Indian Economy Mixed Quiz: Set 3

The correct answer is C, Dadabhai Naoroji. He made the earliest estimate of India's national income in the nineteenth century and used it to argue that British rule was draining wealth out of the country, putting the average income at about twenty rupees a person a year. His work is the starting point of every account of national income estimation in India.

Option A, V. K. R. V. Rao, made the first scientific estimate, for the year 1931-32, using methods close to those in use today. Option B, P. C. Mahalanobis, chaired the National Income Committee appointed in 1949, which gave the country its first official series and submitted its report in 1954. Option D, D. R. Gadgil, was a member of that committee along with Rao. Learn the four names as a sequence rather than separately.

The correct answer is C, Public sector undertakings. Maharatna, Navratna and Miniratna are status tags that the Government of India gives to central public sector enterprises on the basis of their size, profits and performance. The Navratna and Miniratna schemes began in 1997, and the Maharatna category was added later as the top tier for the very largest and most profitable companies. A higher tag means more financial freedom: the board of a Maharatna company can approve very large investments on its own, without going to the government for each project. The aim is to let strong public companies compete and expand like private firms, even abroad. Option A is wrong because Special Economic Zones are areas with special trade and tax rules, not grades of companies. Option B is wrong because India's civilian awards are the Bharat Ratna and the Padma awards. Option D is wrong because mineral-rich areas are not graded with such titles. Exam tip: the order from top is Maharatna, Navratna, Miniratna; all three are grades of central PSUs.

The correct answer is C, Second. The Second Five-Year Plan, 1956 to 1961, moved the focus from farming to rapid industrialisation, especially heavy and basic industries. It was built on the Mahalanobis model, drawn up by the statistician P. C. Mahalanobis, which argued that investing in machine-making and steel would give faster long-run growth. Three public-sector steel plants came up in this plan: Bhilai with Soviet help, Rourkela with West German help and Durgapur with British help. The First Plan, 1951 to 1956, had put agriculture, irrigation and power first, on the Harrod-Domar model. A is wrong because the Third Plan, 1961 to 1966, aimed at a self-reliant, self-generating economy and was hit by the wars of 1962 and 1965. B is wrong because the Fourth Plan, 1969 to 1974, aimed at growth with stability and progressive achievement of self-reliance. D is wrong because the Fifth Plan, 1974 to 1979, made removal of poverty its main goal. Exam tip: First plan farms, Second plan factories on the Mahalanobis model, Fifth plan Garibi Hatao.

The correct answer is A, 2nd Oct 2014. Prime Minister Narendra Modi launched the Swachh Bharat Mission on 2 October 2014, Mahatma Gandhi's 145th birth anniversary, at Rajpath in New Delhi. Its target was a clean and open defecation free (ODF) India by 2 October 2019, Gandhiji's 150th birth anniversary, mainly by building household and community toilets and improving waste management. The mission has two parts, Swachh Bharat Mission (Gramin) for villages and Swachh Bharat Mission (Urban) for towns and cities. Its logo is Gandhiji's round spectacles with the words "Swachh Bharat". B is wrong because 14 November is Children's Day, Jawaharlal Nehru's birthday, and 2015 is also the wrong year. C is wrong because 14 November 2014 was Children's Day, not the launch date. D is wrong because by 2 October 2015 the mission had already completed its first year. Exam tip: Swachh Bharat = 2 October 2014, target ODF India by 2 October 2019, logo = Gandhiji's spectacles; the Swachh Survekshan ranks cities on cleanliness.

The correct answer is B, 1976. Regional Rural Banks were set up under the Regional Rural Banks Act, 1976, after the Narasimham Working Group of 1975 recommended small banks close to the villages. The first RRB, Prathama Bank, opened at Moradabad in Uttar Pradesh on 2 October 1975 under an ordinance, and the Act followed in 1976. Each RRB is sponsored by a commercial bank, and its capital is shared by the Centre (50 per cent), the sponsor bank (35 per cent) and the State government (15 per cent). Their aim is credit for small farmers, artisans and rural labourers, and NABARD supervises them. A is wrong because in 1966 rural credit still depended on cooperatives; no RRB law existed. C is wrong because 1986 saw no such Act. D is wrong because 1996 is long after the Act, not the year it was passed. Exam tip: RRB Act 1976; first RRB Prathama Bank, 2 October 1975; capital shared 50:35:15 between Centre, sponsor bank and State.

