Indian Economy Mixed Quiz: Set 26

The correct answer is C, High level of illiteracy. Skill is built on schooling and training, so a workforce in which a large share of workers is illiterate or barely schooled cannot absorb technical instruction the way a fully literate one can. India's literacy rate stayed far below that of the industrial West through the decades after independence, and much of the labour force still enters work without finishing school or taking any vocational course, which is why output per worker remains low. Economists therefore treat education and training as investment in human capital, and the Industrial Training Institutes and the Skill India Mission exist to close this gap. A is wrong because low wages are a result of low skill and not its cause. B is wrong because poor capital reduces output per worker but does not leave the worker untrained. D is wrong because the strength of trade unions bears on bargaining, not on a worker's skill. Exam tip: schooling and training build human capital, and human capital decides labour productivity.

The correct answer is A, Argentina, Mexico, South Africa and Turkey. All four of these countries sit in the G20, so this is the only group in which no name falls outside the forum. The G20 began in 1999 as a meeting of finance ministers and central bank governors, and it was raised to the level of a leaders' summit in 2008 after the global financial crisis. It brings together nineteen countries along with the European Union, and the African Union was admitted as a member at the New Delhi summit. Its Asian members include India, China, Japan, South Korea, Indonesia, Saudi Arabia and Turkey. B is wrong because Malaysia and New Zealand are not members, even though Australia and Canada are. C is wrong because Iran and Vietnam stand outside the group, while Brazil and Saudi Arabia are inside it. D is wrong because Singapore is not a member, though it is often invited as a guest. Exam tip: among the Southeast Asian states only Indonesia is a G20 member.

The correct answer is B, marginal. The Agriculture Census groups operational holdings by size into marginal below one hectare, small from one to two hectares, semi-medium from two to four, medium from four to ten and large above ten hectares. The marginal and small groups together form the overwhelming majority of holdings in India, which is why fragmentation is treated as a structural problem of Indian agriculture.

Option A is wrong because small refers to the one to two hectare class, one step above marginal. Option C is wrong because semi-medium covers two to four hectares. Option D is wrong because medium covers four to ten hectares. Papers often give the classes in a jumbled order, so the safest method is to remember the boundaries one, two, four and ten hectares in sequence.

The correct answer is A, stagflation. Stagflation is the awkward state in which prices keep rising while output stagnates and unemployment stays high, so the usual trade-off between inflation and unemployment breaks down. The word joins stagnation and inflation and came into wide use in the 1970s, when the oil shock pushed up costs across the industrial world and growth fell at the same time. A supply shock is the common cause: costlier oil, food or imports raise prices while production and jobs shrink. It is hard to treat, because tightening money to curb prices deepens the slump, while spending to revive jobs feeds the price rise. Option B is wrong because an inflation premium is the extra interest a lender charges to make up for expected inflation. Option C is wrong because an inflationary gap is the excess of demand over the output an economy can produce at full employment. Option D is wrong because reflation is deliberate policy action to lift demand and prices after a slump. Exam tip: stagflation equals high inflation plus high unemployment, usually caused by a supply shock.

The correct answer is C, Micro Enterprise. Under the composite criteria notified in 2020, an enterprise with investment in plant, machinery or equipment up to one crore rupees and turnover up to five crore rupees is a micro enterprise, and the same ceilings apply whether it manufactures goods or renders services. An enterprise crossing either ceiling moves up a category.

Option A is wrong because tiny enterprise was a category of the older policy framework and is not used in the present classification. Option B is wrong because a small enterprise stood at investment up to ten crore rupees and turnover up to fifty crore under the same notification. Option D is wrong because a medium enterprise stood at fifty crore and two hundred and fifty crore rupees. The ceilings have since been revised upward, but an enterprise of this size remains in the micro category, so the answer does not change.

