Economy 2015 MCQs

• Develop national strategies for conservation and sustainable use of biodiversity: This describes the objective of the UN Convention on Biological Diversity. Not related to Basel-III banking regulations.
• Improve banking sector’s ability to deal with financial stress and improve risk management: This accurately states the core aims of Basel-III banking accords - to bolster banks' resilience, stability and risk mitigation capabilities to weather economic crises.
• Reduce greenhouse gas emissions but places burden on developed countries: Describes goal of the Kyoto Protocol which specifically targets emissions reductions by developed countries. Unrelated to Basel-III banking reforms.
• Transfer technology to replace CFCs and reduce ozone depletion: Matches the objective of the Montreal Protocol concerning protection of ozone layer. Entirely unrelated to Basel-III banking accords.

In summary, Basel-III accords were specifically formulated by global banking regulators after the 2008 financial crisis to improve the banking sector's stability and ability to manage risks.

• The Accelerated Irrigation Benefits Programme (AIBP) was launched in 1996-1997 by the Government of India. The objectives of AIBP are to accelerate implementation of large irrigation projects that have been delayed due to financial and other constraints. It does NOT specifically provide loan assistance to poor farmers as mentioned in the statement. Hence, statement 1 is incorrect.
• The Command Area Development Programme (CADP) was launched in 1974-1975 by the Government of India. The objectives of CADP are to improve water use efficiency through upgrading and modernizing irrigation infrastructure in command areas (the areas served by an irrigation project). Hence, statement 2 is correct.

• Encouraging the farmers to use their own farm seeds and discouraging them to buy the seeds from others: (Incorrect) The Seed Village Concept does not promote only using own seeds or discouraging purchase of seeds from others. It focuses on quality seed production at village levels.
• Involving the farmers for training in quality seed production and thereby to make available quality seeds to others at appropriate time and affordable cost: (Correct) This accurately captures the essence of the Seed Village Concept's objectives regarding building skilled capacity in local seed production through farmers training.
• Earmarking some villages exclusively for the production of certified seeds: (Incorrect) as it does not specially designate only certain villages for certified seed production, but aims to promote localized seed production widely.
• Identifying entrepreneurs in the villages and providing them technology and finance to set up seed companies: (Incorrect) as the concept is focused more broadly on developing seed production skills among farming communities rather than setting up commercial seed companies.

• Human Rights Commission: An independent statutory body, not replaced by NITI Aayog.
• Finance Commission: A constitutional body deciding tax devolution between center and states. Still functioning as before, not replaced.
• Law Commission: An executive body responsible for legal reform in India. Also still operating, was not replaced by NITI Aayog.
• Planning Commission: Formulated India's 5-year plans and policy direction since 1950. In 2015, it was dissolved and replaced by the NITI Aayog to provide strategic policy advice instead of centralized planning.
• NITI Aayog was specifically established to take over policy making and advisory functions earlier carried out by the Planning Commission.
• It has taken over the role of directing strategic national level policies and development priorities.

• Being able to convert rupee notes into gold: This refers to "gold convertibility" or the gold standard, where a currency can be converted or redeemed for actual gold directly. However, it does not accurately address the definition of rupee convertibility, which involves free exchange of rupee and foreign currencies. So it is incorrect.
• Allowing the value of rupee to be fixed by market forces: While this describes the floating exchange rate system, which is the regime in India, it is not the same as rupee convertibility. Rbi and regulators could theoretically still impose restrictions on currency conversions with a market-decided exchange rate. So it falls short in explaining rupee convertibility.
• Freely permitting the conversion of rupee to other currencies and vice versa: By stating the rupee can be freely exchanged for foreign currencies without restrictions, it fully covers the scope of what a convertible currency means.
• Developing an international market for currencies in India: Having international market infrastructure for currency trading in India enables and eases exchange between rupee and foreign currencies. But it does not automatically mean there are no regulatory curbs on currency exchange, like may still exist for the rupee. Hence, it does not cover the concept of rupee convertibility.

• The Reserve Bank of India (RBI): RBI tracks several consumer price indices and inflation data, but does not specifically publish the Consumer Price Index Numbers for Industrial Workers (CPI-IW).
• The Department of Economic Affairs: They advise policy decisions for the Finance Ministry, but are not responsible for compiling and releasing price indices.
• The Labour Bureau: The Labour Bureau is an attached office of the Ministry of Labour and Employment. They specifically monitor, compile and publish the CPI-IW on a monthly basis.
• Department of Personnel and Training: This department handles civil services matters related to employee management, training etc. CPI calculation is not its function.

In summary, the Labour Bureau is the specific office under the Labour Ministry that has the mandate for generating and publishing the CPI-IW every month.

