Indian Economy Mixed Quiz: Set 4

The correct answer is B. A market price contains the indirect taxes the buyer pays, which never reach the producer, so they must be taken out. A subsidy works the other way: the producer receives it although the buyer does not pay it in the price, so it must be added back. Hence factor cost equals market price minus indirect taxes plus subsidies.

Option A reverses both adjustments and is the usual trap; it would give market price from factor cost instead. Options C and D treat taxes and subsidies in the same direction, which cannot be right, since one is a payment to the government and the other a payment from it. Factor cost is so named because it measures what the factors of production actually earn as rent, wages, interest and profit.

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 B, Seventh Plan. The Seventh Five Year Plan (1985–90), launched under Prime Minister Rajiv Gandhi, had the slogan 'food, work and productivity'. It aimed to raise food grain production, create jobs and improve productivity, and it laid stress on modern technology. It achieved a growth rate of about 6 per cent against its target of 5 per cent. The Jawahar Rozgar Yojana (1989) for rural employment also came in this period. A is wrong because the Third Plan (1961–66) aimed at a self-reliant economy but failed after the wars of 1962 and 1965 and a severe drought, which led to the plan holidays. C is wrong because the Fourth Plan (1969–74) aimed at 'growth with stability and progressive achievement of self-reliance'. D is wrong because the Sixth Plan (1980–85) focused mainly on removing poverty. Exam tip: Seventh Plan, 1985–90, Rajiv Gandhi, 'food, work and productivity'.

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, SBI. The State Bank of India was not part of the 1969 nationalisation because it was already a government-owned bank. It was created on 1 July 1955, when the Imperial Bank of India was taken over under the State Bank of India Act, following the advice of the All India Rural Credit Survey Committee. On 19 July 1969, the government of Indira Gandhi nationalised 14 major commercial banks, each with deposits of over ₹50 crore. Six more banks were nationalised in 1980. Option A is wrong because Canara Bank was one of the 14 banks nationalised in 1969. Option C is wrong because UCO Bank, then called United Commercial Bank, was also on the 1969 list. Option D is wrong because Bank of Baroda was likewise nationalised in 1969. Exam tip: Imperial Bank became SBI in 1955; 14 banks were nationalised in 1969 and 6 in 1980; the RBI itself was nationalised in 1949.

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, Reserve Bank of India. Monetary policy, the control of money supply and interest rates to keep prices stable, is the job of the central bank, the RBI, set up on 1 April 1935 under the RBI Act 1934 and nationalised on 1 January 1949. Since 2016 the policy repo rate is decided by the six-member Monetary Policy Committee, three from the RBI including the Governor, who chairs it, and three appointed by the Union Government, working to an inflation target set in 2016 at 4 per cent with a band of 2 per cent on either side. Option A is wrong because the Ministry of Statistics and Programme Implementation compiles data such as GDP and the CPI, it does not set policy. Option B is wrong because the Finance Commission, under Article 280, recommends how taxes are shared between the Centre and the States. Option C is wrong because NITI Aayog, formed on 1 January 2015, is a policy think tank that replaced the Planning Commission. Exam tip: monetary policy = RBI and its MPC, fiscal policy = Finance Ministry through the Budget.

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, Both (A) and (B) are correct. Headline inflation is the change in the overall Consumer Price Index, which tracks the average price of a fixed basket of goods and services bought by a typical household, including food, fuel, clothing, housing and services. Core inflation removes the items whose prices swing the most, mainly food and fuel, to show the underlying trend in prices. The difference matters for policy: a jump in vegetable prices after a poor monsoon may fade in a few months, but a steady rise in core inflation tells the central bank that price pressure has spread across the economy. That is why the RBI's Monetary Policy Committee watches both numbers. In India the all-India CPI is compiled every month by the National Statistics Office. Option A is wrong because both statements are correct definitions. Option C is wrong because statement A is also correct. Option D is wrong because statement B is also correct. Exam tip: headline = the whole basket; core = the basket minus food and fuel.

