Indian Economy Mixed Quiz: Set 19

The correct answer is D, tariffs and quotas. An inward-looking trade strategy, better known as import substitution, was the policy India followed from the Second Five Year Plan until 1991, and it rested on two instruments. A tariff is a tax on imports that makes the foreign good dearer, and a quota is a limit on the quantity that may be imported at all. Option A is wrong because subsidies help exporters or domestic producers but are not the paired instrument named in the textbook definition of protection. Option B is wrong for the same reason, and because it leaves out the tariff, which is the primary instrument. Option C is wrong because price controls are a domestic measure aimed at consumers and essential goods; they do not act at the border. Remember the textbook pairing: protection equals tariffs plus quotas.

The correct answer is A, World Bank. The International Bank for Reconstruction and Development (IBRD) is the oldest arm of the World Bank Group and the body people mean when they say 'World Bank'. It was agreed at the Bretton Woods Conference of 1944 along with the IMF and began work in 1946, first to rebuild Europe after the Second World War and later to lend for development. Its headquarters are in Washington, D.C., and IBRD lends to middle-income and creditworthy low-income governments. The World Bank Group also holds the IDA, which gives the poorest countries interest-free credits, plus IFC, MIGA and ICSID. Option B is wrong because the IMF is the other Bretton Woods twin and looks after exchange stability and balance-of-payments support, not project lending. Option C is wrong because the WTO replaced GATT in 1995 and frames trade rules, with its seat at Geneva. Option D is wrong because option A is correct. Exam tip: World Bank = IBRD + IDA; the wider World Bank Group adds IFC, MIGA and ICSID.

The correct answer is B, inconsistent regulatory environment. Foreign investors bring in foreign exchange and look for predictable rules, and the difficulty most often listed for India is regulatory uncertainty: changing rules, clearances spread across departments and states, and disputes that take long to settle. Option A is wrong because competition from other foreign firms is a normal feature of any open market and is not a barrier that keeps investment out; investors come precisely to compete. Option C is wrong because India offers a large pool of engineers, managers and low cost workers and is usually described as strong on labour supply even where specific skills are short. Option D is wrong because a very large domestic consumer market is one of the main attractions that draws foreign direct investment to India, not a challenge. Remember that stable and simple rules are counted as the chief attraction for investment inflows.

The correct answer is D, Both I and II. Statement I is right, because a government security, or G-Sec, is a tradeable debt instrument issued by the central government or by a state government and can be bought and sold in the secondary market before it matures. Statement II is right as well, because repayment is promised by the government itself, so these papers carry practically no risk of default and are therefore called risk-free gilt-edged instruments. Short-dated central paper is issued as treasury bills of 91, 182 and 364 days, which are sold at a discount and repaid at face value, while longer paper is issued as dated securities that pay a fixed coupon every six months; a state's issue is called a State Development Loan. The Reserve Bank of India manages these borrowings for the government and conducts the auctions. A is wrong because it rejects both correct statements. B is wrong because it leaves out the gilt-edged character. C is wrong because it denies that G-Secs can be traded. Exam tip: G-Secs are tradeable and gilt-edged; treasury bills run 91, 182 and 364 days.

The correct answer is A, JLGs. NABARD started a pilot project on Joint Liability Groups in 2004-05 so that small, marginal and tenant farmers, who often till land they do not own, could borrow without the land papers a bank usually demands. A JLG is an informal group of roughly four to ten farmers of the same village who take a bank loan together and stand guarantee for one another, so the trust within the group takes the place of collateral. The pilot ran through selected banks in a few states, worked well, and was then adopted as a regular channel of farm credit alongside the older self-help group route. B is wrong because MEDP is NABARD's Micro Enterprise Development Programme, a skill training effort for members of mature SHGs. C is wrong because SGSY was a self-employment scheme of the rural development ministry. D is wrong because the SHG Bank Linkage Programme began in 1992 and mainly serves women's savings groups. Exam tip: JLG pilot 2004-05, tenant and oral lessee farmers, joint guarantee and no collateral.

