Indian Economy Mixed Quiz: Set 20

The correct answer is D, 1950. The Planning Commission was set up in March 1950 by a resolution of the Union Cabinet, not by the Constitution and not by an Act of Parliament, which made it an extra-constitutional advisory body. The Prime Minister was its chairman; Jawaharlal Nehru was the first chairman and Gulzarilal Nanda the first deputy chairman. Its work was to assess the country's resources and draw up five-year plans. 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 by NITI Aayog on 1 January 2015, which advises rather than allocates funds. A is wrong because 2019 is decades after the Commission was created. B is wrong because no such body was founded in 2000. C is wrong because 1947 is the year of independence, three years before the Commission came into being. Exam tip: Planning Commission March 1950, First Five Year Plan 1951-56, NITI Aayog 1 January 2015.

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, increase the repo rate. The repo rate is the rate at which the Reserve Bank lends short-term money to banks against government securities. When inflation keeps rising, the Reserve Bank raises this rate, so banks borrow less and charge more on their own loans, spending and demand cool down and prices rise more slowly. Such a step is called a dear money or tight monetary policy, and the decision is taken by the six-member Monetary Policy Committee, which has to keep retail inflation at four per cent within a band of two percentage points on either side. A is wrong because cutting the repo rate makes money cheaper and adds to demand, which is done to lift growth when inflation is low. C is wrong because a lower reverse repo rate makes it less attractive for banks to park money with the Reserve Bank, so more money stays in the market and inflation gets worse. D is wrong because leaving the rate unchanged does nothing about rising prices. Exam tip: inflation high – repo rate up; growth slow – repo rate down.

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 B, the Directorate General of Foreign Trade. The DGFT works under the Ministry of Commerce and Industry, and under the Foreign Trade (Development and Regulation) Act of 1992 it frames and administers the Foreign Trade Policy, issues the importer-exporter code without which no one may trade across the border, and runs the export promotion schemes. Option A is wrong because the Reserve Bank manages the foreign exchange side of trade under FEMA and holds the reserves, but it does not write trade policy. Option C is wrong because SEBI regulates the securities market and has nothing to do with imports and exports. Option D is wrong because NITI Aayog is a policy think tank that advises the government and has no regulatory power. Associated bodies worth remembering are the EXIM Bank of 1982 and the Export Credit Guarantee Corporation.

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 A. When the rupee depreciates, each dollar buys more rupees, so an Indian good priced in rupees costs a foreign buyer fewer dollars and exports become more competitive, while every imported item costs more rupees than before. Option B is wrong because it reverses this relationship; exports becoming costlier and imports cheaper is the effect of an appreciation. Option C is wrong because repaying a loan fixed in dollars takes more rupees after a depreciation, which is exactly why firms with external commercial borrowings suffer when the rupee weakens. Option D is wrong because crude oil is bought in dollars and forms a large part of India's import bill, so a weaker rupee raises the landed cost of oil, feeds into transport and manufacturing costs and adds to imported inflation. Remittances from workers abroad also fetch more rupees, which is a common additional statement in this question.

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, 1992. SEBI first appeared in April 1988 as an administrative arrangement with no legal powers, and it became a statutory regulator when the Securities and Exchange Board of India Act was passed in 1992; the words quoted in the question are taken from the preamble of that Act, which speaks of protecting investors, promoting the development of the securities market and regulating it. Because the statutory body dates from the Act, 1992 is the year every examination expects. Option B, 1999, is the year the Central Depository Services Limited was set up, the second depository in India. Option C, 1987, and option D, 1985, come before even the administrative body existed. Keep the sequence in mind: the Securities Contracts (Regulation) Act of 1956, SEBI as an administrative body in 1988, the SEBI Act in 1992 and the Depositories Act in 1996.

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 D, the NSSO. The National Sample Survey Office carries out the large household surveys of consumption expenditure from which the number of people below the poverty line is worked out, and it now functions within the National Statistical Office under the Ministry of Statistics and Programme Implementation. Option A is wrong because the Ministry of Finance uses poverty estimates in the budget and the Economic Survey but does not collect the household data. Option B is wrong because the Reserve Bank of India is the monetary authority and the banking regulator; the statistics it collects concern money, credit and payments, not household consumption baskets. Option C is wrong because the Central Statistics Office prepared national accounts and the index of industrial production; sample surveys of households were the work of the NSSO, and the two were merged into the National Statistical Office in 2019.

The correct answer is C, Export Security. Export security is not a recognised category of trade barrier; it is not a device that restricts the movement of goods across a border. Option A is wrong as a choice because subsidies are treated as a barrier: by lowering the cost of domestic producers they make imported goods uncompetitive, and the World Trade Organization disciplines them for that reason. Option B is wrong because an embargo is the strongest of all barriers, an outright ban on trade with a particular country or in a particular good. Option D is wrong because tariff barriers, chiefly customs duty, are the classic barrier, raising the price of the imported good in the home market. Keep the two families apart: tariff barriers act on price, while non-tariff barriers such as quotas, embargoes, licensing and standards act on quantity or on entry itself.

