Economy 2016 MCQs

It is the ratio of the value of imports to the Gross Domestic Product of a country: This ratio compares the total value of a country's imports to its overall Gross Domestic Product (GDP). A high ratio suggests that a significant portion of the GDP is dedicated to purchasing goods and services from abroad, whereas a lower ratio indicates a smaller dependence on imports in relation to the size of the economy. While this metric provides insight into the relative scale of a country's imports, it does not directly relate to the concept of 'import cover.'

It is the total value of imports of a country in a year: This option refers to the aggregate monetary value of all goods and services that a country imports over a one-year period. It's a measure of the total import activity but does not consider the country's ability to sustain these imports under changing economic conditions. This figure is important for understanding the scale of a country's importation but is not the same as 'import cover.'

It is the ratio between the value of exports and that of imports between two countries: This ratio, often referred to as the trade balance, measures the difference between the value of goods and services a country exports and the value of what it imports. A trade surplus occurs if exports exceed imports, while a trade deficit occurs if imports are greater than exports. This ratio is crucial for understanding trade relationships and the balance of trade but does not reflect 'import cover.'

It is the number of months of imports that could be paid for by a country's international reserves: 'Import cover' refers to this concept. It measures the duration (typically in months) that a country can continue to import goods and services using its existing foreign exchange reserves, without any additional income. This measure is a key indicator of a country's financial stability and resilience to external economic shocks. A higher import cover suggests a stronger buffer against external risks, such as sudden stops in capital inflows or export revenue declines.

• WTO affairs: (Correct) The amber, blue and green boxes are WTO terminology classifying domestic agricultural subsidies based on trade distortion under the Agreement on Agriculture. This is an integral part of WTO affairs.
• SAARC affairs: (Incorrect) SAARC refers to regional cooperation between South Asian countries. SAARC discussions have no bearing on classification of agriculture subsidies using WTO’s amber/blue/green box framework.
• UNFCCC affairs: (Incorrect) UNFCCC refers to the UN agency dealing with climate change related matters. The amber/blue/green box categorization is irrelevant to environment/climate change negotiations.
• India-EU negotiations on FTA: (Incorrect) Bilateral trade agreement talks between India and EU focus on reducing tariffs and market access. The amber, etc boxes pertain to multilateral WTO trade rules on domestic subsidies - hence unrelated here.

In summary, the amber/blue/green box system is specifically used in World Trade Organization matters regarding agriculture subsidies and support.

Mobile telephone companies and supermarket chains that are owned and controlled by residents are eligible to be promoters of Payment Banks.

• This statement is correct - the RBI guidelines explicitly permit large mobile phone companies, supermarket chains, and tech firms headquartered in India to apply for a Payment Bank license.
• The aim is to leverage their widespread networks and customer bases to further financial inclusion by providing banking access.
• For example, Paytm Payments Bank, Airtel Payments Bank.

Payment Banks can issue both credit cards and debit cards.

• This statement is incorrect - RBI prohibits Payment Banks from issuing their own credit cards to customers.
• They are only allowed to issue debit cards, prepaid payment instruments like mobile wallets.
• This is because Payment Banks cannot undertake lending activities. Credit card issuing requires lending money.

Payment Banks cannot undertake lending activities.

• This statement is correct.
• As per RBI guidelines, Payment Banks are explicitly barred from lending, bill discounting or any form of direct/indirect lending activities.
• This includes advances, mortgages, credit cards etc.
• It is a key regulatory restriction on their operations.

Bitcoins are tracked by the Central Banks of the countries.

• This statement is incorrect. Bitcoins operate on a decentralized network using blockchain technology. Central banks, which are typical of traditional fiat currencies, do not track or control Bitcoin. Bitcoin transactions are verified by a network of nodes and recorded on a public ledger known as the blockchain.

Anyone with a Bitcoin address can send and receive Bitcoins from anyone else with a Bitcoin address.

• This statement is correct. Bitcoin operates on a peer-to-peer network, allowing individuals to send and receive Bitcoins to and from anyone else who has a Bitcoin address, without the need for an intermediary like a bank.

Online payments can be sent without either side knowing the identity of the other.

• This statement is correct. Bitcoin transactions can be made without disclosing the identity of the parties involved. While Bitcoin addresses are recorded on the blockchain, these addresses do not directly reveal the identity of the users. This anonymity is one of the features that distinguish Bitcoin from traditional banking systems.

