Indian Economy Mixed Quiz: Set 21

The correct answer is B, foreign direct investment. The capital account records transactions that change the ownership of assets and liabilities between residents and non-residents, and foreign direct investment, along with portfolio investment, external commercial borrowings and deposits of non-resident Indians, falls squarely in that group. Option A is wrong because the export of software services is an invisible item of the current account, one of India's biggest earners. Option C is wrong because remittances are unilateral transfers and are also part of the invisibles in the current account; they help cover India's trade deficit. Option D is wrong because the import of crude oil is a visible merchandise item and the single largest entry on the import side of the trade balance. The rule to remember is simple: goods, services, income and transfers go to the current account, while assets and liabilities go to the capital account.

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 B, capital account convertibility. The committee headed by S. S. Tarapore reported in 1997 and again in 2006 and set out a phased road map for making the rupee convertible on the capital account, together with the preconditions to be met first, such as fiscal discipline, low and stable inflation and a strong banking system. Option A is wrong because agricultural credit has been examined by other committees and is not this one's subject. Option C is wrong because the design of the goods and services tax came from an empowered committee of state finance ministers and later the GST Council, a different process altogether. Option D is wrong because the restructuring of public sector banks belongs to the Narasimham Committee reports of 1991 and 1998. Linking each committee with its one subject is the quickest way to answer this recurring question type.

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, the Bombay Stock Exchange. It was founded in 1875 as the Native Share and Stock Brokers’ Association, grew out of brokers meeting under a banyan tree in Bombay, and is the oldest stock exchange in Asia; it now stands on Dalal Street and its benchmark index is the Sensex. Option A, the National Stock Exchange, was incorporated only in 1992 and began trading in 1994, though it was the first in India to offer fully screen-based electronic trading. Option C, the Calcutta Stock Exchange, was established in 1908 and is the second oldest in the country, which makes it the most tempting distractor. Option D, the Madras Stock Exchange, came later still and is one of the regional exchanges that lost business once electronic trading made a nationwide market possible.

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, churning poor. In the standard classification the churning poor are those whose consumption crosses the poverty line and falls back below it again and again, the typical cases being small and marginal farmers and casual labourers whose earnings depend on the season. Option A is wrong because the occasionally poor are usually above the line and slip below it only now and then, for example after an illness or a crop failure, so their movement is not regular. Option B is wrong because the usually poor are below the line most of the time and form part of the chronic poor rather than the group that moves in and out. Option C is wrong because the chronic poor, made up of the always poor and the usually poor, stay below the line year after year and are precisely the group that does not move across it.

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, Gujarat. Amul grew out of the Kaira District Co-operative Milk Producers' Union, started at Anand in Gujarat in 1946 when the farmers of Kheda district organised against the low prices paid to them by middlemen. Tribhuvandas Patel led the farmers and Verghese Kurien built the dairy into a modern enterprise, so that milk from lakhs of small producers could be collected, chilled, processed and sold under one brand. The Anand pattern was carried across the country through Operation Flood from 1970, which made India the largest milk producer in the world, and Kurien is remembered as the father of the White Revolution. A is wrong because Delhi is a market for milk, not the home of the cooperative. B is wrong because Karnataka's cooperative brand is Nandini. C is wrong because Uttar Pradesh produces a great deal of milk but Amul did not begin there. Exam tip: Amul — Anand in Gujarat, 1946; Operation Flood 1970 under Verghese Kurien.

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, Pigou. A.C. Pigou belongs to the welfare group of definitions, not the wealth group. In his book The Economics of Welfare he treated economics as the study of that part of social welfare which can be brought into relation with money, carrying forward the line taken by Alfred Marshall, who called economics a study of people in the ordinary business of life. The wealth definitions came earlier. A is wrong because Adam Smith, in An Inquiry into the Nature and Causes of the Wealth of Nations, called economics the science of wealth and is the father of the wealth definition. B is wrong because J.B. Say described economics as the science which deals with wealth. C is wrong because Francis Walker held that economics is that body of knowledge which relates to wealth. Later Lionel Robbins gave the scarcity definition, treating economics as the study of human behaviour as a relationship between ends and scarce means. Exam tip: wealth – Smith, Say, Walker; welfare – Marshall, Pigou; scarcity – Robbins.