The correct answer is B, 30. Sensex, short for ‘Sensitive Index’, tracks 30 large, well-established and actively traded companies listed on the BSE, chosen from different sectors of the economy. It was launched in 1986 with 1978–79 as its base year, when its value was set at 100, and it is calculated by the free-float market capitalisation method, which counts only the shares available for trading. When people say ‘the market rose today’, they usually mean the Sensex or the Nifty went up. The BSE, founded in 1875 and located on Dalal Street in Mumbai, is Asia’s oldest stock exchange. Option A is wrong because the Sensex has never been a 20-stock index. Option C is wrong because 25 is not its size either; the count has stayed at 30 since 1986. Option D is wrong because ten companies would be too few to represent the whole market. Exam tip: Sensex has 30 companies on the BSE, base 1978–79 = 100; Nifty has 50 companies on the NSE.

The correct answer is A, crowding out. When the government runs a deficit, it borrows heavily from the same pool of savings that private firms use, so interest rates rise and private investment falls. This squeezing out of private spending by public borrowing is called the crowding out effect. It is the main argument against high fiscal deficits: if the state absorbs most of the savings, businesses find loans costlier and invest less, and the boost from government spending is partly cancelled. It is also why India's fiscal rules, such as the FRBM Act, 2003, aim to keep the deficit in check. B is wrong, because crowding in is the opposite, when public spending on roads, ports and the like encourages more private investment. C is wrong, because pump priming means government spending during a slump to restart demand, not the fall in private investment. D is wrong, because dumping is selling exports abroad below their home price or cost, a trade issue met with anti-dumping duty. Exam tip: deficit borrowing, higher interest rates, less private investment; that is crowding out.

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 B, Dr. C. Rangarajan. The Twelfth Finance Commission, set up in 2002, was headed by Dr. C. Rangarajan, a former Governor of the Reserve Bank of India, and its award covered the five years 2005–10. The President sets up a Finance Commission every five years under Article 280 to recommend how central taxes are shared between the Centre and the states and how grants-in-aid are given. The Twelfth Commission is remembered for its debt consolidation and relief facility, which gave states relief on central loans only if they passed fiscal responsibility laws. Option A is wrong because A. M. Khusro chaired the Eleventh Finance Commission, for 2000–05. Option C is wrong because Dr. Vijay Kelkar chaired the Thirteenth Finance Commission, for 2010–15. Option D is wrong because Y. V. Reddy chaired the Fourteenth Finance Commission, for 2015–20, which raised the states’ share of central taxes to 42 per cent. Exam tip: 11th Khusro, 12th Rangarajan, 13th Kelkar, 14th Y. V. Reddy, 15th N. K. Singh.

The correct answer is C, minimum support price. The MSP is announced before sowing so that farmers know the lowest price at which the government will buy their crop. The Union Government fixes it on the recommendation of the Commission for Agricultural Costs and Prices (CACP), set up in 1965, and the final approval comes from the Cabinet Committee on Economic Affairs. It is announced separately for kharif and rabi crops, while sugarcane gets a fair and remunerative price instead. Wheat was the first crop brought under MSP, in 1966-67, at the start of the Green Revolution. Option A is wrong because a buffer stock is grain the government holds for food security, and no "buffer price" is announced for farmers. Option B is wrong because the issue price is the rate at which the Food Corporation of India sells grain to the States for the public distribution system. Option D is wrong because "fair sustenance price" is not an official price at all. Exam tip: MSP is recommended by the CACP and approved by the CCEA; sugarcane gets the FRP instead.

The correct answer is A, whatever the change in price, there is absolutely no change in demand. Elasticity measures how strongly the quantity demanded reacts to price, and zero means no reaction at all. Price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. When it is zero, demand is perfectly inelastic and the demand curve is a vertical straight line. Life-saving medicines such as insulin come closest to this, since a patient buys the same dose whatever the price. At the other extreme, perfectly elastic demand, with infinite elasticity, gives a horizontal demand curve. Option B is wrong because any change in demand, however small, means the elasticity is above zero. Option C is wrong because a large response to a small price change means elastic demand, with elasticity greater than one. Option D is wrong because a small response to a large price change is relatively inelastic demand, between zero and one, but still not zero. Exam tip: elasticity zero gives a vertical curve; elasticity infinite gives a horizontal one.

