Indian Economy Mixed Quiz: Set 32

The correct answer is C, Gross investment - Depreciation. Net investment is gross investment minus depreciation, that is, the addition to the stock of capital left after making good the wear and tear of existing machines, buildings and equipment. Gross investment is the whole spending on capital goods in a year, while depreciation, also called consumption of fixed capital, is the fall in the value of capital through normal use and age. The same subtraction turns gross figures into net figures elsewhere in national accounts: gross domestic product minus depreciation gives net domestic product. If net investment is positive the economy's capital stock is growing, and if it is negative the stock is shrinking. A and B are wrong because sudden destruction of capital by accident or by a flood or earthquake is a capital loss and is not counted as depreciation. D is wrong because only one of the three statements is correct. Exam tip: net equals gross minus depreciation, the same rule for investment, GDP and national product.

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 C, Other sectors do not absorb people from agriculture. Agriculture still employs the largest share of India's workers because industry and services have not created enough jobs to draw them away, so people stay on the farm for want of a better option. The result is disguised unemployment, where five people do work that two could finish and the extra hands add almost nothing to output. This is why farming gives less than a fifth of the national income while employing more than two-fifths of the workforce, and why output per worker is much lower there than in the other sectors. A is wrong because returns in agriculture are low and uncertain, tied to the monsoon and to prices. B is wrong because political pressure does not decide where people find work. D is wrong because the choice is forced by a lack of alternatives, not by interest. Exam tip: a large workforce with a small share of income is the mark of disguised unemployment.

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 D, Price Index. A price index measures how the price of a commodity or of a basket of goods has moved between a base period and the current period, so the price of wheat over the years is read from a price index. The base year is given the value 100 and every later price is shown against it, which makes a long series comparable even when the rupee's value changes. In India the Wholesale Price Index and the Consumer Price Index are the best known price indices, and Laspeyres' formula uses base year quantities as weights while Paasche's formula uses current year quantities. A is wrong because a volume or quantity index tracks how much is produced or sold, not the price. B is wrong because an aggregate index is a way of building an index from several items and is not meant for one commodity's price. C is wrong because neither of those two answers fits. Exam tip: price index for prices, quantity index for output, value index for the two together.

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.

The correct answer is D, cyclical unemployment. Unemployment that rises when the economy slides into a recession or a depression, and falls again in a boom, is called cyclical unemployment.

It is caused by a fall in total demand in the economy. When households and firms spend less, output is cut back and workers are laid off even though they are willing and able to work at the going wage. Because it moves with the trade cycle, it fades once demand recovers, which is why governments fight it with higher public spending and cheaper credit. The Great Depression of the 1930s is its classic example.

A is wrong: disguised unemployment is where more people work on a job than it needs, as on a family farm, so removing some of them would not reduce output. B is wrong: frictional unemployment is the short gap while a worker moves between jobs or looks for a first one. C is wrong: seasonal unemployment comes from work being available only in some months of the year, as in agriculture or tourism.

Exam tip: recession to cyclical, family farm to disguised, between jobs to frictional, off-season to seasonal.

The correct answer is B, Stage 3. The law of variable proportions divides short run production into three stages. In stage one, increasing returns, both total and marginal product rise because the fixed factor is still under used. In stage two, diminishing returns, marginal product falls but stays positive, so total product keeps rising and reaches its maximum at the end of this stage, where marginal product is zero. In stage three, negative returns, extra units of the variable factor crowd the fixed factor, marginal product turns negative and total product actually falls. A sensible producer therefore works in stage two and never enters stage three. A is wrong because marginal product in stage two is falling but still positive. C is wrong because marginal product in stage one is rising. D is wrong because the law has only three stages, so there is no stage four. Exam tip: total product is highest exactly where marginal product is zero.

The correct answer is B, three. The Industrial Policy Resolution of 1956 placed every industry in one of three schedules, according to how large a role the state was to play in it.

Schedule A listed seventeen industries, such as arms and ammunition, atomic energy, iron and steel and the railways, which were the exclusive responsibility of the state. Schedule B listed twelve industries, such as machine tools, fertilisers, aluminium and road transport, in which the state would set up new units while private firms could continue and expand. Schedule C covered all the remaining industries, which were left to the private sector under the licensing system. The 1956 Resolution is often called the economic constitution of India, because it guided industrial policy until the reforms of 1991.

A is wrong: two schedules would leave no room for the middle group where the state and private firms worked side by side. C is wrong: a fourth category was never created. D is wrong: a single list would defeat the whole purpose of grading state control.

Exam tip: 1956 Resolution, Schedule A 17 industries for the state, Schedule B 12 shared, Schedule C the rest.

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 D, 2016. The Pradhan Mantri Ujjwala Yojana was launched on 1 May 2016 at Ballia in Uttar Pradesh.