The correct answer is D, Gas and water supply. The Index of Industrial Production (IIP) covers only three sectors: mining, manufacturing and electricity. It is a monthly index released by the National Statistics Office under the Ministry of Statistics and Programme Implementation, and it shows how fast the volume of industrial output is rising or falling compared with a base year. Manufacturing carries by far the largest weight in the index, so a slowdown in factories pulls the IIP down quickly. Gas and water supply are counted in the wider industry sector of national income, together with electricity, but they are not part of the IIP basket, and that is the trap in this question. Option A is wrong because mining is one of the three sectors of the IIP. Option B is wrong because electricity is also a sector of the IIP. Option C is wrong because manufacturing is the biggest part of the index. Exam tip: IIP = mining + manufacturing + electricity; the index of eight core industries is a separate, smaller index.

The correct answer is B, Total demand and term deposits. The Statutory Liquidity Ratio, or SLR, is the share of a bank's net demand and time liabilities, that is, all its demand deposits and term deposits taken together, that it must hold in liquid assets such as cash, gold or approved government securities. It is prescribed under Section 24 of the Banking Regulation Act, 1949, and the bank keeps these assets with itself, unlike the Cash Reserve Ratio, which is a cash balance kept with the Reserve Bank under the RBI Act, 1934. Both ratios are fixed on the same base, total deposits, and both are tools the RBI uses to control how much banks can lend. A, Current deposits, are only one part of demand deposits, so the base would be far too small. C, Term deposits, leave out demand deposits. D, Saving deposits, are again only one slice of the total. Exam tip: SLR and CRR are both fractions of net demand and time liabilities; SLR stays with the bank in liquid assets, CRR goes to the RBI in cash.

The correct answer is A, Morris D. Morris. The American economic historian Morris David Morris built the Physical Quality of Life Index in the 1970s for the Overseas Development Council, and set it out in his 1979 book on measuring the condition of the world’s poor. He wanted a simple measure of well-being that did not depend on income alone. The PQLI uses three indicators, each scored from 0 to 100 and given equal weight: basic literacy, infant mortality and life expectancy at age one. Their average gives a country a score out of 100. Kerala was often cited as a place where a high PQLI came with a low income. Option B is wrong because the UNDP publishes the Human Development Index, which came later, in 1990. Option C is wrong because Mahbub-ul-Haq designed the HDI, not the PQLI. Option D is wrong because the index has a known author, Morris D. Morris. Exam tip: PQLI, Morris D. Morris, 1979, three indicators; HDI, Mahbub-ul-Haq and the UNDP, 1990.

The correct answer is B, inflationary gap. When demand pushes the economy to produce more than it can at full employment, the extra demand only drives prices up. Full-employment GDP, also called potential GDP, is the output an economy can produce when all its resources are in use. If aggregate demand is so high that equilibrium real GDP sits above this level, the difference is the inflationary gap. Real output cannot keep rising beyond capacity, so the excess shows up as rising prices. The idea comes from J.M. Keynes, who used it in his 1940 pamphlet "How to Pay for the War", and the cure is to cut demand through higher taxes, lower government spending or tighter money. Option A is wrong because a recessionary gap is the opposite case, when equilibrium GDP falls short of full employment. Option C is wrong because the income multiplier measures how much income rises for each rupee of new spending. Option D is wrong because automatic stabilisers are tools, such as progressive taxes, that help narrow these gaps. Exam tip: output above potential is an inflationary gap; output below potential is a recessionary gap.

The correct answer is B, Tendulkar Committee. The expert group headed by Suresh Tendulkar, which reported in 2009, recommended measuring poverty through MPCE on the Mixed Reference Period. Under this method, spending on five rarely bought items, namely clothing, footwear, durable goods, education and institutional medical care, is recorded over the last 365 days, and all other items over the last 30 days. Tendulkar also moved away from the old calorie norm and used one poverty line basket for rural and urban India, covering spending on health and education. By this method, India's poverty ratio came to 21.9 per cent in 2011-12. A is wrong, because the Lakdawala group of 1993 used the Uniform Reference Period and state-wise poverty lines. C is wrong, because the Dandekar and Rath study of 1971 based poverty on an intake of 2,250 calories a day. D is wrong, because the Alagh task force of 1979 fixed calorie norms of 2,400 rural and 2,100 urban. Exam tip: Alagh 1979 calories, Lakdawala 1993 URP, Tendulkar 2009 MRP, Rangarajan 2014.

