Indian Economy Mixed Quiz: Set 5

The correct answer is B. The deflator compares what the year's output costs at this year's prices with what the same output would cost at base year prices, so nominal GDP goes on top and real GDP below, and the ratio is expressed as a percentage. A value above a hundred means the general price level has risen since the base year.

Option A inverts the fraction and would show prices falling whenever they are in fact rising. Option C gives a difference in rupees, which is not an index and cannot be compared across years or countries. Option D is the formula for per capita income, not for a price index. The deflator differs from the consumer and wholesale price indices in covering every good and service included in GDP rather than a fixed basket.

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 A, M. Visvesvaraya. Sir M. Visvesvaraya, the engineer and former Diwan of Mysore, wrote ‘Planned Economy for India’ in 1934, the first book to set out a plan for India’s development. He proposed doubling the national income in ten years by shifting people from farming to industry, which is why he is seen as a pioneer of economic planning in India. His birthday, 15 September, is observed as Engineers’ Day, and he received the Bharat Ratna in 1955. Other plans followed: the Congress set up the National Planning Committee under Jawaharlal Nehru in 1938, and a group of industrialists released the Bombay Plan in 1944. Option B is wrong because J. R. D. Tata was one of the industrialists who signed the Bombay Plan, not the author of this book. Option C is wrong because G. D. Birla was also a signatory of the Bombay Plan. Option D is wrong because Pattabhi Sitaramayya is known for writing a history of the Indian National Congress. Exam tip: Visvesvaraya’s book 1934, National Planning Committee 1938, Bombay Plan and Gandhian Plan 1944, People’s Plan 1945.

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 D, Reserve Bank of India. Under Section 22 of the RBI Act, 1934, the Reserve Bank has the sole right to issue banknotes in India. The RBI was set up on 1 April 1935 and nationalised in 1949, and its head office is in Mumbai. It issues notes under the Minimum Reserve System, keeping at least ₹200 crore in gold and foreign assets, of which ₹115 crore must be gold. One small exception is worth remembering: the one-rupee note and all coins are issued by the Government of India through the Ministry of Finance, while the RBI only puts them into circulation. A is wrong because the State Bank of India is the largest commercial bank but cannot print currency. B is wrong because no body called a 'Securities bank' has any power to issue currency in India. C is wrong because the World Bank is an international lender in Washington, D.C., and issues no country's currency. Exam tip: the RBI issues all notes except the one-rupee note, which, like coins, is issued by the Government of India.

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 A, Taxes. Fiscal policy is the government's use of taxation and public spending, so taxes are its main tool. In India, fiscal policy is run by the Union Government through the Ministry of Finance, and the Union Budget is its yearly statement. By raising or cutting taxes and spending, the government tries to steer growth, jobs and prices, and the gap between what it spends and what it earns is the fiscal deficit. Monetary policy is the other lever, and it belongs to the Reserve Bank of India, which works through money supply and credit. Option B is wrong because the Cash Reserve Ratio, the share of deposits banks must keep with the RBI, is a monetary tool. Option C is wrong because a credit ceiling, a limit on how much banks may lend, is a selective credit control used by the RBI. Option D is wrong because the Bank Rate, at which the RBI lends to banks, is also a monetary tool. Exam tip: fiscal means the Finance Ministry's taxes and spending; monetary means the RBI's rates and ratios.

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 A, exports minus imports, a figure called net exports. Exports are goods produced at home and sold abroad, so they belong in domestic production. Imports are produced abroad but are already included in the spending of households, firms and government, so they must be taken out to leave only what the country itself produced.

Option B reverses the subtraction and would wrongly reduce GDP whenever a country exports more than it imports. Option C counts exports while ignoring imports and therefore overstates domestic production. Option D, depreciation, plays no part in this identity; it appears only when a gross figure is converted into a net one. The identity in short form is: GDP equals C plus I plus G plus net exports.

