Indian Economy Mixed Quiz: Set 50

The correct answer is B, USSR. The Soviet Union under Joseph Stalin launched the world's first Five Year Plan in 1928.

The first Soviet plan, for 1928 to 1932, set targets for rapid industrial growth and collectivised agriculture, with the state deciding what to produce. Its apparent success in building heavy industry impressed many countries, including Indian leaders. India adopted five year plans after independence: the First Five Year Plan ran from 1951 to 1956 and stressed agriculture, on the Harrod-Domar model. The Planning Commission, set up in 1950, was replaced by NITI Aayog in 2015, and the Twelfth Plan (2012–17) was the last.

A is wrong: China began its first Five Year Plan in 1953, copying the Soviet model.

C is wrong: India started planning in 1951, more than twenty years after the USSR.

D is wrong: Bhutan began its first five year plan only in 1961, with Indian help.

Exam tip: idea of five year plans came from the USSR (1928); India's First Plan 1951–56, last (Twelfth) Plan 2012–17, NITI Aayog from 1 January 2015.

The correct answer is B, RoDTEP, the remission of duties and taxes on exported products. The earlier merchandise exports scheme was held to be inconsistent with world trade rules because it gave an incentive directly on exports, so it was replaced by a scheme that only refunds the duties and taxes embedded in an exported product which no other scheme refunds. A is wrong because RoSCTL, the rebate of state and central taxes and levies, is confined to apparel and made-up garments and came earlier, in 2019. C is wrong because the export promotion capital goods scheme allows duty-free import of machinery against an export obligation and is a wholly different instrument. D is wrong because the service exports scheme applied to the export of services, not of merchandise, and did not replace the merchandise scheme.

The correct answer is A, 1, 2 and 4 only. Expansionary policies, fiscal stimulus and higher purchasing power all raise aggregate demand, which is what drives demand-pull inflation.

Demand-pull inflation happens when total demand for goods and services runs ahead of what the economy can supply, described as too much money chasing too few goods. Expansionary monetary policy (cheap, easy credit) and fiscal stimulus (tax cuts, higher government spending) put more money in people's hands. Higher purchasing power, from rising incomes or easy credit, has the same effect. Cost-push inflation, in contrast, starts on the supply side, when the costs of production such as wages, raw materials or fuel go up.

Inflation-indexing of wages (3) raises the cost of production and feeds a wage-price spiral, so it is treated as a cost-push factor. Rising interest rates (5) make borrowing costly and cut demand, so they reduce inflation.

So B, C and D are wrong because each includes statement 3 or 5 or both.

Exam tip: demand-pull = more spending power; cost-push = higher input costs; raising interest rates is the RBI's tool to curb demand.

The correct answer is A, M. Narasimham. The Committee on the Financial System of 1991 and the Committee on Banking Sector Reforms of 1998, both under him, recommended prudential norms for income recognition and provisioning, a minimum capital to risk-weighted assets ratio, a lower statutory liquidity ratio and cash reserve ratio, entry for new private banks and greater autonomy for bank boards, and these became the base of reform. Option B is wrong because Raghuram Rajan chaired the committee on financial sector reforms of 2008 and later, as Governor, ordered the asset quality review of 2015. Option C is wrong because Bimal Jalan was a Governor of the Reserve Bank and later headed a committee on its economic capital framework. Option D is wrong because Urjit Patel chaired the committee on the monetary policy framework.

The correct answer is D, 1, 2 and 3. The capital budget records capital receipts and capital expenditure, and all three items fall in it.

The Union Budget has two parts. The revenue budget holds revenue receipts, such as taxes and dividends, and revenue expenditure, such as salaries, interest and subsidies. The capital budget holds items that either create assets or create or reduce liabilities. On the receipts side it includes market borrowings, loans received from foreign governments and bodies, recovery of loans and disinvestment proceeds. On the expenditure side it includes spending on assets like roads, buildings and machinery, and loans and advances given to States, Union Territories and public enterprises.

A is wrong: it leaves out foreign loans received and loans granted to States, both capital items.

B is wrong: it leaves out expenditure on acquiring assets, the main form of capital spending.

C is wrong: it leaves out loans received from foreign governments, which are capital receipts.

Exam tip: capital budget = items that create assets or change liabilities; loans taken and loans given both belong here.

The correct answer is A, 18 to 40 years. The Atal Pension Yojana, launched in 2015 and administered by the Pension Fund Regulatory and Development Authority, admits subscribers between eighteen and forty years of age so that every subscriber contributes for at least twenty years before the pension begins at sixty. The guaranteed pension ranges from one thousand to five thousand rupees a month, according to the contribution chosen. Option B is wrong because eighteen to fifty is the age band of the Jeevan Jyoti life insurance scheme. Option C is wrong because twenty-one is not an entry age under any of these schemes. Option D is wrong because twenty-five to sixty would leave too short a contribution period for the guarantee to work, and no such band exists in the scheme.