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.

The correct answer is B, 1991. By the middle of 1991 India's foreign exchange reserves had fallen to roughly a fortnight of imports, gold was pledged abroad to raise funds, the country borrowed from the International Monetary Fund and the rupee was devalued in two steps in July. The new industrial policy of 1991 followed, dismantling most industrial licensing and opening the economy. Option A is wrong because 1985 saw a limited liberalisation under Rajiv Gandhi but no crisis of this kind. Option C is wrong because 1997 is the year of the East Asian currency crisis, which India largely escaped, and of the first Tarapore Committee report. Option D is wrong because 2008 is the global financial crisis, in which India's growth slowed but its external position did not collapse. Remember 1991 together with devaluation, the IMF loan and the LPG reforms.

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 B, the International Monetary Fund. Special drawing rights are an international reserve asset created by the IMF and allotted to member countries in proportion to their quotas; a member can exchange them with other members for usable currencies. Their value is calculated from a basket of major currencies that contains the US dollar, the euro, the Chinese yuan, the Japanese yen and the pound sterling. Option A is wrong because the World Bank lends for development projects and does not issue reserve assets. Option C is wrong because the World Trade Organization frames the rules of international trade and has no monetary role. Option D is wrong because the Bank for International Settlements serves as a bank for central banks and a forum for regulation, but does not create reserve assets. Remember that SDRs and the reserve tranche position are the two IMF related items in India's reserves.

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 B, 30. The Sensex, or Sensitive Index, of the Bombay Stock Exchange is built from thirty large, well established and actively traded companies drawn from the main sectors of the economy, and it is weighted by free-float market capitalisation. Option A, 20, matches no Indian benchmark index. Option C, 50, is the number of companies in the Nifty 50 of the National Stock Exchange, and swapping the two is the standard error in this question. Option D, 100, is the size of broader indices such as the Nifty 100 and the older BSE 100. Two more facts are asked with this one: the base year of the Sensex is 1978-79 with a base value of 100, while the Nifty 50 has 1995 as its base year with a base value of 1000.

The correct answer is B, disguised unemployment. Here the extra workers appear to be employed but their marginal contribution to output is close to zero, which is why the condition is called disguised or hidden; the classic Indian example is a family farm on which several members work a plot that two could manage. Option A is wrong because frictional unemployment is the short gap while a worker moves between jobs or searches for a better match, and it exists even in a fully healthy economy. Option C is wrong because cyclical unemployment follows a fall in demand during a slump and disappears when the economy recovers. Option D is wrong because structural unemployment arises when the skills workers have no longer match the jobs the economy creates, so it needs retraining rather than a revival of demand.

The correct answer is A, Asia. Asia takes the largest share of India’s exports, close to half of the total, far ahead of any other continent. The reason is geography and trade policy together: India’s biggest regional markets are its own neighbourhood and West Asia, where the United Arab Emirates, Singapore, Bangladesh, China and Saudi Arabia buy petroleum products, engineering goods, gems and jewellery, rice and pharmaceuticals. Short shipping routes, free trade agreements with ASEAN and a large Indian diaspora in the Gulf all add to the flow. Option B is wrong because Europe is the second largest destination region but well behind Asia. Option C is wrong because Africa, though a growing market for Indian medicines and vehicles, takes only a small share. Option D is wrong because North America is dominated by the United States, which is India’s largest single export partner, yet one country cannot outweigh a whole continent. Exam tip: by continent it is Asia, by country the United States; the two facts are asked in exactly this way.

The correct answer is B, 1978-79. The Sensex was compiled backwards to 1978-79 and that year was given a base value of 100, so the index number states how many times the market value of its thirty constituents has grown since then. Option A, 1950-51, is the base year long used for national income series, not for a share index, and it is a favourite distractor because students remember it from the national income chapter. Option C, 1993-94, and option D, 2011-12, are base years used at different times for the Index of Industrial Production and the wholesale and consumer price series, which is exactly why they appear here. Remember the pair: Sensex 1978-79 with base 100, Nifty 50 with 3 November 1995 as its base date and base value 1000.