The correct answer is A, Assam. Assam became the first state to ratify the GST Constitution Amendment Bill, on 12 August 2016, soon after Parliament passed it. Because GST changes the taxing powers of both the Centre and the states, the bill needed approval from at least half of the state legislatures under Article 368. Bihar was the second state and Jharkhand the third. After enough states ratified it, the President gave assent on 8 September 2016 and it became the Constitution (101st Amendment) Act, 2016. It added Article 246A and created the GST Council under Article 279A, and GST came into force on 1 July 2017. B is wrong because West Bengal ratified the bill only after Assam. C is wrong because Meghalaya was not the first state to ratify it. D is wrong because Arunachal Pradesh was not the first state either. Exam tip: GST = 101st Amendment, 2016; first state to ratify = Assam; GST Council = Article 279A, chaired by the Union Finance Minister; GST in force from 1 July 2017.

The correct answer is B, 2 and 3 only. Selling dollars supports a falling rupee and buying dollars absorbs heavy inflows, but to fight inflation the RBI sells, not buys, securities. Buying government securities through open market operations pumps rupees into the system and would add to inflation, so when inflation is too high the RBI sells securities to soak up money. So statement 1 is wrong. When the rupee is falling fast, the RBI sells dollars from its reserves, which raises the supply of dollars and steadies the rupee, so statement 2 is right. When interest rates in the USA or the EU fall, investors move money to India for better returns; the dollar inflow pushes the rupee up, and the RBI buys dollars to prevent sharp appreciation and to add to reserves, so statement 3 is right. Option A is wrong because it includes statement 1. Option C is wrong for the same reason. Option D is wrong because statement 1 is false. Exam tip: high inflation, sell bonds; weak rupee, sell dollars; heavy inflows, buy dollars.

The correct answer is B, Only two. The government bond market and the stock market deal in long-term funds, so they are capital markets; call money and treasury bills belong to the money market. The dividing line is maturity: the capital market handles funds for more than one year, and the money market handles funds for up to one year. Government bonds, or dated securities, run for 5 to 40 years, and shares have no maturity at all. Call money is overnight lending between banks, with notice money for 2 to 14 days, and treasury bills are short-term government borrowing for 91, 182 or 364 days. The capital market is regulated by SEBI, while the money market is regulated mainly by the RBI. Option A is wrong because both bonds and shares are capital market segments. Option C is wrong because it would add one short-term market. Option D is wrong because call money and treasury bills are money market segments. Exam tip: over one year is capital market, up to one year is money market; T-bills are 91, 182 and 364 days.

The correct answer is A, Personal income tax. A progressive income tax takes a bigger share when incomes rise and a smaller one when they fall, without any new decision by the government. Such tools are called automatic or built-in stabilisers, because they soften booms and slumps on their own. In a boom, rising incomes push people into higher tax slabs, so tax collections grow faster than income and cool down spending. In a recession, collections fall faster than income, which leaves more money in people's hands. Unemployment benefits work the same way on the spending side of the budget. Option B is wrong because the reverse repo rate is changed by the Reserve Bank of India through a deliberate policy decision, which makes it discretionary monetary policy. Option C is wrong because open market operations, the buying and selling of government securities by the RBI, are also a deliberate policy step. Option D is wrong because a bond price is a market outcome, not a policy tool. Exam tip: automatic stabilisers need no decision; progressive taxes and unemployment benefits are the classic pair.

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. The National Statistical Office, formed by merging the Central Statistical Office with the National Sample Survey Office, prepares the national accounts under the Ministry of Statistics and Programme Implementation. It fixes the base year of the series, releases the estimates of GDP and gross value added, and follows the Indian financial year from 1 April to 31 March.

Option A, the Reserve Bank of India, is the central bank; it publishes economic data and manages monetary policy but does not compile the national accounts. Option C, the Finance Commission, is a constitutional body that recommends how taxes are shared between the Union and the states. Option D, SEBI, regulates the securities market. Questions in this area often pair an organisation with a function, so learn the pairs together.

