Indian Economy Mixed Quiz: Set 46

The correct answer is D, Provisions of the Fiscal Responsibility and Budget Management Act, 2003. The FRBM Act requires the government to lay this statement before Parliament along with the Budget.

Section 3 of the FRBM Act, 2003 lists the fiscal policy statements that must accompany the annual financial statement: the Macro-economic Framework Statement and the Medium-term Fiscal Policy cum Fiscal Policy Strategy Statement. The Macro-economic Framework Statement assesses the growth prospects of the economy, with GDP growth, the fiscal balance and the external sector balance. The Act aims to bring discipline to government borrowing and deficits.

A is wrong because the document rests on a statute, not on convention.

B is wrong because Article 112 deals with the annual financial statement and Article 110 defines Money Bills; neither requires this statement.

C is wrong because Article 113 covers the procedure for estimates and demands for grants.

Exam tip: Article 112 = Budget; the FRBM Act, 2003 = the fiscal policy statements laid with it.

The correct answer is C, Engineering, Procurement and Construction. In an EPC contract the government owns the project, funds it from its own budget and simply buys construction services; the contractor is paid for the work done, keeps no operating responsibility and takes no revenue risk, so none of the defining features of a partnership is present. A, BOT on annuity, is a partnership in which the private partner builds with its own finance and is repaid in fixed instalments. B, the Hybrid Annuity Model, mixes a forty per cent construction grant with private finance for the rest. D, DBFOT, is the fullest form of concession, where the private partner designs, finances, builds, operates and finally transfers the asset. Examiners use this question to test the single idea that private finance and operation make a PPP.

The correct answer is C, 1 and 3 only. A rise in NEER means the rupee has gained against a basket of currencies, and higher domestic inflation makes REER drift away from NEER.

NEER is a weighted average of the rupee's exchange rate against the currencies of India's trading partners; in the RBI's indices a rise means the rupee has appreciated, so statement 1 is correct. REER is NEER adjusted for the gap between Indian prices and partner-country prices. A rising REER means Indian goods are becoming dearer abroad, which hurts trade competitiveness, so statement 2 is wrong. Because REER includes relative prices and NEER does not, faster inflation in India than abroad widens the gap between the two, so statement 3 is correct.

A is wrong because statement 2 is false.

B is wrong because it drops statement 1 and keeps the false statement 2.

D is wrong because statement 2 reverses the effect of a rising REER.

Exam tip: REER = NEER adjusted for relative inflation; REER up means exports lose competitiveness.

The correct answer is D, Mauritius. The India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement, or CECPA, took effect in 2021 and is the first trade agreement India concluded with any African country. It covers goods, services and economic cooperation. Option A is wrong because India has no free trade agreement with South Africa; the two are linked only through the limited India-Southern African Customs Union talks, which have not produced an agreement, and through groupings such as BRICS, which are not trade agreements. Option B is wrong because India has no free trade agreement with Egypt, although the two countries have long-standing trade ties. Option C is wrong because India has no bilateral trade agreement with Kenya either, so Mauritius remains the answer for the African first.

The correct answer is B, International Monetary Fund. Both are IMF windows for quick emergency financing to member countries facing an urgent balance of payments need.

The Rapid Financing Instrument (RFI) is open to all IMF members and gives fast, low-access financial help without a full-fledged programme. The Rapid Credit Facility (RCF) does the same for low-income countries but at concessional terms, through the Poverty Reduction and Growth Trust. Both were used widely during the COVID-19 pandemic, when many countries needed money quickly after sudden shocks such as natural disasters or a collapse in exports.

A is wrong: the Asian Development Bank funds development projects in Asia and the Pacific; it does not run these IMF facilities.

C is wrong: the UNEP Finance Initiative is a partnership with banks and insurers on sustainable finance, not a lender.

D is wrong: the World Bank gives long-term development loans, while short-term balance of payments support is the IMF's role.