The correct answer is C, 2020. The Aatmanirbhar Bharat Rojgar Yojana was announced in October 2020 as part of the Aatmanirbhar Bharat package, to bring back the jobs lost during the Covid-19 lockdown. Under it the central government paid the provident fund contribution for new employees taken on by establishments registered with the EPFO: in units with up to 1,000 workers it paid both the employee's twelve per cent and the employer's twelve per cent, and in larger units only the employee's share, for two years from the date of joining. The benefit covered workers drawing less than fifteen thousand rupees a month who were newly hired or had lost a job earlier that year. A is wrong because 2010 belongs to an earlier period of schemes. B is wrong because 2015 is the year of the Atal Pension Yojana. D is wrong because by 2022 registration under this scheme had already closed. Exam tip: ABRY, 2020, an EPFO-linked wage subsidy for new jobs after Covid.

The correct answer is C, 100%. India allows 100 per cent foreign direct investment through the automatic route in the construction, operation and maintenance of rail infrastructure projects.

This opening was announced in 2014 and covers suburban corridors taken up through public private partnership, high speed train projects, dedicated freight lines, rolling stock factories, railway electrification, signalling systems, freight terminals and passenger terminals. Automatic route means the investor needs no prior approval from the government or the Reserve Bank of India and only files the required reports after the money comes in. Train operations themselves stay with Indian Railways, so the investment goes into building and maintaining the assets.

Option A is wrong because there is no 49 per cent ceiling on rail infrastructure. Option B is wrong because 74 per cent is a partial cap used in some other sectors, not here. Option D is wrong because 80 per cent is not a limit used anywhere in India's FDI policy.

Exam tip: rail infrastructure takes 100 per cent FDI on the automatic route, while running the trains stays with Indian Railways.

The correct answer is B, external sector. The balance of payments is the statement that records every economic transaction between the residents of a country and the rest of the world in a given period, which is precisely what the external sector of an economy means; it covers merchandise trade, services, income, transfers and capital flows. Option A is wrong because the agriculture sector is a producing sector within the domestic economy and is measured through output and national income accounts, not through the balance of payments. Option C is wrong because the government sector is tracked through the budget and the fiscal deficit, which are internal accounts. Option D is wrong because the private sector is likewise a domestic classification, covering households and firms, and appears in savings and investment data. The other three are all parts of the internal economy, while only the external sector looks outward.

The correct answer is B. Self-reliance, the goal set out in India's early plans, means building the capacity to produce at home what the country would otherwise have to buy abroad, so the true indicator is that imports of such goods are avoided. It is a statement about reducing dependence, not about ending trade. Option A is wrong because rising imports of goods the country can itself make is the opposite of self-reliance and shows growing dependence. Option C is wrong because a country cannot export in quantity what it does not produce, and in any case exports are a sign of competitiveness rather than of self-reliance. Option D is wrong because avoiding exports of goods that can be produced at home wastes earning capacity; self-reliance was never meant to mean shutting out foreign markets. The policy that followed from this idea was import substitution.

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 A, the Foreign Exchange Regulation Act of 1973. FERA treated foreign exchange as a scarce resource, forbade most dealings unless permitted and made breaches criminal offences. It suited a closed economy and became unworkable after 1991, so Parliament passed the Foreign Exchange Management Act in 1999, which came into force in 2000, permits dealings unless restricted and treats breaches as civil matters. Option B is wrong because the Banking Regulation Act of 1949 governs the licensing and supervision of banks. Option C is wrong because the MRTP Act of 1969 dealt with monopolies and restrictive trade practices and was itself replaced by the Competition Act of 2002. Option D is wrong because the SEBI Act of 1992 gave statutory powers to the securities market regulator. Keep the pair FERA 1973 and FEMA 1999 ready, along with the fact that the Reserve Bank administers FEMA.

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, only exports and imports of goods. The balance of trade, also called the merchandise or visible balance, is the difference between the value of goods exported and goods imported; nothing else enters it. Option B is wrong because once services are added the figure becomes the balance on goods and services, a step towards the current account but not the balance of trade. Option C is wrong because the current and capital accounts together make up the whole balance of payments, of which the balance of trade is only one component. Option D is wrong because foreign investment, whether direct or portfolio, belongs to the capital account and never to the trade balance. This is the single most common confusion in the chapter, so fix the ladder in order: balance of trade, then current account, then balance of payments.