The correct answer is A, 1st April of a year to 31st March of the next upcoming year. In India the fiscal or financial year runs from 1 April to 31 March, so the year that starts on 1 April 2025 is written as 2025-26. The Union Budget, the government's accounts, income tax and company accounts all follow this period. India inherited this April to March cycle from British practice in 1867; before that the government year ran from May to April. The Union Budget is presented on 1 February so that the new year can start on 1 April with the money already approved. B is wrong because a year cannot be only nine months long. C is wrong because January to December is the calendar year, used by some countries but not for India's public finances. D is wrong because it describes a two-year span, which no fiscal year covers. Exam tip: fiscal year 1 April to 31 March; Budget on 1 February; the assessment year follows the financial year.

The correct answer is D, Tariff barriers. Globalisation means the growing integration of countries through trade, investment, technology and the movement of people, and it works by lowering barriers to trade, not by raising them. A tariff barrier is a tax placed on imports to shield domestic producers from foreign competition, so it restricts trade instead of opening it. In India, the 1991 reforms, known by the letters LPG for liberalisation, privatisation and globalisation, cut import duties sharply and opened the economy to foreign companies. Option A is wrong because foreign direct investment, in which a company sets up or buys businesses abroad, grows as countries open up. Option B is wrong because multilateral trade agreements, such as those under the World Trade Organization, are a main vehicle of globalisation. Option C is wrong because outsourcing, like Indian IT and call-centre work done for foreign firms, grew directly out of globalisation and cheap communication. Exam tip: globalisation lowers tariffs and quotas and raises FDI, trade and outsourcing; the WTO replaced GATT on 1 January 1995.

The correct answer is B, France. France was the first country to introduce GST, in 1954. The idea came from Maurice Lauré, a French tax official, who designed a tax charged at every stage of production and sale but only on the value added at that stage. This avoids "tax on tax", the cascading effect of older sales taxes. This value added tax (VAT) model later spread across Europe and the world. India adopted GST on 1 July 2017 through the 101st Constitutional Amendment, with a dual model: CGST and SGST on sales within a state and IGST on sales between states. A is wrong because Canada brought in its GST only in 1991. C is wrong because Australia introduced GST in 2000. D is wrong because Germany adopted its VAT system in 1968, long after France. Exam tip: First GST = France, 1954 (Maurice Lauré); India's GST from 1 July 2017 under the 101st Amendment; 1 July is observed as GST Day.

The correct answer is A, Any privately held startup company with a value of over $1 billion. A unicorn is a startup that is not listed on the stock market and is valued at more than one billion US dollars. The term was coined in 2013 by the American venture capitalist Aileen Lee, who picked the mythical animal because such startups were then very rare. Related words follow the same pattern: a decacorn is valued at over 10 billion dollars and a hectocorn at over 100 billion dollars. Once a unicorn lists its shares through an IPO, it becomes a listed company and, strictly speaking, is no longer called a unicorn. B is wrong, because merging one public sector company with another, as done with several public sector banks, is consolidation. C is wrong, because selling a loss-making state-owned company is privatisation or disinvestment. D is wrong, because a foreign firm working with an Indian partner forms a joint venture. Exam tip: unicorn, private startup, over 1 billion dollars; decacorn, over 10 billion.

The correct answer is B, Shri K. C. Neogy. Article 280 of the Constitution requires the President to set up a Finance Commission every five years, or earlier if needed, to recommend how the taxes collected by the Union should be shared with the states and how grants-in-aid should be given. The first Finance Commission was set up in 1951 with Kshitish Chandra Neogy, a former member of Nehru’s first cabinet, as chairman, and its recommendations covered the five years from 1952 to 1957. Commissions are numbered in order, which is how setters frame questions on their chairmen. Option A is wrong because K. Santhanam chaired the second Finance Commission, appointed in 1956; he is also known for the Santhanam Committee on corruption. Option C is wrong because P. V. Rajamannar chaired the fourth Finance Commission, appointed in 1964. Option D is wrong because A. K. Chanda chaired the third Finance Commission, appointed in 1960. Exam tip: the first four chairmen in order are Neogy, Santhanam, Chanda and Rajamannar.

