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Indian EconomyMedium

The Tarapore Committee is associated with which of the following?

  1. A.Reform of agricultural credit
  2. B.Capital account convertibility
  3. C.Goods and services tax design
  4. D.Restructuring of public sector banks

Correct answer

B. Capital account convertibility

Explanation

The correct answer is B, capital account convertibility. The committee headed by S. S. Tarapore reported in 1997 and again in 2006 and set out a phased road map for making the rupee convertible on the capital account, together with the preconditions to be met first, such as fiscal discipline, low and stable inflation and a strong banking system. Option A is wrong because agricultural credit has been examined by other committees and is not this one's subject. Option C is wrong because the design of the goods and services tax came from an empowered committee of state finance ministers and later the GST Council, a different process altogether. Option D is wrong because the restructuring of public sector banks belongs to the Narasimham Committee reports of 1991 and 1998. Linking each committee with its one subject is the quickest way to answer this recurring question type.

Read the full article: Foreign Exchange and Exchange Rate: Concepts and Policy

Practice Questions

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Q1.Indian EconomyAsked in: UPSC Civil Services · UPSC Civil Services Prelims 2022Hard

With reference to the Indian economy, consider the following statements: 1. An increase in the Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee. 2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness. 3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and REER. Which of the above statements are correct?

  1. A.1 and 2 only
  2. B.2 and 3 only
  3. C.1 and 3 only
  4. D.1, 2 and 3
Show answer
Correct answer: C. 1 and 3 only

Statement 1 is right because the NEER is a trade weighted index of the rupee against a basket of partner currencies, so a rise in the index means the rupee has appreciated in nominal terms.

Q2.Indian EconomyAsked in: UPSC Civil Services · UPSC Civil Services Prelims 2022Hard

Consider the following statements: 1. Tight monetary policy of US Federal Reserve could lead to capital flight. 2. Capital flight may increase the interest cost of firms with existing External Commercial Borrowings (ECBs). 3. Devaluation of domestic currency decreases the currency risk associated with ECBs. Which of the statements given above are correct?

  1. A.1 and 2 only
  2. B.2 and 3 only
  3. C.1 and 3 only
  4. D.1, 2 and 3
Show answer
Correct answer: A. 1 and 2 only

Statement 1 is right because when the United States Federal Reserve tightens, returns there become attractive and portfolio money flows out of emerging markets, which is capital flight.

Q3.Indian EconomyAsked in: SSC CGL · 09 Sept, 2024, Shift 1Easy

What challenge does foreign investment often face in India?

  1. A.Excessive foreign competition
  2. B.Inconsistent regulatory environment
  3. C.Lack of skilled labour
  4. D.Lack of consumer base
Show answer
Correct answer: B. Inconsistent regulatory environment

Foreign investors bring in foreign exchange and look for predictable rules, and the difficulty most often listed for India is regulatory uncertainty: changing rules, clearances spread across departments and states, and disputes that take long to settle.

Q5.Indian EconomyMedium

In which year did India accept the obligations of Article VIII of the IMF, making the rupee fully convertible on the current account?

  1. A.1991
  2. B.1993
  3. C.1994
  4. D.1999
Show answer
Correct answer: C. 1994

India accepted the obligations of Article VIII of the Articles of Agreement of the International Monetary Fund in August 1994, which means the rupee can be exchanged freely for trade in goods and services, travel, education, remittances and interest payments.