The correct answer is D, a foreign company transfers shares and such shares derive their substantial value from assets located in India. That is exactly what an indirect transfer means in Indian tax law.

In an indirect transfer, no Indian asset changes hands directly. Instead, shares of a foreign company are sold abroad, but those shares are valuable mainly because the company owns assets in India. The issue became famous with the Vodafone case, in which the Supreme Court held in 2012 that such a sale was not taxable in India. Parliament then amended the Income Tax Act retrospectively the same year to tax it, and the Taxation Laws (Amendment) Act, 2021 withdrew that retrospective demand for transfers made before 28 May 2012.

A is wrong: it describes ordinary taxation of an Indian company's foreign profits.

B is wrong: it describes where a foreign investor pays tax, not a transfer of shares.

C is wrong: buying and selling tangible assets abroad is a direct transaction, not an indirect transfer.

Exam tip: indirect transfer = offshore share sale deriving value from Indian assets; linked with Vodafone (2012) and the 2021 repeal of the retrospective tax.

The correct answer is A, the committee chaired by Vijay Kelkar. Set up by the Finance Ministry after a decade in which stalled road and power concessions turned into bad loans, the Kelkar Committee reported in 2015 that risk had been pushed on to whoever would accept it rather than on to the party best able to manage it. It asked for independent sector regulators, a specialised dispute resolution mechanism instead of years of litigation, better preparation of projects before bidding, and an end to the use of PPP for small works. B led committees on poverty estimation and on the Twelfth Plan approach. C headed a group on the Reserve Bank economic capital framework. D is remembered for the two banking sector reform committees of 1991 and 1998.

The correct answer is C, 1 and 3 only. Statement 1 states the FRBM Review Committee's target correctly and statement 3 is Article 293(3), while statement 2 swaps the figures.

The FRBM Review Committee, chaired by N. K. Singh, reported in 2017. It made public debt the main anchor of fiscal policy and recommended a general government debt of 60% of GDP by 2023, split as 40% for the Centre and 20% for the States. Article 293(3) of the Constitution says that a State which still owes any part of a loan made by the Government of India cannot raise a new loan without the Centre's consent.

Statement 2 is wrong: it reverses the shares. The Centre's liabilities were close to half of GDP, much larger than those of the States taken together.

So A leaves out the correct statement 3, B includes the wrong statement 2 and drops statement 1, and D also includes statement 2.

Exam tip: FRBM Act 2003; N. K. Singh Review Committee 2017 suggested a 60:40:20 debt target; Article 293 governs borrowing by States.

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, Structural unemployment. When the jobs on offer need skills, or are in places, that do not match the workers available, people stay jobless even though vacancies exist.

Structural unemployment comes from long-term changes in the economy: new technology, the decline of old industries, or a shift of demand from one region to another. A handloom weaver who loses work to power looms, or a worker in one state while the jobs are in another, cannot simply take the vacancies that exist. It usually lasts longer than other kinds and is reduced by skill training, education and help with moving to where the work is. India's Skill India programme targets this kind of unemployment.

B is wrong: disguised unemployment means more people working on a job than needed, as on small family farms, where removing some does not cut output.

C is wrong: "altered unemployment" is not a recognised type of unemployment.

D is wrong: cyclical unemployment rises and falls with the business cycle, during a recession or slowdown.

Exam tip: skill or place mismatch = structural; recession = cyclical; extra hands on a farm = disguised; between jobs = frictional.

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, 1 and 2 only. The Sugamya Bharat Abhiyan is a campaign to make places, transport and information accessible; it is run by the Department of Empowerment of Persons with Disabilities and has no pension component.

Also called the Accessible India Campaign, it was launched on 3 December 2015, the International Day of Persons with Disabilities. It works on three fronts: the built environment (making government buildings, airports and stations barrier-free with ramps, lifts and accessible toilets), the transport system, and information and communication technology (accessible websites, sign language on TV). Its goal is equal opportunity and an inclusive society in which persons with disabilities can live independently.

A is wrong: statement 3 is incorrect, because disability pensions come under other schemes, not this campaign.

C is wrong: it wrongly includes statement 3 and leaves out statement 1, which is correct.

D is wrong: statement 2 is also correct, as building an inclusive society is the campaign's aim.

