Indian Economy Mixed Quiz: Set 48

The correct answer is B, the lottery business. The FDI policy lists a small set of prohibited activities: the lottery business, gambling and betting including casinos, chit funds, Nidhi companies, trading in transferable development rights, real estate business and the construction of farm houses, the manufacture of cigars, cheroots and cigarettes, and activities closed to private investment such as atomic energy and railway operations. Options A, C and D are wrong because insurance, telecom services and single brand retail trading are all open to foreign investment, each with a cap and a route set out in the policy circular, and those caps have been raised over the years. The trap in this question is that the permitted sectors are the ones most often in the news.

The correct answer is C, 2005. The Special Economic Zones Act was passed by Parliament in 2005 and was brought into force in February 2006 together with the Special Economic Zones Rules, giving the zones a single law of their own in place of a chapter of the trade policy. A is wrong because April 2000 is the date of the policy announcement made as part of the export and import policy, not of the Act, and this is the commonest confusion in the question. B is wrong because 2003 saw amendments to the customs and other laws for the zones but no separate SEZ Act. D is wrong because 2008 is later than both the Act and the Rules, by which time zones were already being notified under the new law.

The correct answer is B, the Ministry of Commerce and Industry. The Directorate General of Foreign Trade works under the Department of Commerce in that ministry; it issues the importer-exporter code without which no one can trade across the border, administers the Foreign Trade Policy, and exercises powers under the Foreign Trade (Development and Regulation) Act of 1992. A is wrong because the Ministry of Finance, through the Central Board of Indirect Taxes and Customs, collects the duties but does not license traders or frame the trade policy. C is wrong because the Ministry of External Affairs conducts relations with other countries and has no part in issuing trade licences. D is wrong because the ministry for small enterprises promotes that sector, including its exporters, without any power over foreign trade itself.

The correct answer is A, a GIS-based digital platform that brings the project layers of infrastructure ministries onto one map. Launched on 13 October 2021, PM Gati Shakti is an institutional answer to the old complaint that a road is dug up soon after it is laid because a pipeline or a cable was planned separately. Each infrastructure ministry puts its existing and planned assets on a common geographic information system, so that alignments, utility crossings and clearances are seen together before work begins, and multi-modal connectivity to economic zones is planned as one network. B is incorrect because the plan carries no lending window. C is invented; no such cess accompanies it. D describes the Western Dedicated Freight Corridor, a separate railway project. Note also that Gati Shakti is a planning platform and carries no money of its own.

The correct answer is C, 2014, when the SEBI Foreign Portfolio Investors Regulations came into force and the three older categories, namely foreign institutional investors, their sub-accounts and qualified foreign investors, were merged into one class registered in risk-based tiers. Option A is wrong because 2010 saw no such change. Option B is wrong because 2012 is the year the qualified foreign investor route itself was opened to allow direct investment in Indian equities. Option D is wrong because 2016 is remembered in this chapter for the amendment of the tax treaty with Mauritius, which changed the pattern of inflows, and for the General Anti-Avoidance Rule taking effect soon after. The point to carry away is that the term FII now survives only in older reading.

The correct answer is B, 2019, Bangkok. At the Regional Comprehensive Economic Partnership summit held in Bangkok in November 2019, India announced that it would not join the agreement. Its objections were a likely surge of cheap Chinese imports, the use of 2014 as the base year for tariff reduction, the absence of a workable safeguard against import surges and the failure to open services and professional mobility. Option A is wrong because the 2017 Manila summit was a stage of the negotiations, not the point of withdrawal. Option C is wrong because the remaining fifteen countries signed RCEP in 2020 at a virtual summit chaired by Vietnam, after India had already stayed out. Option D is wrong because no RCEP decision of India was taken at Jakarta in 2021.

The correct answer is B, 1982. The Export-Import Bank of India was set up in 1982 under the Export-Import Bank of India Act of 1981, as the country's apex institution for financing and promoting foreign trade; it lends to exporters, finances overseas buyers of Indian goods and operates the lines of credit extended by the Government of India. A is wrong because 1964 is the year the Industrial Development Bank of India was established, an institution for industrial finance rather than trade. C is wrong because 1991 is the year of the balance of payments crisis and the opening of the economy, when the bank was already nine years old. D is wrong because 2000 is the year the special economic zone policy was announced, and no bank was created then.

