Indian Economy Mixed Quiz: Set 15

The correct answer is A, Change in sales during the year. Inventory investment, also called change in stock, measures the physical stock of goods a firm holds at the end of the year minus the stock it held at the start. Sales are goods that have already left the firm and gone to buyers, so a change in sales is part of consumption or final demand and is never counted as inventory. The three items that do make up stock are unsold finished goods, goods still being made and raw material waiting to be used. B is wrong because a change in the stock of raw material is a clear part of inventory. C is wrong because semi finished goods, also called work in progress, are counted in stock. D is wrong because unsold finished goods are the most obvious part of inventory. Exam tip: inventory equals raw material plus semi finished plus finished goods, and change in stock is a part of gross domestic capital formation.

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 B, 1950. The Planning Commission was set up in March 1950 by a resolution of the Union Cabinet, not by the Constitution or by an Act of Parliament, so it was an extra-constitutional and non-statutory body. The Prime Minister was always its chairman, Jawaharlal Nehru being the first, and a full-time Deputy Chairman ran its work. Its task was to assess the country's material, capital and human resources and to draw up Five Year Plans for their balanced use. The First Five Year Plan ran from 1951 to 1956, was based on the Harrod-Domar model and put agriculture and irrigation first. The Commission was replaced on 1 January 2015 by NITI Aayog, a policy think tank that advises but does not allot funds to states. Options A, C and D are wrong because 1948, 1949 and 1951 are each a year off; 1951 is when the First Plan began, not when the body was created. Exam tip: Planning Commission 1950, First Plan 1951-56, NITI Aayog 2015.

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, fluorescent blue. The Reserve Bank of India issued the fifty-rupee note of the Mahatma Gandhi (New) series in August 2017 with fluorescent blue as its base colour. Its reverse carries the stone chariot of the Vittala temple at Hampi in Karnataka, a World Heritage site, and the note measures 66 mm by 135 mm. Every note of this series pairs one colour with one monument, which is the way paper setters like to test it. Option A is wrong because chocolate brown is the base colour of the ten-rupee note, whose reverse shows the Konark Sun Temple. Option B is wrong because stone grey belongs to the five-hundred-rupee note, which carries the Red Fort. Option D is wrong because lavender is the colour of the hundred-rupee note, whose reverse shows Rani ki Vav in Gujarat. Exam tip: 10 chocolate brown with Konark, 20 greenish yellow with Ellora, 50 fluorescent blue with Hampi, 100 lavender with Rani ki Vav, 200 bright yellow with Sanchi, 500 stone grey with the Red Fort.

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 B, the Government of India through the Ministry of Finance. Fiscal policy means the use of taxation, public expenditure and public borrowing to influence output, employment and prices, and all three instruments belong to the government and are given effect through the Union Budget. During a slowdown it may spend more or tax less, and when demand is overheating it may do the opposite.

Option A, the Reserve Bank of India, conducts monetary policy through the repo rate, the cash reserve ratio, the statutory liquidity ratio and open market operations; it acts as banker to the government but does not frame the budget. Option C, the Securities and Exchange Board of India, regulates the securities market. Option D, the Finance Commission, is a constitutional body under Article 280 that recommends how central taxes should be shared with the states, which is a distribution question and not fiscal policy itself.

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, Goods and Services Tax. GST is charged on the supply of goods and services, and although the registered supplier deposits it with the government, the amount is recovered from the buyer in the price. Since the burden is shifted to someone other than the person who pays it in, GST is an indirect tax.

Option B, corporation tax, is a direct tax on the profits of a company, and the company cannot pass the liability on to anyone else. Option C, income tax, is the classic direct tax, levied under the Income-tax Act of 1961 on the income of individuals and other assessees according to their ability to pay. Option D, capital gains tax, is charged on the profit made when a capital asset such as land, a building or a share is sold, and is again borne by the seller who earned the gain. All three are administered by the Central Board of Direct Taxes, while GST falls under the Central Board of Indirect Taxes and Customs.

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, Article 280. Article 280 requires the President to constitute a Finance Commission at the expiration of every fifth year, or earlier if the President considers it necessary, consisting of a Chairman and four other members, and lists the matters on which it is to make recommendations. Option A is wrong because Article 112 deals with the Annual Financial Statement, the document popularly called the Union Budget. Option B is wrong because Article 266 deals with the Consolidated Fund and the Public Account of India, from the first of which no money may be drawn without the authority of Parliament. Option D is wrong because Article 324 vests the superintendence, direction and control of elections in the Election Commission of India, which is a different constitutional body altogether.