The scheme gives a free LPG connection to women of poor households, with the government paying the deposit for the cylinder and the regulator, so that families cook on gas instead of firewood, coal or cow dung. It is run by the Ministry of Petroleum and Natural Gas through the oil marketing companies. The aim is cleaner air inside the house and less drudgery for women, since smoke from traditional fuel causes serious lung and eye disease. The connection is issued in the name of an adult woman of the family.

A is wrong: 2014 was the year of schemes such as Jan Dhan Yojana and Make in India. B is wrong: by 2018 Ujjwala had been running for two years already. C is wrong: 2020 was the year of relief measures during the pandemic, not of this launch.

Exam tip: PMUY was launched on 1 May 2016 at Ballia, and it gives a free LPG connection in a woman's name.

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, the World Bank. The World Development Report is the Bank's annual study, each edition devoted to one theme of development such as jobs, water, migration or the use of data, and the Bank also publishes the Global Economic Prospects. Option A is wrong because the IMF publishes the World Economic Outlook, the Global Financial Stability Report and the Fiscal Monitor. Option C is wrong because the United Nations Development Programme publishes the Human Development Report with the Human Development Index, which is the report most often confused with the World Bank's. Option D is wrong because the World Economic Forum, a private body based in Geneva that meets at Davos, publishes the Global Competitiveness Report and the Global Gender Gap Report. Reports and their publishers are a standing question type, so learn them as fixed pairs.

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. National income counts only final goods and services; intermediate goods are deliberately left out, because counting the flour as well as the bread would mean counting the same value twice. Option A is a genuine feature, since national income is an aggregate of the whole economy and belongs to macroeconomics, not to the study of a single firm or household. Option B is a feature as well: national income is a flow, measured over a period of time, unlike wealth, which is a stock measured at a point of time. Option C is also a feature, as the Indian accounts express national income for a financial year running from April to March. So the odd statement is the one about intermediate goods, and the rule to carry into the hall is that only the value added at each stage enters the total.

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 D, Medicine. An intermediate good is bought by one producer to be used up or built into another good in the same year, while a final good is bought by the last user for consumption or investment. Medicine bought by a patient is a final good, so it is not an intermediate good. The difference matters in national income accounting: only final goods are counted in gross domestic product, because adding intermediate goods as well would count the same value twice. The value-added method avoids this by taking output minus the cost of intermediate inputs at each stage. A is wrong because a hard drive is fitted into a computer by the maker. B is wrong because steel goes into cars, ships and buildings. C is wrong because paint is used up in making or finishing another product. Exam tip: the same item can be either, so ask who bought it and why, not what it is.

The correct answer is B, 1972. The General Insurance Corporation of India, or GIC, was incorporated as a company in November 1972, the year general insurance was nationalised in India.

Parliament passed the General Insurance Business (Nationalisation) Act in 1972, which took over 107 private insurers and grouped them into four companies — National Insurance, New India Assurance, Oriental Insurance and United India Insurance. GIC was set up as the holding company of these four and began business from 1 January 1973. After the sector was opened to private firms, GIC was made the country's national reinsurer, the four subsidiaries were delinked from it, and it works today as GIC Re.

A is wrong: by 1988 GIC had already been running for more than fifteen years. C is wrong: in 1965 general insurance was still in private hands, since nationalisation came only in 1972. D is wrong: in 1981 GIC was already working as the holding company of its four subsidiaries.

Exam tip: LIC 1956 for life insurance, GIC 1972 for general insurance, and the IRDA Act in 1999.

The correct answer is B, it is a price lower than the market price. Issue price is the subsidised rate at which grain from the government's buffer stock is sold through ration shops, and it is deliberately kept below the market price.

India's food security system works in three steps. The Food Corporation of India buys grain from farmers at the minimum support price, stores it as a buffer stock, and releases it to fair price shops under the public distribution system. The rate charged at those shops is the issue price, and the gap between what the government pays and what it charges is the food subsidy. Keeping the issue price low is exactly what makes grain affordable to poor households.

A is wrong: if it matched the market price there would be no subsidy and no reason for ration shops. C is wrong: the issue price is fixed by the government, not by the farmer. D is wrong: a price above the market rate would drive buyers away from ration shops altogether.

Exam tip: the farmer gets the MSP, the ration shop charges the issue price, and the difference between them is the food subsidy.

The correct answer is C, 1999. The Group of Twenty was formed in 1999, in the aftermath of the Asian financial crisis, as a forum where the finance ministers and central bank governors of the major advanced and emerging economies could discuss the stability of the world financial system. Option A is wrong because 1991 is the year of India's balance of payments crisis and of economic reform, not of the G20. Option B is wrong because 1995 is the year the World Trade Organization came into being, replacing the GATT. Option D is wrong, but it is the trap that catches most candidates: 2008 is the year the G20 was raised to the level of heads of state and government, when the first leaders' summit was held at Washington after the global financial crisis. Keep the two years apart as formation in 1999 and summit level in 2008.