Exam tip: RFI is for all IMF members; RCF is the concessional version for low-income countries.

The correct answer is C, 2002. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002 lets a secured creditor issue a notice to a defaulting borrower and then take possession of and sell the secured asset without going to court, and it also provides for asset reconstruction companies that buy bad loans from banks. Option A is wrong because 1993 is the year of the Act that created the Debt Recovery Tribunals, and swapping these two years is the standard trap. Option B is wrong because 1998 is the year of the second Narasimham Committee report on banking sector reforms. Option D is wrong because 2016 is the year of the Insolvency and Bankruptcy Code, which works alongside SARFAESI rather than replacing it.

The correct answer is C, World Economic Forum. The Global Competitiveness Report is the World Economic Forum's assessment of how well countries' institutions, policies and markets support productivity and growth.

The World Economic Forum is a Geneva-based not-for-profit foundation, set up by Klaus Schwab in 1971 and known for its annual meeting at Davos, Switzerland. Its Global Competitiveness Report, first brought out in 1979, ranks economies on a Global Competitiveness Index built on pillars such as institutions, infrastructure, macroeconomic stability, health, skills, markets and innovation. The WEF also publishes the Global Gender Gap Report and the Global Risks Report.

A is wrong: the IMF publishes the World Economic Outlook and the Global Financial Stability Report.

B is wrong: UNCTAD publishes the World Investment Report and the Trade and Development Report.

D is wrong: the World Bank published the Doing Business Report and publishes the World Development Report.

Exam tip: WEF = Global Competitiveness, Global Gender Gap and Global Risks reports; IMF = World Economic Outlook.

The correct answer is A, Jan Dhan, Aadhaar and Mobile. The expression describes the three pieces that together make a cash transfer possible: a bank account opened under the Jan Dhan Yojana to receive the money, the Aadhaar number to identify the beneficiary and remove duplicate names, and the mobile phone through which the beneficiary is informed and can transact. Option B is wrong because Atal Pension Yojana and MUDRA are schemes that use the Jan Dhan account but are not part of the trinity. Option C is wrong because Jan Suraksha is the collective name of the insurance and pension schemes, not a letter of JAM. Option D is wrong because Ayushman Bharat is the health assurance scheme and MGNREGA the rural employment law, both users of direct benefit transfer rather than parts of it.

The correct answer is A, 1 and 4 only. A dearer substitute pushes buyers towards this good, and a fall in its own price leads them to buy more of it.

Statement 1 is correct: if tea becomes costlier, people buy more coffee, so demand for coffee rises. Statement 4 is correct: by the law of demand, a lower price raises the quantity buyers want. Statement 2 is wrong: if the price of a complement rises (petrol for cars), demand for the good falls. Statement 3 is wrong: for an inferior good, demand falls when income rises, because consumers shift to better goods.

B is wrong because it includes statements 2 and 3, both of which reduce demand.

C is wrong because statement 3 describes a fall, not a rise, in demand for an inferior good.

D is wrong because it includes 2 and 3 and leaves out 4, the plainest case of the law of demand.

Exam tip: substitute price up, demand up; complement price up, demand down; inferior good, income up, demand down.

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 A. In a repo the bank that needs funds sells government securities to the Reserve Bank and simultaneously agrees to repurchase them a day or a few days later at a slightly higher price; the difference is the interest, and the rate charged is the repo rate, which is the policy rate of the country. B describes the reverse repo, the mirror transaction in which the Reserve Bank absorbs surplus funds from the banking system by selling securities to banks. C is wrong because an unsecured deposit with the RBI is not a repo; the whole point of a repo is that the borrowing is collateralised by government securities. D is wrong because a bank cannot raise money from the Reserve Bank by issuing commercial paper; commercial paper is issued by companies and financial institutions to investors in the market.