The correct answer is C, 1 and 3 only. Statements 1 and 3 hold while statement 2 does not, so this pairing is the right one. The Agreement on Trade-Related Investment Measures is one of the World Trade Organization agreements that came out of the Uruguay Round in 1995. It bars a member from placing conditions on a foreign investor that distort trade in goods, and the two named prohibitions are the local content requirement and the trade balancing requirement, which is why a quantitative limit on what an investor may import is not allowed. The agreement covers investment measures only insofar as they affect trade in goods, so statement 2 is wrong; services are handled separately under GATS. Statement 3 stands because the agreement does not tell a country whom to admit as an investor or on what terms, and so does not regulate foreign investment itself. A and D are wrong because each includes statement 2. B is wrong because it rests on statement 2 alone. Exam tip: TRIMS is about goods, GATS about services, TRIPS about intellectual property.

The correct answer is B, liberalisation. Liberalisation means freeing economic activity from government controls: industrial licences, import licences and quantitative restrictions, ceilings on investment and administered interest rates. In India this was the first strand of the reforms of 1991. Option A is wrong because globalisation is the wider integration of a country's economy with the world through trade, investment, technology and movement of people; removing trade barriers helps globalisation but the act itself is liberalisation. Option C is wrong because privatisation is a transfer of ownership or management from the state to private hands, which is a question of who owns a firm rather than of what rules it must follow. Option D is wrong because arbitration is a method of settling disputes outside the courts and has nothing to do with trade policy.

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 B, demand for a commodity and its price. The law of demand says that, other things remaining equal, a rise in the price of a good reduces the quantity demanded and a fall in price raises it, so the two move in opposite directions. That inverse relation is why the demand curve slopes downward from left to right. It holds because a lower price leaves the buyer with more real purchasing power and because the good grows cheaper against its substitutes, and the phrase other things remaining equal covers income, tastes, the prices of related goods and the number of buyers. Giffen goods and articles bought for show are the standard exceptions. A is wrong because demand and supply are brought together by price rather than tied in a negative relation. C is wrong because a tax pushes the price of a good up, which is a positive link. D is wrong because supply and price move together, and that is the law of supply. Exam tip: the demand curve slopes down, the supply curve slopes up.

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 B, present value of money. Money has a time value, so a rupee received years later is worth less than a rupee in hand, and every cash flow of a project is first brought to today's value before a decision is taken. A project spreads its costs and its returns over many years, and the two can be compared fairly only at a common date; the present is that date. This is why the standard appraisal tools, net present value and the internal rate of return, discount future inflows and outflows at a chosen rate, and a proposal is cleared only when the discounted inflows exceed the discounted outflows. A is wrong because future value shows what today's money grows into, which does not help in ranking projects of different lives. C is wrong because opportunity cost supplies the discount rate used in the exercise; it is an input, not the basis of the decision. D is wrong because option B is correct. Exam tip: discounting gives present value, compounding gives future value.

The correct answer is B, Manufacturing, which carries 77.63 per cent of the weight of the index. Mining, option A, has 14.37 per cent, and electricity, option C, has 7.99 per cent, so the three add up to a hundred. Because manufacturing dominates so heavily, the monthly headline number usually moves with factory output, and a bad month in mining or power can be offset entirely by a good month in factories. Option D, construction, is not a component of the IIP at all, which is the trap in this question; construction activity is reflected only indirectly through the infrastructure and construction goods category of the use-based classification, which measures the production of items such as cement and steel structures rather than building work itself. The weights come from the gross value added shares of the base year, 2011-12.

The correct answer is D. Setting up an institution in India means putting money into a real asset and running it, which is exactly what Foreign Direct Investment is. FDI is lasting investment that brings control or a significant say in the management of an Indian enterprise, usually through a new unit, a factory, a subsidiary or a large stake in an existing company. It also brings technology, jobs and management practice, and it cannot be pulled out overnight. The other three options all describe Foreign Portfolio Investment, where an outsider buys listed shares or bonds purely for returns, takes no part in management and can sell on any trading day. Options A, B and C are therefore wrong for the same reason: buying shares on a stock exchange, whether by a company, a pension fund or a merchant banker, is portfolio investment. Exam tip: FDI means control and a factory on the ground, FPI means hot money that can leave quickly.