The correct answer is B, NABARD. The National Bank for Agriculture and Rural Development was set up on 12 July 1982 by an Act of Parliament, on the recommendation of the Sivaraman Committee (CRAFICARD), as the apex body for rural and farm credit. It took over the agricultural credit work of the Reserve Bank and the whole of the Agricultural Refinance and Development Corporation. Its headquarters is in Mumbai, it refinances cooperative banks and regional rural banks, and it runs the Rural Infrastructure Development Fund. The year 1982 and the words "farmers" and "national level" together point only to NABARD. A, NEDFI, the North Eastern Development Finance Corporation, was set up in 1995 to fund projects in the North-East. C, IFCI, the Industrial Finance Corporation of India, was India's first development bank, founded in 1948 for industry, not farmers. D, SIDBI, the Small Industries Development Bank of India, began in 1990 at Lucknow for small and medium enterprises. Exam tip: IFCI 1948, NABARD 1982, SIDBI 1990, NEDFI 1995.

The correct answer is A, Conducting 'Open Market Operations'. Sterilization means cancelling out the effect of foreign exchange operations on the domestic money supply, and the RBI does it mainly through open market operations. When dollars flow in and the RBI buys them to stop the rupee rising too fast, it releases rupees into the system, which can push up inflation. To neutralise this, it sells government securities and pulls the same amount of rupees back. When it sells dollars, it can buy securities to put rupees back in. Other tools used for this are the Market Stabilisation Scheme (from 2004), reverse repo and the Standing Deposit Facility. Option B is wrong because oversight of payment and settlement systems is about safe transactions, not the money supply. Option C is wrong because debt and cash management is the RBI's role as banker to the governments. Option D is wrong because regulating NBFCs is a supervisory function. Exam tip: buying dollars adds rupees, an OMO sale takes them back, and together that is sterilization.

The correct answer is A. Per capita income is the average income of a person in a year, found by dividing national income by the entire population, including children and those who do not work. It is used to compare living standards between countries and between states, and it improves only when income grows faster than the population.

Option B would give income for each worker, a different measure altogether, since the whole population shares the income earned. Option C mixes up a level with a rate of change and produces no meaningful figure. Option D describes household savings, which are a part of income that is not consumed. Remember that per capita income is an average and hides inequality: two countries with the same per capita income can have very different patterns of distribution.

The correct answer is A, 1949. The Reserve Bank of India was nationalised on 1 January 1949 under the Reserve Bank of India (Transfer to Public Ownership) Act, 1948. Until then it was owned by private shareholders. The RBI was set up on 1 April 1935 under the Reserve Bank of India Act, 1934, on the recommendation of the Hilton Young Commission. Its first office was in Calcutta and it moved permanently to Bombay, now Mumbai, in 1937. C.D. Deshmukh, appointed in 1943, was its first Indian Governor. B is wrong because 1962 is not linked to the RBI's ownership. C is wrong because 1947 was the year of Independence; the RBI still had private shareholders then. D is wrong because 1955 is when the Imperial Bank of India became the State Bank of India. Exam tip: RBI set up 1 April 1935, nationalised 1 January 1949; SBI formed 1955; 14 major banks nationalised in 1969.

The correct answer is B, Base year. Real GDP measures the value of all final goods and services produced in a year at the prices of one fixed earlier year, called the base year, so that the effect of rising prices is removed and true growth can be seen. Nominal GDP uses the current year's prices. The ratio of nominal GDP to real GDP, multiplied by 100, is the GDP deflator, a measure of inflation. The base year is chosen by the government's statistics office and is revised from time to time so that it reflects the present structure of the economy. A is wrong because the fiscal year is simply the twelve months over which accounts are kept, April to March in India. C is wrong because financial year is another name for the same accounting period, not a price reference. D is wrong because 'common year' means a calendar year of 365 days, a term from the calendar, not economics. Exam tip: real GDP = base-year prices, nominal GDP = current prices; GDP deflator = nominal divided by real, times 100.