The correct answer is B, two lakh rupees for ages 18 to 50. The Pradhan Mantri Jeevan Jyoti Bima Yojana is a one-year renewable life insurance cover of two lakh rupees on death from any cause, open to holders of a savings bank account between eighteen and fifty years of age, with the premium debited from the account. Option A is wrong because the cover is two lakh, not one lakh. Option C is wrong because eighteen to seventy is the age band of the Pradhan Mantri Suraksha Bima Yojana, the accident cover, which pays two lakh for accidental death or total disability and one lakh for partial disability; swapping the two age bands is the standard trap. Option D is wrong because neither the amount nor the ages match any of the Jan Suraksha schemes.

The correct answer is B. Participatory notes are offshore derivative instruments issued by foreign portfolio investors registered with SEBI to clients abroad who want exposure to Indian shares without registering in India themselves; the underlying shares are held by the issuing investor. Option A is wrong because the Reserve Bank issues no such instrument. Option C is wrong because a share issued by an Indian company to a foreign promoter is simply foreign direct investment, reported to the Reserve Bank. Option D is wrong because sovereign wealth funds invest in India as registered portfolio investors in their own right. These notes are watched closely because the ultimate beneficial owner is not visible to the Indian regulator, which raises the risk of round tripping and money laundering.

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 A. The Export Credit Guarantee Corporation, founded in 1957 and first called the Export Risks Insurance Corporation, insures an Indian exporter against the commercial risk of a buyer failing to pay and the political risk of war, exchange restrictions or a ban in the buyer's country, and it also guarantees the banks that lend to exporters. B is wrong because long-term project finance is the business of the EXIM Bank and of commercial banks, not of a credit insurer. C is wrong because a direct subsidy on the price of exported goods is barred by world trade rules, which is why Indian schemes now refund embedded duties instead. D is wrong because warehousing at ports is provided by the port trusts, by customs-bonded warehouses and by free trade warehousing zones.

The correct answer is C, 2020. The Aatmanirbhar Bharat Rojgar Yojana was announced in October 2020 as part of the Aatmanirbhar Bharat package, to bring back the jobs lost during the Covid-19 lockdown. Under it the central government paid the provident fund contribution for new employees taken on by establishments registered with the EPFO: in units with up to 1,000 workers it paid both the employee's twelve per cent and the employer's twelve per cent, and in larger units only the employee's share, for two years from the date of joining. The benefit covered workers drawing less than fifteen thousand rupees a month who were newly hired or had lost a job earlier that year. A is wrong because 2010 belongs to an earlier period of schemes. B is wrong because 2015 is the year of the Atal Pension Yojana. D is wrong because by 2022 registration under this scheme had already closed. Exam tip: ABRY, 2020, an EPFO-linked wage subsidy for new jobs after Covid.

The correct answer is B, countries that share a land border with India, namely China, Bangladesh, Pakistan, Nepal, Bhutan, Myanmar and Afghanistan. An entity of such a country, or an investor who is a citizen of or situated in one, may invest only through the government route whatever the sector, and the rule also covers a transfer of ownership that results in such beneficial ownership. Option A is wrong because Commonwealth membership has no bearing on the FDI policy. Option C is wrong because treaty abuse through low-tax jurisdictions is handled by tax law, including the General Anti-Avoidance Rule, and not by this press note. Option D is wrong because membership of the World Trade Organization is not a test under the FDI policy. The note was issued in April 2020, when share prices had fallen sharply, and the reason given was to curb opportunistic takeovers of Indian companies at depressed valuations.

The correct answer is B, Mahatma Gandhi National Rural Employment Guarantee Act. This law makes the right to work a legal guarantee: every rural household whose adult members are willing to do unskilled manual work is entitled to at least 100 days of wage employment in a financial year. The Act was passed in 2005 as NREGA, came into force from 2 February 2006 in 200 districts, was extended to the whole country by 2008 and renamed after Mahatma Gandhi in 2009. If work is not given within fifteen days, the worker is paid an unemployment allowance, and one third of the days are reserved for women. Option A is wrong because the IIM Act of 2017 only gives those management institutes the power to grant degrees. Option C is wrong because the Payment of Wages amendment merely allowed wages by cheque or bank transfer. Option D is wrong because the Citizenship Act deals with who is a citizen. Exam tip: NREGA 2005, in force 2 February 2006, 100 days of work.