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 D, Coal India Limited. Coal India, the largest coal producing company in the world, was granted Maharatna status in 2011 and remains on the list. Maharatna is the highest grade given to a central public sector enterprise, and the Department of Public Enterprises grants it only to a company that is already a Navratna, is listed on a stock exchange with the required public shareholding, and has a very large three-year average turnover, net worth and net profit. The grade matters because the board of a Maharatna can invest far larger sums in a single project on its own, without going back to the ministry for approval. Option A is wrong because Central Coalfields Limited is a subsidiary of Coal India and holds a much lower grade. Option B is wrong because Cochin Shipyard is a shipbuilder of a lower grade, not a Maharatna. Option C is wrong because the India Tourism Development Corporation is a small enterprise that has been shrinking through disinvestment. Exam tip: Maharatna status needs Navratna status plus stock market listing, and Coal India received it in 2011.

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 C, Mahila Samriddhi Yojna. It is the micro-finance scheme under which women borrow small sums at a concessional rate of interest, so the rebate in interest is built into the scheme itself. It is run by the National Backward Classes Finance and Development Corporation under the Ministry of Social Justice and Empowerment, and the money reaches women through State Channelising Agencies and self-help groups, mostly for petty trade and self-employment. A parallel scheme is run for Scheduled Caste women by the National Scheduled Castes Finance and Development Corporation. Option A is wrong because the National Maternity Benefit Scheme paid a one-time cash grant to poor pregnant women and was later merged into Janani Suraksha Yojana. Option B is wrong because it is a pilot for social security cover, not a credit scheme for women. Option D is wrong because Raj Rajeshwari Mahila Kalyan Yojana is a personal accident insurance cover for women, not a loan. Exam tip: Mahila Samriddhi Yojana means micro-credit for women at a concessional interest rate, run by NBCFDC.

The correct answer is A, Marginal product curve. The marginal product of a variable factor first rises, reaches a peak and then falls, so the curve traced out is an inverted U. This is the law of variable proportions at work. In the first stage the extra units of labour get plenty of the fixed factor to work with and each one adds more to output than the last; at the peak the fixed factor is being used best; after that each extra worker has too little of the fixed factor, so the addition to output keeps shrinking and can even turn negative. B is wrong because the short run marginal cost curve is U-shaped, falling and then rising, as cost moves opposite to product. C is wrong because the average variable cost curve is U-shaped for the same reason. D is wrong because the long run average cost curve is a flatter U-shaped envelope of the short run curves. Exam tip: product curves are inverted U, cost curves are U.

The correct answer is A, Fertilisers, whose weight is only 2.63 per cent, the smallest of the eight. Fertiliser output is important for agriculture and is watched before every sowing season, but the value of the industry's production is small beside refining or steel, which is why its weight is light and a big percentage swing in fertilisers barely moves the combined index. Option B, cement, carries 5.37 per cent and is the second smallest. Option C, natural gas, carries 6.88 per cent, and option D, crude oil, carries 8.98 per cent, so the four options are exactly the bottom four of the list and the question is asking for their order. A useful check is that the three fossil fuel members, coal, crude oil and natural gas, all sit in the middle of the table, while the extremes are refining at the top and fertilisers at the bottom.

The correct answer is B, NHB. The National Housing Bank is one of the central nodal agencies through which the Centre passes the interest subsidy of the Credit Linked Subsidy Scheme of Pradhan Mantri Awas Yojana (Urban) down to the lenders. NHB settles the claims of housing finance companies and other primary lending institutions, HUDCO acts as the nodal agency for the rest, and the subsidy is credited upfront to the borrower's loan account so that the monthly instalment falls. NHB was set up in 1988 as the apex institution for housing finance in India; the regulation of housing finance companies moved to the Reserve Bank in 2019, but NHB still refinances them. Option A is wrong because CNA is only the abbreviation for central nodal agency, not an institution. Option C is wrong because a scheduled commercial bank lends under the scheme but does not route the subsidy. Option D is wrong because NABARD is the apex body for rural and agricultural credit. Exam tip: the PMAY Urban subsidy flows through NHB and HUDCO; NHB was set up in 1988.