group and bank linkage programme.

A is wrong: 1979 is not connected with NABARD. B is wrong: 1981 is the year the enabling Act was passed, not the year the bank started functioning. C is wrong: 1978 is too early for this institution.

Exam tip: NABARD - Act 1981, began 12 July 1982, Shivaraman Committee, headquarters Mumbai.

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 B, Mahatma Gandhi National Rural Employment Guarantee Act. This law makes the right to work a legal guarantee: every rural household whose adult members are willing to do unskilled manual work is entitled to at least 100 days of wage employment in a financial year. The Act was passed in 2005 as NREGA, came into force from 2 February 2006 in 200 districts, was extended to the whole country by 2008 and renamed after Mahatma Gandhi in 2009. If work is not given within fifteen days, the worker is paid an unemployment allowance, and one third of the days are reserved for women. Option A is wrong because the IIM Act of 2017 only gives those management institutes the power to grant degrees. Option C is wrong because the Payment of Wages amendment merely allowed wages by cheque or bank transfer. Option D is wrong because the Citizenship Act deals with who is a citizen. Exam tip: NREGA 2005, in force 2 February 2006, 100 days of work.

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 C, The Competition Act, 2002. Competition policy in India rests on the Competition Act of 2002, which was passed on the advice of the Raghavan Committee after liberalisation, and it replaced the older monopolies law. The Act forbids agreements that harm competition, such as cartels that fix prices or share markets, forbids the abuse of a dominant position, and requires large mergers and acquisitions to be cleared in advance. It is enforced by the Competition Commission of India, which was set up in 2003 and began hearing cases in 2009, with appeals going to the National Company Law Appellate Tribunal. Option A is wrong because the Companies Act of 2013 governs the formation and running of companies. Option B is wrong because the MRTP Act of 1969 was repealed when this Act came into force. Option D is wrong because the Consumer Protection Act of 2019 protects buyers against unfair trade practices. Exam tip: MRTP 1969 replaced by Competition Act 2002, regulator CCI.

The correct answer is B, 2005. Value added tax replaced the old general sales tax from 1 April 2005, when most states adopted it on the recommendation of the empowered committee of state finance ministers. The point of VAT is that a trader pays tax only on the value added at that stage, taking credit for the tax already paid on purchases, so the cascading of tax upon tax is removed. Haryana had moved to VAT earlier, in 2003, and a few states joined later, with Uttar Pradesh the last in 2008. VAT on goods was itself absorbed into the Goods and Services Tax from 1 July 2017, though state VAT still applies to petroleum products and liquor. Option A is wrong because 2007 is when the last states were still joining. Option C is wrong because 2013 relates to the debate on the GST bill. Option D is wrong because 2011 is the year the constitutional amendment for GST was first introduced. Exam tip: link VAT 2005 with GST 2017.

The correct answer is B, demand-pull inflation. It is described in the classic phrase as too much money chasing too few goods. A rapid growth of money supply, a large increase in government spending, easy credit or a sudden rise in exports can push total demand beyond what the economy can produce at current prices, and prices then rise to clear the market.

Option A, cost-push inflation, works from the supply side, when costlier crude oil, higher wages or dearer imported inputs raise the cost of production and producers pass it on. Option C, structural inflation, comes from bottlenecks such as poor storage, weak transport or shortages of skilled labour. Option D, imported inflation, is a form of cost-push in which a fall in the value of the currency or a rise in world prices makes imports dearer.

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, 6.8. The budget estimate for the fiscal deficit of the central government in 2021-22 was placed at 6.8 per cent of gross domestic product. The figure was unusually high because the budget followed the pandemic year, when revenue had collapsed and expenditure on relief had risen sharply, and the government set out a glide path to bring the deficit below 4.5 per cent of GDP by 2025-26.

Option A, 5.1 per cent, is far below the level announced for that year and reflects no budget estimate of the period. Option B, 7.6 per cent, and option D, 7.2 per cent, are both higher than the 2021-22 estimate; the revised estimate for the preceding pandemic year, 2020-21, was in fact placed even higher, near 9.5 per cent, which is the figure candidates often confuse with this one.

The correct answer is A, Small Industries Development Bank of India. SIDBI is the apex institution for micro, small and medium enterprises.

It was set up in 1990 under an Act of Parliament, began work on 2 April that year, and has its head office at Lucknow. It started as a subsidiary of IDBI and became independent later. SIDBI does not usually lend directly in small amounts; it refinances banks, state finance corporations and microfinance institutions, and runs funds such as the Fund of Funds for Startups and the credit guarantee scheme for small units along with the government. It also publishes the MSME Pulse report.

Options B, C and D change one word each and are simply not the name of any institution. The trap is the pair small and service: SIDBI is about small industries, the sector that employs the most people after agriculture.

Exam tip: SIDBI 1990, Lucknow, MSMEs; NABARD 1982, Mumbai, agriculture and rural credit.

The correct answer is C, stagflation. The word joins stagnation and inflation, and it describes the awkward situation in which prices are rising fast while output is flat and unemployment is high. It is difficult to treat, because raising interest rates to control prices depresses output further, while stimulating demand to create jobs pushes prices higher still. The oil shocks of the 1970s produced the best known episode of stagflation in the world economy.

Option A, reflation, is a deliberate policy of raising demand and prices after deflation. Option B, disinflation, is a fall in the rate of inflation while prices still rise. Option D, deflation, is an actual fall in the general price level and usually goes with weak demand rather than with high inflation.

The correct answer is B, Rs. 30,000 crore. The Union Budget 2021-22 proposed raising the corpus of the Contingency Fund of India from five hundred crore rupees to thirty thousand crore rupees, and the change was carried through the Finance Bill of that year. The fund is constituted under Article 267, is held at the disposal of the President, and is used to meet urgent unforeseen expenditure pending authorisation by Parliament, after which it is recouped.

Option A, fifteen thousand crore, option C, twenty-five thousand crore, and option D, ten thousand crore, are all lower than the amount actually provided. The point worth remembering beyond the number is the reason for the increase: the corpus had remained unchanged for decades while the size of the budget had grown many times over, leaving too little room for genuine emergencies.