The correct answer is B. GDP measures production inside the borders of a country in one accounting year, whoever the producer may be. A foreign firm making cars in India adds to India's GDP, because the test is the place of production and not the nationality of the producer.

Option A describes Gross National Product, which counts what the residents of a country produce anywhere in the world; the two differ by net factor income from abroad. Option C is wrong because GDP covers the whole economy, private and public, organised and, as far as it can be estimated, unorganised. Option D contradicts the definition: only final goods are counted, since including intermediate goods would count the same value more than once, as with wheat, flour and bread. This idea of value added at each stage is the basis of the product method of measurement.

The correct answer is C, 2.1. The Total Fertility Rate is the average number of children a woman would have in her lifetime if she followed the current birth rates at each age from 15 to 49. Replacement level is the TFR at which each generation exactly replaces itself, so that over time, leaving migration aside, the population stops growing or shrinking. Two children are needed to replace the two parents, and the extra 0.1 covers children who die before reaching adulthood and the fact that slightly more boys than girls are born. India’s National Population Policy, 2000 set the goal of bringing TFR down to replacement level. Option A is wrong because a TFR of 1.0 would halve the population in each generation. Option B is wrong because 1.6 is below replacement, a level seen in ageing societies. Option D is wrong because 2.3 is above replacement, so the population would keep rising. Exam tip: replacement level fertility means a TFR of about 2.1 children per woman.

The correct answer is A, P. C. Mahalanobis. The committee was appointed in 1949 to prepare official estimates of national income after independence, and it submitted its final report in 1954. Its other members were D. R. Gadgil and V. K. R. V. Rao. Mahalanobis is also remembered as the architect of the Second Five Year Plan and as the founder of the Indian Statistical Institute.

Option B, Dadabhai Naoroji, belongs to the nineteenth century and made the first estimate of all. Option C, V. K. R. V. Rao, was a member of the committee and had earlier made the first scientific estimate for 1931-32, but he did not chair it. Option D, C. Rangarajan, is associated with later committees on statistics and on the measurement of poverty, not with the committee of 1949.

The correct answer is A, Agricultural development. The First Five Year Plan (1951–56) gave top priority to agriculture, irrigation and power, because India faced food shortages after Partition and needed to feed its people first. It was based on the Harrod-Domar model and was presented by Jawaharlal Nehru, who chaired the Planning Commission. Big river projects such as Bhakra-Nangal and Hirakud were started in this period. The Plan aimed at a growth rate of 2.1 per cent and achieved about 3.6 per cent, so it is counted as a success. B is wrong because the development of heavy industries was the focus of the Second Plan (1956–61), based on the Mahalanobis model. C is wrong because rapid industrialisation was also the goal of the Second Plan, not the First. D is wrong because privatisation of industries came with the economic reforms of 1991, forty years later. Exam tip: First Plan, agriculture and Harrod-Domar; Second Plan, heavy industry and Mahalanobis.

The correct answer is B, 6. On 15 April 1980 the government nationalised six more private banks, each with deposits of over ₹200 crore, which raised the number of nationalised banks to 20. This was the second round; the first and more famous one came on 19 July 1969, when Indira Gandhi’s government took over 14 major banks with deposits of over ₹50 crore. Both times the aim was to take banking to villages, direct credit to farmers and small industry, and end the hold of big business houses over bank lending. The six banks of 1980 were Andhra Bank, Punjab and Sind Bank, New Bank of India, Vijaya Bank, Corporation Bank and Oriental Bank of Commerce. Option A is wrong because four is not the size of either round. Option C is wrong because 14 banks were nationalised in 1969, not in 1980. Option D is wrong because 20 was the total after both rounds, not the number taken over in 1980. Exam tip: 14 banks in 1969, 6 banks in 1980, 20 in all.