Exam tip: Sugamya Bharat Abhiyan, 3 Dec 2015, DEPwD; three pillars: buildings, transport, ICT.

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 D, a credit system granted by IMF to its members. The reserve tranche is the part of a member's IMF quota that it can draw on at any time, without conditions.

Every member of the International Monetary Fund pays a quota subscription. Originally a quarter of it had to be paid in gold, which gave the portion its old name, gold tranche. Today that portion is paid in reserve assets such as SDRs or major currencies, and the name reserve tranche is used. Drawing on it is not treated as borrowing: there is no interest, no repayment obligation and no policy condition, so countries count it as part of their foreign exchange reserves. India's RBI lists its reserve tranche position among the components of forex reserves.

A is wrong: the World Bank lends for development projects and has no reserve tranche.

B is wrong: it is not an operation of a central bank, though central banks hold it as a reserve.

C is wrong: the WTO regulates trade and does not grant credit.

Exam tip: India's forex reserves = foreign currency assets + gold + SDRs + reserve tranche position in the IMF.

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, World Economic Forum. The Global Gender Gap Index is published every year by the World Economic Forum in its Global Gender Gap Report.

The World Economic Forum, a non-profit foundation based in Geneva, Switzerland, and known for its annual meeting at Davos, first released the index in 2006. It measures the gap between women and men in four areas: economic participation and opportunity, educational attainment, health and survival, and political empowerment. Scores run from 0 to 1, where 1 means full parity, so the index measures the size of gaps rather than overall levels of development. The WEF also publishes the Global Competitiveness Report and the Global Risks Report.

B is wrong: the UN Human Rights Council reviews human rights records through the Universal Periodic Review and does not publish this index.

C is wrong: UN Women works for gender equality but is not the publisher of this ranking.

D is wrong: the WHO deals with health and does not rank gender gaps.

Exam tip: Gender Gap Index = WEF (four pillars, since 2006); Gender Inequality Index = UNDP, in the Human Development Report.

The correct answer is A, 1 only. A firm in perfect competition faces a perfectly elastic demand curve, but a monopolistically competitive firm faces a downward-sloping, fairly elastic one, not a perfectly inelastic one.

In perfect competition there are many sellers of an identical product, so each firm is a price taker: it can sell any quantity at the market price and nothing at a higher price. Its demand curve is therefore a horizontal line. Under monopolistic competition, as with soaps or restaurants, products are slightly different, so a firm can raise its price a little and lose only some customers. Its demand curve slopes down and is quite elastic because close substitutes exist.

B is wrong: statement 2 is false, since perfectly inelastic demand would be a vertical line, which no such firm faces.

C is wrong: only statement 1 is correct.

D is wrong: statement 1 is correct.

Exam tip: perfect competition = horizontal demand curve; monopolistic competition = downward-sloping, elastic curve.

The correct answer is B, Nominal interest rate. The nominal interest rate is simply the percentage by which the amount repaid exceeds the amount borrowed, with no adjustment for inflation.

If you borrow ₹100 and repay ₹110 after a year, the nominal interest rate is 10%. This is the rate written in the loan agreement. It does not tell you how much extra purchasing power the lender gains, because prices may also rise during the year. To find that, economists use the real interest rate, which is roughly the nominal rate minus the rate of inflation. With 10% nominal interest and 6% inflation, the real interest rate is about 4%.

A is wrong: the bank rate is the rate at which the Reserve Bank of India lends long-term funds to commercial banks.

C is wrong: the real interest rate is the nominal rate adjusted for inflation, not the plain percentage paid back.

D is wrong: terms of credit is the whole package of a loan: interest rate, collateral, documentation and mode of repayment.

Exam tip: real interest rate ≈ nominal interest rate − inflation rate.

The correct answer is A, 1 and 2 only. IIBs protect investors from inflation, and because of that protection the government can borrow at a lower coupon; they carry no special tax exemption.

In an inflation-indexed bond the principal, and so the interest paid on it, is linked to a price index, so the investor's real return stays intact whatever inflation turns out to be (statement 2). Since the investor no longer needs an extra inflation premium in the coupon, the government can offer a lower coupon rate than on an ordinary bond (statement 1). The RBI issued such bonds linked to the Wholesale Price Index in 2013 and Consumer Price Index-linked bonds for retail investors later that year.

B is wrong: it includes statement 3, but interest and capital gains on IIBs are taxed under normal income tax rules.

C is wrong: it leaves out statement 2, the main purpose of IIBs, and includes the false statement 3.

D is wrong: statement 3 is false, so all three cannot be correct.

Exam tip: IIB = principal indexed to inflation, lower coupon for government, real-return safety for investor, but no tax exemption.