The correct answer is A, the Secretary of the Department of Commerce. Under the Act of 2005 proposals for a zone go to the Board of Approval in the Department of Commerce, which the Commerce Secretary chairs and on which the revenue, finance and other departments are represented; below it each notified zone has a Development Commissioner and a Unit Approval Committee for individual units. B is wrong because the Reserve Bank regulates banking and the external payments system and has no role in clearing a zone. C is wrong because the state government recommends the proposal and provides land and state-level exemptions, but the approval itself is central. D is wrong because the Revenue Secretary sits on the Board as a member for tax questions and does not chair it.

The correct answer is B, Rural Cooperatives. Rural cooperative credit societies were the microfinance structure already in place when India became independent. They began with the Cooperative Credit Societies Act of 1904, which was passed to free village borrowers from moneylenders, and by 1947 a three tier structure of primary societies, district central cooperative banks and state cooperative banks was working across the provinces. The later forms of microfinance came much later. A is wrong because Joint Liability Groups were introduced by NABARD only in 2004 05 for small tenant farmers who lack land papers. C is wrong because the Self Help Group movement grew from the 1980s, and the SHG Bank Linkage Programme started as a pilot in 1992. D is wrong because the Grameen model belongs to Bangladesh, where Muhammad Yunus began it in the 1970s, and it reached India afterwards. Exam tip: cooperatives 1904, SHG Bank Linkage 1992, Joint Liability Groups 2004.

The correct answer is B. Hot money is the name given to short-term portfolio capital that chases returns from one market to another and can be withdrawn within days, pushing up share prices and the rupee while it comes in and pulling both down when it goes. Option A is wrong because direct investment in a factory is the opposite, locked into fixed assets and slow to reverse. Option C is wrong because printing currency to finance a deficit is deficit financing or monetisation, a quite different idea. Option D is wrong because remittances from workers abroad are receipts on the current account of the balance of payments and are among the steadiest inflows India receives, not volatile capital at all. The usual policy answer to such volatility is a cushion of foreign exchange reserves, which lets the central bank sell dollars when portfolio money leaves in a hurry.

The correct answer is A. The central obligation of a zone unit is a positive net foreign exchange earning, that is the value of its exports must exceed the value of its imports, measured over a block of five years counted from the date the unit begins production, and not year by year. B is wrong because a zone unit may sell into the domestic tariff area, though such a sale is treated as an import and pays the applicable duties, so it is not barred from the Indian market. C is wrong because the law lays down no condition about hiring local workers; employment generation is an objective of the policy but not a legal requirement on a unit. D is wrong because the minimum alternate tax was extended to zone units and developers by the Finance Act of 2011 and the income tax holiday carries sunset dates.

The correct answer is B, the capital account, more precisely the capital and financial account, which records transactions that change a country's assets and liabilities abroad; investment flows, loans and banking capital all sit here. Option A is wrong because the current account records trade in goods and services, primary income such as interest and dividends, and transfers such as remittances. Option C is wrong because errors and omissions is only a balancing item that absorbs statistical mismatches. Option D is wrong because a revenue account belongs to government budgeting, not to the balance of payments. A deficit on the current account is financed by a surplus on the capital account, which is why a fall in investment inflows puts pressure on the rupee. The two accounts are linked by identity: the balance of payments must balance, so a current account deficit is met by net inflows on the capital account or by drawing on reserves.

The correct answer is B, zero-rated. A supply to a developer or a unit of a special economic zone for authorised operations is a zero-rated supply, so the supplier either pays the tax and claims a refund or supplies under a letter of undertaking without paying it, and in either case the credit of the tax on inputs is preserved. A is wrong because no slab is applied to such a supply at all. C is wrong because an exempt supply blocks the credit of input tax and so leaves the tax buried in the price, which is exactly what zero-rating is designed to avoid, and this is the commonest trap in the question. D is wrong because the supply is very much within the law; it is dealt with by a special provision of the integrated tax Act rather than left outside the tax.