Indian Economy Mixed Quiz: Set 39

The correct answer is C, marginal productivity of labour is zero. Disguised unemployment, also called hidden unemployment, exists where more persons are engaged in a job than are actually needed, so withdrawing one of them would not reduce output at all; that worker's marginal contribution is therefore zero. Indian agriculture is the classic illustration, where a whole family works on a holding that two members could manage. Option A is wrong because open unemployment, where people are visibly without work, is a different category altogether. Option B is wrong because the absence of alternative employment is a cause of the condition, not its definition. Option D is wrong because low productivity may arise from poor tools, poor soil or poor skills, which is a matter of degree, whereas disguised unemployment refers specifically to the zero marginal product of the surplus worker.

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, 90 days. Under the Reserve Bank's prudential norms on income recognition and asset classification, an asset stops being a performing asset when interest or an instalment of principal remains overdue for more than ninety days, and the bank must then stop treating the interest as income and start making provisions. Option A is wrong; thirty days of overdue status only puts the account in the special mention category, an early warning stage, not in the NPA class. Option B is wrong for the same reason, sixty days being another special mention stage. Option D is wrong because 180 days was the older standard, used before 2004, and papers often keep it as the distractor for candidates who have learnt the rule from an old book. For crop loans the test is in crop seasons instead of days.

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 B, structural unemployment. It arises when the structure of the economy changes, so that the jobs being created need skills different from those the available workers possess; it lasts long and is cured by retraining and education rather than by a revival of demand. Option A, seasonal unemployment, is wrong because that is the idleness of workers in the months when their occupation offers no work, as in agriculture between sowing and harvest or in the sugar and ice industries. Option C, economical, is wrong because there is no recognised category of that name in economics. Option D, frictional unemployment, is wrong because it is the short-lived joblessness of people moving between one job and the next, which exists even in a healthy economy and is sometimes called search unemployment.

The correct answer is A, BHEL. Bharat Heavy Electricals Limited is a public sector undertaking, which means the government holds the majority of its shares and controls its management. Set up in 1964 with its headquarters at New Delhi, BHEL is the country's largest maker of power plant equipment such as boilers, turbines and generators, and it carries Maharatna status, the highest grade given to a central public sector enterprise. A public sector unit works for national priorities and balanced regional growth, not only for profit. Option B is wrong because Reliance Industries is a private company promoted by the Ambani family. Option C is wrong because the Tata group, founded by Jamsetji Tata, is a privately owned house of companies, even though many of them matter to the nation. Option D is wrong because the Adani group is likewise a private business house. Exam tip: a public sector undertaking is government owned, and BHEL, SAIL, ONGC, GAIL, NTPC and IOC are Maharatna companies, while Reliance, Tata and Adani are private.

The correct answer is B, a sub-standard asset. The classification runs in a sequence: an account that has just become non-performing is sub-standard for the first twelve months, after which it becomes doubtful, and it is called a loss asset when recovery is no longer expected. Option A is wrong because a standard asset is one where repayment is regular and which carries no more than normal risk, so it is not an NPA at all. Option C is wrong because an asset becomes doubtful only after it has stayed sub-standard for more than twelve months, and the doubtful class is itself divided by age for provisioning. Option D is wrong because a loss asset is one identified as irrecoverable by the bank, its internal auditors or the Reserve Bank inspection, though some salvage value may remain.

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 C. The repo rate is the rate at which the Reserve Bank of India lends short-term money to commercial banks against the collateral of government securities under a repurchase agreement, which is where the name repo comes from; it is the policy rate announced by the Monetary Policy Committee and the signal for interest rates across the economy. Option A is wrong because the rate a bank charges its own customers is its lending rate, now linked to external benchmarks. Option B is wrong because the government does not lend to banks; borrowing and lending to banks is central banking work. Option D is wrong because it describes the reverse repo rate, under which banks park their surplus funds with the Reserve Bank, and raising that rate absorbs liquidity from the system.