• Mining operations by multinational companies: This refers to foreign companies extracting resources. It has no linkage with tax avoidance issues which Base Erosion and Profit Shifting (BEPS) aims to tackle.
• Curbing of tax evasion by multinational companies: Correct. Discussions around reforming international tax laws to curb BEPS techniques applied by MNCs to artificially shift profits and avoid taxes is the relevant context.
• Exploitation of genetic resources: Access to biological/genetic resources again relates to domain of environmental regulations rather than corporate taxes and profit shifting loopholes. No connection to BEPS.
• Environmental costs in development projects: This pertains to ensuring ecological preservation in infrastructure plans. It is also an unrelated aspect with respect to BEPS discussions around corporate tax avoidance.

It is an organ of NITI Aayog.

• This statement is incorrect. The Financial Stability and Development Council (FSDC) is an independent regulatory body established in 2010.
• It is not a part or organ of NITI Aayog, which is a policy think tank that provides strategic policy advice to the government.

It is headed by the Union Finance Minister.

• This statement is correct. As per its composition outlined, the FSDC is chaired by the Union Finance Minister of India.

It monitors macroprudential supervision of the economy.

• This statement is correct. Ensuring financial stability and macroprudential supervision of the economy is a key objective of the FSDC.

In summary, the FSDC is an independent statutory institution headed by the Finance Minister. It is not connected to NITI Aayog in any administrative capacity.

The Food Safety and Standards (Packaging and Labelling) Regulations, 2011 clearly define the mandatory packaging and labelling requirements for pre-packaged food products in India.

As per these regulations, manufacturers have to mandatorily provide the following information on the product label:

1. List of Ingredients: List of all ingredients and food additives used, with their vegetarian/non-vegetarian status and exact percentages. This enables consumers to check for potential allergens or restrictions as per dietary preferences or religious beliefs.
2. Nutrition Information: Nutritional composition of the food products including calories, carbohydrates, proteins, fats etc. Essential to help consumers make informed choices.
3. Vegetarian/Non-Vegetarian symbol: Green/Brown dot symbol identifying whether the product is vegetarian or non-vegetarian. Critical religious marker.

However, the regulation does NOT mandate any recommendations by medical professionals about possibility of allergic reactions to certain ingredients.

Core Banking Solutions refers specifically to networking the IT systems and branches of a bank:

• It enables seamless integration of the back-end computerization and technology infrastructure across all the bank's branches.
• This networking allows customers to easily access their bank accounts as well as avail various banking services from any branch across the country, regardless of where they opened the account.
• Essentially, account access and services are unified rather than restricted to just the home branch. This offers flexibility and convenience to customers.

Whereas, RBI control over banks or takeover of weak banks relate to completely different concepts:

• They have nothing to do with mainstream core banking solutions that deal with connecting technology to unify delivery of retail banking services.

Globally Important Agricultural Heritage Systems:

• GIAHS is an initiative started by the Food and Agriculture Organisation (FAO) of the United Nations along with various global partners.
• It was started in 2002 to identify and safeguard traditional agricultural systems and their associated landscapes, agricultural biodiversity and related knowledge systems that have stood the test of time.
• These traditional heritage agricultural systems are sustained by local communities and their ecologically sustainable techniques that have endured centuries of agricultural development and modernization.
• The GIAHS recognition is conferred on such complex socio-ecological production landscapes that combine agricultural biodiversity, resilient ecosystems and valuable cultural heritage.
• The aim is to dynamically conserve the sites while also fostering the associated indigenous local knowledge and community practices instead of displacing them.
• As of 2023, a total of 86 agricultural heritage sites are recognized as GIAHS across 26 countries like India, Japan, Philippines, Algeria etc. These represent microcosms of Biocultural Diversity across environments.
• GIAHS preserves unique agricultural heritage production sites as well as empowers indigenous communities as custodians of treasured local knowledge and ecofriendly practices refined over ages.

• GIAHS aims to:

  • Identify and safeguard traditional farming systems, eco-friendly practices, local wisdoms, indigenous landscapes, and agricultural biodiversity associated with communities' cultural heritage.
  • The emphasis is on recognizing value of ancient localized knowledge systems, community practices, sustainability, rather than displacing them with modern technology or maximizing just productivity and GI tags.

Its purpose is to promote entrepreneurship among SC/ST and women entrepreneurs.

• This statement is correct. Facilitating credit to SC, ST and women entrepreneurs to enable them set up greenfield enterprises is specified as the main objective of Stand Up India Scheme.

It provides for refinance through SIDBI.