• Essential Commodities Act, 1955: This enables the government to regulate production, distribution and prices of key commodities. It focuses more on controlling inflation and availability rather than directly regulating agriculture markets.
• Agricultural Produce Market Committee (APMC) Act enacted by States: The APMC Acts established markets and rules for trading of agri-products. APMCs provide infrastructure and oversee operations of agriculture markets within a state.
• Agricultural Produce (Grading and Marking) Act, 1937: This provides standardization through grading and quality certification of agri goods. It helps farmers get fair prices. But it does not have direct relevance to governance of agriculture markets.
• Food Products Order, 1956 and Meat and Food Products Order, 1973: These orders allow the government to regulate production and quality control specifically for milk/dairy and meat products. The scope does not cover general regulation of agriculture markets.
• The APMC Act formulated by each State government explicitly sets up systems to regulate agriculture markets and facilitate trading within their jurisdiction.

• India's GDP growth rate increases drastically: A 0.5% SLR cut has marginal impact on GDP growth. It leads to slight monetary easing but not drastic enough to significantly alter GDP.
• Foreign Institutional Investors may bring more capital into our country: An SLR cut can improve market sentiment and equity investment attractiveness at the margin, but FII inflows are dependent on various macro factors, not just 50bps SLR change.
• Scheduled Commercial Banks may cut their lending rates: With lower SLR requirements, banks have greater liquidity to advance loans. This can lead banks to reduce interest rates on loans to attract borrowers.
• It may drastically reduce the liquidity to the banking system: A lower SLR injects MORE lendable liquidity into the banking system as banks need to invest less in securities.

• The Asian Development Bank: Publishes the 'Asian Development Outlook' report which studies the economic outlook specifically for the Asia Pacific region.
• The European Bank for Reconstruction and Development: Publishes the 'Regional Economic Prospects' report which analyzes the economies of the developing European and Central Asian regions.
• The US Federal Reserve Bank: Publishes many reports and statistics related to the US economy and financial system. But does not issue Global Economic Prospects.
• The World Bank: The World Bank prepares and publishes the Global Economic Prospects report biannually which provides forecasts global economy, developments across key countries and regions.

• Cabinet Committee on Economic Affairs: The CCEA gives final approval on the FRP of sugarcane based on the CACP's recommendations. As it is a Cabinet committee, only CCEA has authority to approve the sugarcane FRP.
• CACP recommends the FRP after analyzing various cost factors involved in sugarcane production.
• But the final approval authority rests with the CCEA chaired by the Prime Minister.
• Commission for Agricultural Costs and Prices: CACP recommends the FRP after analyzing production costs and other factors. However, it does not have authority to approve the final FRP.
• Directorate of Marketing and Inspection: They have a role in implementing regulated agricultural market policies. But they are not involved in determining commodity pricing like the FRP.
• Agricultural Produce Market Committee: APMCs facilitate trade operations in produce markets. They do not analyze production costs or set price floors for commodities.

The Eight Core Industries index tracks production performance of major sectors in the Indian economy. These sectors carry the following weights:

1. Electricity generation - highest weight of 19.85%
2. Steel production - 17.92% weight
3. Cement production - 11.33% weight
4. Coal production - 10.33% weight
5. Refinery Products - 28.04% weight
6. Crude Oil - 8.98 % weight
7. Natural Gas - 6.88% weight
8. Fertilizers - 6.67% weight

• Slowing economic growth rate: (Correct) When tax collection growth lags behind GDP growth, the tax-to-GDP ratio falls. This directly signals that economic expansion is slowing. Lower taxes to GDP means income and output growth rates are decelerating.
• Less equitable distribution of national income: (Incorrect) The tax-GDP ratio metric does not directly correlate or provide clear indication regarding income equality or inequality trends in the country. Equity is dependent on various fiscal factors like subsidies, transfers etc. beyond just taxes.
• A falling tax-GDP ratio points specifically to slower GDP growth compared to historical trends.
• However it does not unambiguously reflect any changes in income distribution or equality, which depends on broader fiscal policies.

• It has increased the share of States in the central divisible pool from 32 percent to 42 percent. This statement is correct. The 14th Finance Commission did raise the share of states in the central tax pool (central divisible pool) from 32% during previous 13th FC period, to 42%, thereby substantially increasing it.
• It has made recommendations concerning sector-specific grants. This statement is correct. Apart from raising states' share of central taxes, the 14th Finance Commission introduced features like sector-specific grants targeted for development of priority sectors like health, education etc.

• Providing housing loan to poor people at cheaper interest rates: While financial assistance for housing/home loans for economically weaker sections is a social welfare initiative, it is NOT the direct purpose of the PMJDY scheme per se. PMJDY focuses specifically on expanding regular bank accounts and financial services.
• Promoting women’s Self-Help Groups in backward areas: Facilitating self-help groups and women's empowerment programs in rural/backward areas helps further financial inclusion. However, the principal target of PMJDY is giving all households access to banking, not just promoting specific community/women groups.
• Promoting financial inclusion in the country: PMJDY was launched precisely with the stated vision and mission of universal financial inclusion for India's unbanked population. Introducing them to formal financial channels is the central theme.
• Providing financial help to the marginalized communities: While marginalized groups are covered under PMJDY for basic banking access, the scheme is not designed as financial assistance or grants for vulnerable communities per se. It is centered around financial INCLUSION rather than monetary help.

In summary, The foundational objective of the Pradhan Mantri Jan-Dhan Yojana - promoting nationwide financial inclusion and banking access, which is distinct from loan assistance, helping SHGs or grants.