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 B, Silver. The Bombay Stock Exchange became the first stock exchange in India to enter commodity derivatives when it launched futures contracts in gold and silver on 1 October 2018. This followed the decision of the Securities and Exchange Board of India to allow a single exchange to deal in both securities and commodities from that date, ending the wall that had kept stock exchanges and commodity exchanges apart. BSE, set up in 1875, is Asia's oldest stock exchange, its benchmark index is the Sensex and it works under SEBI. A is wrong because diamond is not traded as a commodity derivative on the exchange. C is wrong because platinum was not part of that launch. D is wrong because equity is a security, not a commodity, and equity derivatives had been traded long before 2018. Exam tip: BSE founded in 1875, Asia's oldest exchange; gold and silver commodity derivatives from 1 October 2018; the regulator is SEBI.

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 D, National Sample Survey Organisation. The poverty line in India is worked out from the consumption expenditure data that the NSSO collects through its large sample surveys. The NSSO, now part of the National Statistical Office, asks households what they spend in a month on food and on other items. From these figures a minimum expenditure for a basic basket is fixed, covering food that gives about 2,400 calories a day in villages and 2,100 in towns, along with clothing, fuel, footwear and schooling, and anyone spending below it is counted as poor. Expert groups such as the Lakdawala, Tendulkar and Rangarajan committees have all drawn the line from this NSSO data. A is wrong because the Reserve Bank of India handles currency and monetary policy. B is wrong because NITI Aayog uses the survey figures but does not collect them. C is wrong because the ICAR works on farm research. Exam tip: the NSSO collects the consumption data; expert committees only fix the line from it.

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 D, May 2016. The Pradhan Mantri Ujjwala Yojana was launched on 1 May 2016 at Ballia in Uttar Pradesh. It is run by the Ministry of Petroleum and Natural Gas and gives a free LPG connection, with a deposit-free cylinder and a fitted regulator, to women of poor households. The aim is to replace firewood, coal and cow dung cakes, whose smoke harms the health of women and children and adds to indoor air pollution. The connection is issued in the name of an adult woman of the family, which is the feature papers most often test. A and B are wrong because July 2017 and January 2018 fall after the launch, when the scheme was already running. C is wrong because May 2014 is when the present government first took office, before this scheme existed. Exam tip: Ujjwala, 1 May 2016, Ballia, Ministry of Petroleum and Natural Gas, connection in a woman's name.

The correct answer is B, Rural Cooperatives. Rural cooperative credit societies were the microfinance structure already in place when India became independent. They began with the Cooperative Credit Societies Act of 1904, which was passed to free village borrowers from moneylenders, and by 1947 a three tier structure of primary societies, district central cooperative banks and state cooperative banks was working across the provinces. The later forms of microfinance came much later. A is wrong because Joint Liability Groups were introduced by NABARD only in 2004 05 for small tenant farmers who lack land papers. C is wrong because the Self Help Group movement grew from the 1980s, and the SHG Bank Linkage Programme started as a pilot in 1992. D is wrong because the Grameen model belongs to Bangladesh, where Muhammad Yunus began it in the 1970s, and it reached India afterwards. Exam tip: cooperatives 1904, SHG Bank Linkage 1992, Joint Liability Groups 2004.

The correct answer is D, Zero-Based Budgeting. In zero based budgeting every item of expenditure starts from a zero base and has to be justified afresh for the coming period, instead of being carried over because it existed last year. Each activity is examined for whether it is needed at all, and only then for how much it should get, so wasteful schemes are cut out. The method was developed by Peter Pyhrr at Texas Instruments around 1970, and the Government of India adopted it for the expenditure of its ministries from the second half of the 1980s. Option A is wrong because incremental budgeting simply adds a margin to last year figures. Option B is wrong because a flexible budget is one that changes with the level of output or activity. Option C is wrong because a static budget is fixed for a single planned level of activity and is not revised. Exam tip: zero based budgeting starts from zero, Peter Pyhrr, adopted in India in the 1980s.

The correct answer is B, Gift tax. A gift tax is charged on the transfer of money or property from one person to another without consideration; it is a tax on a transfer between persons, not on any sale of goods or supply of services. India abolished the gift tax in 1998, and gifts above the prescribed limit are now taxed in the hands of the receiver as income from other sources.

Option A, sales tax, was the tax states levied on the sale of goods before value added tax and then GST took its place. Option C, luxury tax, was levied by states on hotel accommodation and similar services and has been subsumed into GST. Option D, sin tax, is the general name for a heavy levy on goods considered harmful, such as tobacco and liquor, and in the GST era it appears as the compensation cess on demerit goods. All three of these are levied with reference to goods or services, so only the gift tax stands apart.