• This statement is correct. The scheme offers refinance window via SIDBI to banks and financial institutions for providing financial support to borrowers eligible under this scheme.

The dual goals of Stand Up India Scheme are:

1. Promoting inclusive entrepreneurship amongst marginalized communities
2. Providing integrated refinance credit via SIDBI

By aiding SC, ST and Female entrepreneurs with initial capital needs and refinance assistance, the scheme combines social empowerment with financial inclusion.

The Pradhan Mantri Fasal Bima Yojana (PMFBY) is a significant initiative by the Indian government to provide comprehensive insurance coverage against crop loss due to non-preventable natural risks. Launched in 2016 and administered by the Ministry of Agriculture and Farmers Welfare, the PMFBY replaced the National Agricultural Insurance Scheme (NAIS) and Modified National Agricultural Insurance Scheme (MNAIS)​​.

Key features of the PMFBY include:

1. Premium Rates: Farmers pay a maximum premium of 2% for Kharif crops, 1.5% for Rabi food and oilseed crops, and 5% for commercial/horticultural crops. The remaining premium is shared between the Central and State Governments​​.
2. Risk Coverage: The scheme provides coverage from the pre-sowing phase to the post-harvest period, thereby ensuring comprehensive risk protection against crop failure due to various natural calamities, pests, and diseases​​.
3. Claims and Settlement: PMFBY includes provisions for individual farm level assessment and settlement of claims for localized calamities (like hailstorm, landslide, inundation, cloud burst, and natural fire) and post-harvest losses due to cyclone, cyclonic/unseasonal rains, and hailstorm for crops kept in the field for drying up to 14 days​​.
4. Technology Utilization: The scheme employs remote sensing technology, smartphones, and drones for quick estimation of crop losses, ensuring timely settlement of claims. A Crop Insurance Portal has been developed to streamline administration, transparency, and delivery of services​​.
5. Voluntary Participation: Initially mandatory for loanee farmers, the scheme was made voluntary for all farmers in 2020, allowing greater flexibility and inclusivity​​​​.

The PMFBY aims to stabilize the income of farmers, encourage the adoption of innovative practices, and ensure a continuous flow of credit to the agricultural sector. It also focuses on increasing awareness among all stakeholders and ensuring the early settlement of claims to provide timely financial assistance to the farming community.

• The International Monetary and Finance Committee (IMFC) is an advisory body of the Board of Governors of the International Monetary Fund (IMF).
• It has 24 members, drawn from the pool of 187 governors of the IMF, and its structure mirrors that of the IMF's Executive Board with its 24 constituencies, representing all member countries of the Fund.
• The IMFC meets twice a year, during the Spring and Annual Meetings of the IMF, to discuss matters of common concern affecting the global economy and advise the IMF on the direction of its work.
• The committee operates by consensus and has no formal decision-making powers.
• However, it plays a key role in providing strategic direction to the IMF's work and policies, including responses to events that may disrupt the international monetary and financial system​​.
• The World Bank participates in IMFC meetings as an observer, along with other institutions like WTO.

IMF's Special Drawing Rights (SDR) is an unique international reserve asset created by IMF. Its value is calculated daily as a weighted sum of a basket of major globally traded currencies.

Currently, the SDR basket comprises:

• US Dollar
• Euro
• Chinese Renminbi
• Japanese Yen
• British Pound

In 2015, the IMF had included China's currency Renminbi into the SDR basket for the first time recognizing its importance in global trade and finance.

The other options like Russian Rouble, South African Rand or Indian Rupee are not being considered for addition by IMF into its elite reserve asset basket.

The capital budget consists of capital expenditures by the central government on:

• Acquisition of fixed assets like roads, infrastructure, government buildings, machinery etc.
• Investments made to augment the productive capacity of the economy.

It does not include the following:

• Loans received or borrowings from internal or external sources like foreign governments. This is part of the overall annual borrowings.
• Loans and Advances given out to State governments or Union Territories. This comes under detailed Demands for Grants.

In summary, the capital budget only captures expenses related to new capital assets creation and investments. Borrowings or lending do not feature in it.

The International Finance Corporation, which offers these bonds, is an arm of the World Bank.

• This statement is correct. The IFC or International Finance Corporation is the private sector investment arm of the World Bank Group.

They are the rupee-denominated bonds and are a source of debt financing for the public and private sector.

• This statement is correct. IFC Masala bonds are Indian rupee denominated bonds (not dollar, euro etc.) aimed at channelizing overseas funds into productive investments across public and private sectors in India.