The correct answer is C, FRBM Act. The Fiscal Responsibility and Budget Management Act, 2003 is a fiscal reform: it binds the Union government to cut its fiscal and revenue deficits and to report on its borrowing. It deals with the government's budget, not with banks and financial markets. Financial sector reforms after 1991 began with the Narasimham Committee on the financial system, which asked for sound banking rules. Banks had to keep capital in proportion to their risky assets, the capital adequacy ratio based on the Basel norms, and to recognise bad loans honestly as non-performing assets (NPAs) instead of hiding them in their books. Option A is wrong because capital adequacy norms were a core banking reform. Option B is wrong because clear rules for NPAs were part of the same reform. Option D is wrong because the SARFAESI Act, 2002 lets banks seize and sell the security of defaulting borrowers without going to court, a major step to recover bad loans. Exam tip: banking reforms = capital adequacy, NPA norms, SARFAESI; FRBM = fiscal discipline of the government.

The correct answer is B, constant prices of a base year. When output of every year is valued at the same fixed set of prices, any change in the total must come from a change in the quantity produced. That is why real GDP is the measure used for growth rates, and why the base year of the national accounts series is revised from time to time to keep it relevant.

Option A describes nominal GDP, which rises with inflation even when production stands still. Option C is meaningless, since factor cost is a way of valuing output and not a choice of year. Option D points to GDP at purchasing power parity, which is used for comparing countries rather than for measuring a country's own growth. The ratio of nominal to real GDP, multiplied by a hundred, gives the GDP deflator.

The correct answer is B, Gulzarilal Nanda. Gulzarilal Nanda became the first Deputy Chairman when the Planning Commission began work in 1950, and he later became interim Prime Minister twice, in 1964 and 1966. The Planning Commission was set up by a Cabinet resolution on 15 March 1950 with the Prime Minister as its ex-officio Chairman; it was neither a constitutional nor a statutory body. Nanda was also Union Planning Minister and received the Bharat Ratna in 1997. The Commission was replaced by NITI Aayog on 1 January 2015. A is wrong because Sardar Patel was Deputy Prime Minister and Home Minister and never served on the Planning Commission. C is wrong because K.C. Neogy headed the first Finance Commission in 1951. D is wrong because Nehru was the Chairman of the Planning Commission as Prime Minister, not its Deputy Chairman. Exam tip: Planning Commission 1950, Chairman = Prime Minister, first Deputy Chairman = Gulzarilal Nanda; NITI Aayog replaced it on 1 January 2015.

The correct answer is D, Hawkish. A hawkish stance means the central bank treats inflation as its first enemy and is ready to raise interest rates and tighten money supply, even at some cost to growth. Higher rates make loans dearer, so people and firms borrow and spend less, demand cools and prices stop rising so fast. India saw this when the RBI raised the repo rate from 4 per cent to 6.5 per cent between May 2022 and February 2023 to fight inflation. The opposite, a dovish stance, cuts rates to support growth and jobs, as in 2020 during the Covid slowdown. Option A is wrong because 'owlish' is only an informal label some writers use for a wait-and-watch, neutral position, not the usual anti-inflation stance. Option B is wrong because a dovish stance eases money and fuels inflation rather than fighting it. Option C is wrong because 'Hicksian' refers to the economist John Hicks and his IS-LM model, not to a policy stance. Exam tip: hawk = fight inflation, raise rates; dove = support growth, cut rates.

The correct answer is B, Vote on Account. It is the advance grant the Lok Sabha makes so that the government can keep spending from 1 April until the full budget is passed. Article 116 of the Constitution allows it. No money can leave the Consolidated Fund of India without Parliament's approval, so this grant fills the gap. It usually covers two months, about one-sixth of the year's estimates. Since the budget moved to 1 February in 2017, it is mostly seen in election years, when the outgoing government leaves the full budget to the new Lok Sabha. A is wrong, because a vote of credit, also under Article 116, is a blank-cheque grant for an unexpected need that cannot be stated in detail. C is wrong, because the Appropriation Bill under Article 114 authorises withdrawal from the Consolidated Fund after the demands are voted. D is wrong, because advance account is not a budget term of the Constitution. Exam tip: vote on account keeps the government running, vote of credit is the blank cheque; both sit in Article 116.