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, Article 47. Article 47, a Directive Principle of State Policy, declares that the State shall regard the raising of the level of nutrition and of the standard of living of its people and the improvement of public health as among its primary duties, and the same Article speaks of prohibiting intoxicating drinks and drugs that are injurious to health. A, Article 21, is a strong distractor because the Supreme Court has read the right to food into the right to life it guarantees, but Article 21 does not itself speak of nutrition. B, Article 39, is wrong; it directs the State to secure an adequate means of livelihood and to prevent the concentration of wealth. D, Article 51A, is wrong because it lists the Fundamental Duties of citizens.

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. Foreign direct investment is made to acquire a lasting interest in an enterprise abroad, conventionally measured as ten per cent or more of the voting power, and with it comes a say in how the company is run; portfolio investment buys shares and bonds without any such control. Option A is wrong because the investor in FDI is usually a company, and governments are only one kind of investor. Option C is wrong because both FDI and FPI are recorded in the capital or financial account of the balance of payments, not the current account, which records trade and income. Option D is wrong because it describes portfolio investment, the hot money that can leave on a single trading day, while direct investment sits in plant and machinery and cannot be reversed quickly.

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 C, Both 1 and 2. The Common Framework for Debt Treatments was agreed by the G20 and the Paris Club in November 2020 to help low-income countries with unsustainable debt.

During the COVID-19 crisis many poor countries could not service their loans. The G20 first offered the Debt Service Suspension Initiative (DSSI), which only postponed payments. The Common Framework went further: it lets eligible countries (those eligible for the DSSI) seek a full restructuring of their official bilateral debt, with all G20 creditors, including newer lenders outside the Paris Club such as China and India, negotiating together on comparable terms. The Paris Club is an informal group of major creditor countries that coordinates solutions for debtor nations.

A is wrong because statement 2, its purpose, is also correct.

B is wrong because the framework was indeed endorsed by the G20 together with the Paris Club.

D is wrong because both statements describe the framework correctly.

Exam tip: DSSI postponed debt payments; the Common Framework (2020) restructures debt of low-income countries.

The correct answer is B, Kandla in Gujarat. The Kandla export processing zone, set up in 1965 beside the port of Kandla, was the first such zone in Asia, and it was later converted into a special economic zone under the Act of 2005. A is wrong because the Santacruz Electronics Export Processing Zone near Mumbai came eight years later, in 1973, and was the second zone in the country, reserved at first for electronics. C is wrong because the Noida zone in Uttar Pradesh was one of the zones set up in the 1980s, well after the first two. D is wrong because the Falta zone in West Bengal also belongs to that later group of zones and was never the first; the examiner usually offers Santacruz as the trap option here.

The correct answer is B. M1, narrow money, is the most liquid aggregate: currency, that is notes and coins, with the public, plus the demand deposits of banks, which are withdrawable at any time, plus other deposits with the Reserve Bank, a small residual item. A is wrong because adding the net time deposits of banks to currency and demand deposits gives M3, broad money, not M1. C is wrong because post office deposits enter the aggregates separately: savings deposits with post office savings banks are added to M1 to get M2, and total post office deposits other than National Savings Certificates are added to M3 to get M4. D is wrong on two counts: it drops currency with the public, which is the largest single component for a cash-using economy, and it wrongly includes time deposits in narrow money.

The correct answer is B, 1997. The Targeted Public Distribution System was introduced in June 1997. Until then the distribution system was universal, open to any cardholder; from 1997 households were classified as Below or Above the Poverty Line and given different quotas at different prices, with the poorer group receiving a larger subsidy. A, 1992, is wrong because that is the year of the Revamped Public Distribution System, which was an area-based and not a household-based change. C, 2000, is wrong because that is the year the Antyodaya Anna Yojana added a third and poorest category. D, 2002, is wrong, although it is the year in which the monthly quota of a Below Poverty Line and an Antyodaya household was raised to thirty-five kilograms. Note also that 1992 was an area-based change and 1997 a household-based one, which is the surest way to keep the two apart.