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, 1994. India accepted the obligations of Article VIII of the Articles of Agreement of the International Monetary Fund in August 1994, which means the rupee can be exchanged freely for trade in goods and services, travel, education, remittances and interest payments. Option A is wrong because 1991 is the year of the balance of payments crisis and of the two step devaluation of the rupee in July, the beginning rather than the completion of the reform. Option B is wrong because March 1993 is when the dual rate of the Liberalised Exchange Rate Management System was unified into a single market determined rate, one step before convertibility. Option D is wrong because 1999 is the year FEMA was enacted. The capital account is still only partly convertible, which is the distinction papers test along with these dates.

The correct answer is D, NABARD. E-Shakti was launched by NABARD in 2015 to put the accounts and records of self-help groups on a digital platform. Until then an SHG kept its savings, loans, attendance and repayments in handwritten registers, which a bank could not check quickly, so grading a group and sanctioning credit took a long time. E-Shakti holds the same records online, where the lending branch can see them, so an SHG that repays well can be identified and financed faster. The project began as a pilot in Ramgarh in Jharkhand and Dhule in Maharashtra and was then extended to many more districts. A is wrong because SIDBI is the apex bank for micro, small and medium industries. B is wrong because SEBI regulates the securities market. C is wrong because IFCI was India's first development finance institution, set up for industry. Exam tip: NABARD milestones are the SHG Bank Linkage Programme of 1992, the JLG pilot of 2004-05 and E-Shakti in 2015.

The correct answer is B, 1994. In August 1994 India accepted the obligations of Article VIII of the International Monetary Fund and made the rupee fully convertible on the current account, so that foreign exchange for trade, travel, education and remittances could be obtained freely at the market rate. Option A is wrong because 1991 is the year of the balance of payments crisis and of the two-step devaluation, not of convertibility. Option C is wrong because 1997 is the year of the first Tarapore Committee, which drew up a road map for capital account convertibility; that convertibility is still only partial. Option D is wrong because nothing of the kind happened in 2000. Keep the sequence in mind: crisis and devaluation in 1991, the dual exchange rate of 1992, unification in 1993 and current account convertibility in 1994.

The correct answer is D, small savings collected by the government. Small savings such as deposits in post office schemes are domestic rupee liabilities of the government and have nothing to do with the country's external assets. India's foreign exchange reserves, held and managed by the Reserve Bank, have exactly four components. Option A is wrong as an answer because foreign currency assets, mostly securities and deposits held in convertible currencies, are the largest of them. Option B is wrong because gold held by the Reserve Bank is a recognised reserve asset and has been used as one for a long time. Option C is wrong because special drawing rights, the reserve asset created by the International Monetary Fund and valued from a basket of major currencies, form another component. The fourth part, often asked as a fill in the blank, is the reserve tranche position in the IMF.

The correct answer is B, the General Agreement on Tariffs and Trade. GATT was signed in 1947 as a provisional agreement on tariff reduction, and after the Uruguay Round it was replaced on 1 January 1995 by the World Trade Organization, a permanent body with headquarters at Geneva and a binding dispute settlement system. India is a founder member. Option A is wrong because the International Monetary Fund, created at Bretton Woods in 1944, deals with exchange rates and balance of payments support and continues to exist. Option C is wrong because UNCTAD, set up in 1964, is a United Nations body that speaks for developing countries on trade and development and was never replaced. Option D is wrong because the World Bank, also born at Bretton Woods, lends for development projects and is a separate institution. The WTO agreements to remember are TRIPS, TRIMS, GATS and the Agreement on Agriculture.

The correct answer is B, a managed float. Since the unification of the exchange rate in March 1993 the value of the rupee has been determined by demand and supply in the foreign exchange market, while the Reserve Bank intervenes by buying or selling dollars to curb sharp volatility rather than to defend any particular level. Option A is wrong because India abandoned a pegged rate in stages after 1991 and no longer announces a parity with the dollar. Option C is wrong because a currency board issues domestic money only against foreign reserves at a fixed rate, an arrangement India has never used. Option D is wrong because the gold standard, under which currencies were convertible into fixed quantities of gold, ended internationally in the last century. The term dirty float is sometimes used for the same managed arrangement, so treat it as an alternative name.