The correct answer is C, neonatal mortality rate. The neonatal period is the first 28 completed days after birth, and the neonatal mortality rate counts the deaths in that period for every 1,000 live births in a year. It is watched closely because most of these deaths come from a few causes that good care can prevent, such as birth asphyxia, low birth weight, early infection and preterm birth. Within it, deaths in the first seven days are counted separately as early neonatal deaths. A is wrong because the infant mortality rate covers deaths of children below one year of age per 1,000 live births, a wider group. B is wrong because the crude death rate counts all deaths in a year per 1,000 of the whole population, without regard to age. D is wrong because an age-specific mortality rate counts deaths in one chosen age group per 1,000 people of that group. Exam tip: neonatal – within 28 days; infant – within one year; under-five – within five years, all per 1,000 live births.

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 B, differentiates it from other products in the market. A brand is the name, term, sign, symbol or design a seller gives a product so that buyers can tell it apart from everything else on the shelf. That is the defining purpose of branding, which is identification. A brand name registered as a trademark cannot legally be copied, so it fixes responsibility for quality on one producer and lets a firm build a reputation, advertise, and set a price of its own instead of competing on price alone. Packaging, labelling and branding together make up a product's identity. Option A is wrong because a brand may well help sales, but higher sales are a result of branding and not what branding itself does. Option C is wrong for the same reason, since attractiveness comes from packaging and design. Option D is wrong because a rebate on the maximum retail price is a sales promotion offer and has nothing to do with branding. Exam tip: branding identifies and differentiates, packaging protects, and labelling informs.

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 A, 1956. Parliament passed the Life Insurance Corporation Act in 1956, and the Life Insurance Corporation of India began work on 1 September that year, after the life insurance business of 245 private insurers and provident societies was taken over and merged into it. The aim was to carry insurance into the villages and to give policyholders the security of a sovereign guarantee on their savings. LIC is headquartered in Mumbai and its motto is Yogakshemam Vahamyaham. General insurance was nationalised much later, in 1972, and the regulator IRDAI was set up in 1999. B is wrong because in 1948 life insurance was still entirely in private hands. C is wrong because by 1971 LIC had already been working for fifteen years. D is wrong because 1965 also falls after the Act, not in the year it was passed. Exam tip: LIC Act 1956, LIC began 1 September 1956; general insurance nationalised 1972, IRDAI 1999.

The correct answer is C, M3. The Reserve Bank of India publishes four measures of money supply, and M3 is the one called broad money, also known as aggregate monetary resources. It is made of currency with the public, demand deposits with banks, other deposits with the RBI and, above all, time deposits with banks. Adding time deposits captures almost all the money the banking system has created, which is why M3 is the figure policy makers watch. A is wrong because M1, currency plus demand deposits plus other deposits with the RBI, is narrow money, the most liquid measure of all. B is wrong because M2 is M1 plus savings deposits with post office savings banks, and it is still a narrow measure. D is wrong because M4 is M3 plus total post office deposits, the widest measure, but the name broad money belongs to M3. Exam tip: M1 and M2 are narrow, M3 and M4 are broad, and M3 is the benchmark.

The correct answer is D, Industrial Disputes Act. The Industrial Disputes Act was passed in 1947 and governs how disputes between employers and workmen, including matters that concern trade unions as well as individual workmen, are raised and settled. It sets up works committees, conciliation officers, courts of enquiry, labour courts, industrial tribunals and a national tribunal, lays down when a strike or a lock-out is lawful, and requires larger establishments to take government permission before lay-off, retrenchment or closure. Its provisions have now been folded into the Industrial Relations Code, 2020. A is wrong because the Indian Councils Acts, of 1861, 1892 and 1909, dealt with legislative councils and not with labour. B is wrong because the Charter Acts, the last of them in 1853, renewed the East India Company's charter. C is wrong because the Rowlatt Act of 1919 allowed detention without trial and led to the protest at Jallianwala Bagh. Exam tip: Industrial Disputes Act 1947, now part of the Industrial Relations Code, 2020.

The correct answer is D, 100. The Mahatma Gandhi National Rural Employment Guarantee Act, 2005 promises every rural household at least 100 days of unskilled manual wage work in a financial year. The scheme began in 200 districts in February 2006, covered the whole country by 2008, and was renamed after Mahatma Gandhi in 2009. Any adult member of a rural household can demand work; the job must be given within fifteen days of the demand and within five kilometres of the village, and if it is not given the state must pay an unemployment allowance. At least one third of the workers are to be women, wages are paid into bank or post office accounts, and the works taken up are mostly water conservation, ponds, roads and land development. A is wrong because 45 days is not the guarantee. B is wrong because 365 days would mean work all year, which the Act never promised. C is wrong because 250 days is not the figure in the law. Exam tip: MGNREGA 2005, 100 days a year, work within 15 days or an unemployment allowance.