• Reducing revenue expenditure: Revenue expenditure like government employee salaries, administrative costs, subsidies etc. account for a major chunk of annual spending. Reducing this significantly lowers current expenditure, thereby directing lowering deficits without impacting development capital expenditure.
• Introducing new welfare schemes: While important for social welfare, new schemes entail substantial government spending on beneficiary coverage, operational costs etc. This bloats the expenditure side, increases fiscal deficit and interest obligations - hence counterproductive.
• Rationalizing subsidies: Review & optimization of subsidies across fuel, food, fertilizer areas to target only needy beneficiaries can save 10s of billions in wasteful subsidies annually. Lower subsidy payout directly reduces expenditure and lowers deficit.
• Expanding industries: While essential for growth & jobs, industry expansion does not check rising deficits directly. It expands production, tax revenues over the longer term. However, deficits are a short-term annual fiscal challenge requiring direct expenditure rationalization.

In summary, reducing revenue expenditure and rationalizing subsidies are precise policy actions that can curb the high annual government expenditure driving repeated budget deficits.

• Goods and services - This refers to a country's real physical resources and output in the economy. While vital for economic health and exports, the availability of goods and services domestically does not directly fulfill a country's need for internationally accepted liquid global currencies.
• Gold and silver - While precious metals have historically been linked to definitions of money and liquidity, nowadays most international transactions and payments are denominated and settled in dollars, euros, yen etc. So the money supply of just gold and silver is too limited.
• Dollars and other hard currencies - This accurately reflects modern global understanding of monetary liquidity i.e. readily available supply of major stable globally accepted currencies like the dollar and euro that are constantly demanded for cross-border payments and investments. Shortage of convertible money leads to international illiquidity issues.
• Exportable surplus - This relates more to an excess in a country's export capacity versus its imports. Having an export surplus supports balance of payments but does not automatically assure availability of internationally recognized currencies needed for payments.

• Labour-augmenting technological progress: Refers to technology advancements that increase productivity per unit of labour input. But steel ploughs themselves do not boost labour productivity in farming directly.
• Capital-augmenting technological progress: As explained, steel ploughs augment the productivity potential of that unit of capital input on farms. More output per same number of ploughs.
• Capital-reducing technological progress: Steel ploughs in fact allow MORE capital input usage on farms. They do not reduce capital/plough requirements.

In summary, steel ploughs exemplify technology progress that increases output per capital input, not labour (as labour hours may remain the same).

• Controlling the inflation in India is the responsibility of the Government of India only: (Incorrect) Inflation control is the joint responsibility of both the central government as well as the RBI through coordinated fiscal and monetary policies.
• The Reserve Bank of India has no role in controlling the inflation. (Incorrect) The RBI plays the lead role in regulating inflation via key monetary policy rates, reserve requirements and money supply management.
• Decreased money circulation helps in controlling inflation: Tightening money supply by decreasing circulation through reduced government spending and credit creates less liquidity for consumers to demand goods. This subsequently controls price rise.
• Increased money circulation helps in controlling inflation (Incorrect) Expanding money supply and liquidity will only stoke aggregate demand much more rapidly than supply. This will further push up prices i.e., be inflationary.

Bank Rate:

• The interest rate charged by the central bank (RBI) on lending to commercial banks.
• Key direct monetary policy tool that allows the RBI to expand or contract money supply and liquidity.
• Hence it is a component of monetary policy.

Open Market Operations (OMO):

• RBI buys/sells government securities in the open market to inject or suck out rupee liquidity.
• Key indirect tool to manage money supply as per monetary policy.
• Thus it comes under ambit of RBI's monetary policy.

Public Debt:

• Related to fiscal management of existing stock of government domestic and foreign borrowing.
• Managed by the Finance Ministry/Department of Economic Affairs through debt issuance.
• Does NOT qualify as instrument of monetary policy formulated by the RBI.

Public Revenue:

• Pertains to government income through taxes and non-tax receipts as part of fiscal policy.
• Channelized by Ministry of Finance, not a monetary policy tool of the central bank.

In summary, Bank Rate and Open Market Operations are key mechanisms used by the RBI to regulate money supply and liquidity as part of monetary policy formulation. Public debt and revenue are fiscal in nature.

1. The rate of growth of Real Gross Domestic Product has steadily increased in the last decade: The data shows that the growth rate of India's Real GDP has not steadily increased over the last decade. The annual GDP growth rate varied significantly, with fluctuations both upward and downward. For example, the GDP growth rate was 8.26% in 2016, followed by 6.80% in 2017, 6.45% in 2018, 3.87% in 2019, -5.83% in 2020 (likely due to the COVID-19 pandemic), 9.05% in 2021, 7.00% in 2022, and 6.5% for 2023​​. Therefore, this statement is incorrect.
2. The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade: The nominal GDP of India at market prices has indeed increased over the last decade. For instance, the GDP in 2013 was $1.856 trillion, and it increased each year to reach $3.385 trillion in 2022 and $3.732 trillion in 2023​​​​. This trend reflects an overall increase in the GDP at market prices in rupees.