About IFC Masala Bonds

1. Definition: Masala bonds are rupee-denominated bonds issued outside India but denominated in Indian Rupees.
2. Term Origin: The term "Masala" is a Hindi word meaning spices, used by the IFC to evoke the culture and cuisine of India.
3. Currency Risk: Unlike dollar-denominated bonds, where the borrower bears the currency risk, Masala bonds shift this risk to the investors.
4. First Issuance: The first Masala bond was issued by the World Bank-backed IFC in November 2014, raising 1,000 crore rupees to fund infrastructure projects in India.
5. Green Masala Bonds: In August 2015, the IFC issued its first Green Masala Bond, raising 3.15 billion rupees for private sector investments in climate change initiatives in India.
6. Listing: These bonds were listed on the London Stock Exchange.
7. Total Issuance: As of the available information, the IFC had issued Masala bonds totaling 99 billion rupees in offshore issuances.
8. Purpose: These bonds support private sector investment in India.
9. Significance: The issuance of Masala bonds by the IFC has been crucial in the internationalization of the Indian rupee and attracting international investors to Indian markets​​​​​​​​.

The Ujwal DISCOM Assurance Yojana (UDAY) has been specifically designed by the Government of India for:

• Financial turnaround and operational revival of debt-ridden power distribution companies (DISCOMs)

Key measures under UDAY:

• State governments take over 75% of DISCOM debt and issue securities to pay back loans
• Remaining 25% debt gets converted into low interest state guaranteed DISCOM bonds
• This restructuring reduces the interest cost burden on DISCOMs improving their financial health so they can provide reliable power supply.

Reducing Revenue Expenditure:

• Revenue expenditure relates to recurring government costs like salaries, maintenance expenses etc.
• Reducing these large regular non-capital expenses is the most direct way to lower overall spending and hence fiscal deficit without hurting growth-focused capital investments.

Introducing New Welfare Schemes:

• Additional schemes will expand the number of beneficiaries entitled to state support and subsidies. This will only bloat government expenditure further and increase the deficit.

Rationalising Subsidies:

• Review and optimization of leakage-prone subsidies across sectors like fuel, fertilizers where lot of benefits leak to unintended beneficiaries. Plugging these gaps can generate major savings in wasteful spending every year, reducing expenditure and deficit.

Reducing Import Duty:

• While this impacts trade balance positions, it does not address issue of high fiscal deficits driven by excess government expenditure over revenues.

The Pradhan Mantri MUDRA Yojana was launched in 2015 with the key purpose of:

• Expanding access to credit for small and micro business enterprises across manufacturing, trading and services sectors - who find it challenging to access formal credit facilities from banks and financial institutions.
• It creates a responsible ecosystem where credit help fuel the entrepreneurial drive and business growth of these small entrepreneurs / MSMEs operating truck stores, small shops, food stalls, repair shops etc. thereby boosting income generation and job creation at the grassroots economic level.
• The scheme allows banks to classify such loans under Priority Sector Lending requirements - thus incentivizing banks to undertake such lending and bring small business owners into the formal credit system.

Therefore, 'bringing the small entrepreneurs into formal financial system' encapsulates the principal motive behind the MUDRA initiative.

To bring the idle gold lying with Indian households into the economy (Correct).

• The gold schemes aim to mobilize thousands of tonnes of idle gold held by Indian households by incentivizing them to invest into bonds or deposit it to earn interest, rather than keeping unproductive assets locked up.

To promote FDI in the gold and jewellery sector (Incorrect)

• The gold schemes do not aim to promote and regulate FDI investments into domestic gold/jewelry industry.

To reduce India's dependence on gold imports (Correct)

• Channelizing existing domestic household gold holdings for financial savings instruments will lower the economy's dependence on massive gold imports to satisfy demand.

The purposes of the Marginal Cost of Funds based Lending Rate (MCLR) system introduced by the Reserve Bank of India (RBI) are as follows:

1. To improve transparency in the methodology followed by banks for determining the interest rates on advances: The MCLR system makes the process of interest rate determination more transparent by linking the lending rates to the marginal cost of funds. This method considers the current cost of deposits, which makes the rate setting process more explicit and clear.
2. To ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks: By basing the lending rates on the marginal cost of funds, MCLR aims to provide a more equitable system where the interest rates are fair both to the borrowers and the banks. It ensures that the borrowers benefit from lower rates when the cost of funds for banks goes down and that the banks are able to cover their costs and maintain a healthy margin.