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 C, 2016. The Code was passed in 2016 on the recommendations of the Bankruptcy Law Reforms Committee and replaced a scatter of older laws, among them the Sick Industrial Companies Act and parts of the Companies Act, with a single time-bound process in which control passes from the defaulting promoter to the creditors. Option A is wrong because 2002 is the year of the SARFAESI Act, which deals with enforcement of security rather than with insolvency as a whole. Option B is wrong because 2013 is the year of the Companies Act, under which the National Company Law Tribunal itself was provided for. Option D is wrong because 2019 saw only amendments, including the outer limit of 330 days for the resolution process, not the enactment of the Code.

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, 15 and 59. Indian statistical practice treats persons aged fifteen to fifty-nine years as the working age population, and the labour force is made up of those among them who are either working or seeking and available for work. Children below fifteen are expected to be in school, and persons of sixty and above are counted as elderly dependants, so both groups are left out of the workforce. Option A is wrong because a range from ten to sixty-nine would count child workers and the elderly. Option C is wrong because fifty-five is a retirement age in some services but not the statistical boundary. Option D is wrong because eighteen is the age of majority and voting and sixty-five a retirement age, not the limits used for the workforce in Indian data.

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, the National Company Law Tribunal. For companies and limited liability partnerships the application for insolvency is filed before the Tribunal, which admits or rejects it, declares the moratorium and appoints the interim resolution professional; appeals lie to the National Company Law Appellate Tribunal and then to the Supreme Court. Option A is wrong for companies, though the Debt Recovery Tribunal is indeed the adjudicating authority under the Code for individuals and partnership firms, which is the distinction most often tested. Option C is wrong because the Securities Appellate Tribunal hears appeals against orders of the market regulator. Option D is wrong because winding up by the High Court belonged to the older company law regime, which the Code and the Companies Act of 2013 replaced.

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 A. Gross domestic product counts what is produced inside the domestic territory, whoever produces it, while gross national product counts what is produced by the normal residents of the country, wherever they are; the bridge between them is net factor income from abroad, which is the income Indians earn abroad minus the income foreigners earn in India. Option B is wrong because subtracting depreciation from gross domestic product gives net domestic product. Option C is wrong because the relation between factor cost and market price turns on indirect taxes minus subsidies, which is a different adjustment. Option D is wrong because dividing by the population gives per capita product or income, which measures the average rather than the total, and is the figure used to compare living standards between countries.

The correct answer is C, the Insolvency and Bankruptcy Board of India. Created under the Code of 2016, it registers and oversees insolvency professionals, insolvency professional agencies and information utilities, and makes the regulations under which the resolution process runs, which makes it both a regulator and a rule-maker. Option A is wrong because the Reserve Bank regulates banks and may direct them to refer accounts for insolvency, but it does not regulate insolvency professionals. Option B is wrong because the Securities and Exchange Board of India regulates the securities market. Option D is wrong because the Code is administered by the Ministry of Corporate Affairs rather than the Ministry of Finance, and in any case a ministry is not the statutory regulator here. Remember the pair: the Ministry of Corporate Affairs administers the Code and the Board is its statutory regulator, while the Reserve Bank stays the regulator of the banks that file the cases.

The correct answer is A, fiscal deficit minus interest payments. The fiscal deficit of a year contains the cost of servicing past borrowing as well as fresh spending, so taking out interest payments leaves the primary deficit, which shows how far the present year's expenditure exceeds its receipts on its own account. Option B is wrong because revenue expenditure minus revenue receipts is the revenue deficit, which indicates borrowing for routine running. Option C is wrong because including borrowings in receipts would make the account balance by definition, which is why the fiscal deficit is defined on receipts other than borrowings. Option D is wrong because that is the effective revenue deficit, introduced to recognise that grants given to states for capital assets create assets even though they appear as revenue spending.

The correct answer is C, 330 days. Section 12 of the Code gives the resolution process 180 days from the date of admission, allows the adjudicating authority to extend it once by up to 90 days on a resolution of the Committee of Creditors, and the amendment of 2019 added the outer limit of 330 days, which includes any time spent in litigation and in extensions. Option A is wrong because 180 days is only the first period, before any extension. Option B is wrong because 270 days, that is 180 plus 90, was the limit before the 2019 amendment, and papers keep it as the distractor for candidates working from older notes. Option D is wrong because the Code counts the outer limit as 330 days and not as a year. If no plan is approved within the limit, the company goes into liquidation.