Economy 2017 MCQs

The 'Prohibition of Benami Property Transactions Act, 1988 (PBPT Act)' was enacted in India to combat benami transactions.

1. A property transaction is not treated as a benami transaction if the owner of the property is not aware of the transaction: This statement is incorrect. A benami transaction typically involves a situation where a property is bought by an individual (the benamidar) but is held for the benefit of someone else who has provided the payment (the beneficial owner). The knowledge or awareness of the owner of the property is not a determining factor in whether a transaction is classified as benami. A transaction can be considered benami even if the owner of the property is unaware, as long as the property is held by someone else and paid for by another person.
2. Properties held benami are liable for confiscation by the Government: This statement is correct. Under the PBPT Act, properties held in a benami transaction are liable to be confiscated by the government. The Act aims to curb illegal transactions and prevent tax evasion by holding properties under fictitious names or by individuals who are not the actual beneficiaries.
3. The Act provides for three authorities for investigations but does not provide for any appellate mechanism: This statement is incorrect. The PBPT Act does provide for appellate mechanisms. The Act sets up authorities at various levels for the investigation of benami transactions, including the Initiating Officer, the Approving Authority, and the Administrator. Additionally, it provides for an appellate mechanism in the form of the Adjudicating Authority and the Appellate Tribunal for hearing appeals against the decisions of these officers.

The money which is tendered in courts of law to defray the fee of legal cases.

• This refers to money offered to pay court fees/fines, but has nothing to do with legal tender money. Court payments and legal tender are separate concepts. Hence this is incorrect.

The money which a creditor is under compulsion to accept in settlement of his claims.

• Legal tender refers to money that by law must be accepted as payment for debts or else the debt is no longer considered owed. It is money that a creditor is mandated to accept when offered as payment by a debtor.

• This means if you owe someone money, like a credit card bill or a loan, the entity you owe money to must accept the legal tender money you provide. They cannot refuse it as a valid form of repayment. This compulsion on creditors is the key aspect that defines what constitutes legal tender money.

The bank money in the form of cheques, drafts, bills of exchange, etc.

• While these are forms of bank money or payment instruments, things like cheques, drafts etc. are typically NOT considered legal tender money.

The metallic money in circulation in a country.

• Legal tender can include metallic/coin money but is not limited to just this. Paper currency is also a form of legal tender. So this definition is incomplete.

Tax revenue as a percent of GDP of India:

• The tax-to-GDP ratio in India has improved from 10.7% in BE 2022-23 to 11.1% in RE 2022-23 and BE 2023-24​​.
• However, India's tax-to-GDP ratio is significantly lower compared to some similar-sized economies. For instance, in FY 2021–22, India’s tax-to-GDP ratio stood at just 11.7%, with direct taxes contributing 6.1% and indirect taxes the remaining 5.6%​​.
• While there has been an improvement in the tax-to-GDP ratio, it is important to note that the ratio has not been consistently increasing over the last decade. The ratio has fluctuated over the years, with improvements seen in recent years due to factors such as effective data-sharing between tax authorities and tightened compliance monitoring, which have contributed to robust GST collections​​.

Fiscal deficit as a percent of GDP of India:

• The fiscal deficit is estimated to be 5.9% of GDP in BE 2023-24​​.
• The government is on a path of fiscal consolidation, intending to bring the fiscal deficit below 4.5% of GDP by 2025-26​​.
• The revised estimate of the fiscal deficit is 6.4% of GDP in RE 2022-23​​.
• The fiscal deficit as a percent of GDP has seen significant fluctuations over the last decade, particularly due to the impact of the COVID-19 pandemic and other economic challenges. The government has been focusing on reducing this deficit in recent years.

It will replace multiple taxes collected by multiple authorities and will thus create a single market in India:

• This statement is correct. The implementation of the Goods and Services Tax (GST) in India replaced a myriad of indirect taxes such as VAT, service tax, excise duty, etc., with a single unified tax system. This change simplified the tax structure, reduced the complexity of tax compliance, and helped in creating a more unified national market.

It will drastically reduce the ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange reserves:

• This statement is incorrect. While GST can potentially improve tax compliance and revenue collections, its direct impact on the Current Account Deficit (CAD) is not as straightforward. The CAD is influenced by various factors including trade balance, external debts, and foreign exchange inflows and outflows. GST primarily affects domestic taxation and may not have a significant direct impact on the CAD or foreign exchange reserves.

It will enormously increase the growth and size of economy of India and will enable it to overtake China in the near future:

• This statement cannot be stated as a direct consequence of implementing GST. While GST can contribute to economic efficiency and potentially support growth by creating a more streamlined tax system, predicting that it will enable India to overtake China's economy in the near future is speculative and depends on many other economic factors and policies.

Share of agriculture in GDP - This has declined not increased after liberalization, as India shifted focus to industry and services. The share of GDP from agriculture fell from around 30% in 1990 to less than 20% today. Hence this statement is incorrect.

Share of India's exports in world trade - India opened up its protected economy in 1991. Export restrictions got reduced, which increased India's trade competitiveness globally. Its share in global merchandise exports thus doubled from 0.5% in 1990 to over 1% by 2010. So statement 2 is correct.

FDI inflows increased - Economic reforms and easing of foreign investment rules led to a massive increase in annual FDI inflows, set to touch $70-80 billion in 2022, up from basically zero before 1991. Hence statement 3 is correct.

Forex reserves increased - Due to robust capital account inflows, India built up its foreign exchange reserves substantially from less than $1 billion in 1990 to over $500 billion presently. So statement 4 is correct.

The Scheme for Sustainable Structuring of Stressed Assets (S4A) was introduced by the Reserve Bank of India (RBI) in 2016 as part of a broader effort to tackle the issue of non-performing assets (NPAs) in the Indian banking system. The primary goal of the S4A was to help resolve the issue of high levels of stressed assets in banks' balance sheets, especially those arising from large corporate borrowers.

Background and Key Features of S4A:

• Rising NPAs in Indian Banks: Before the introduction of S4A, Indian banks, particularly public sector banks, were grappling with a rising tide of NPAs. This was largely due to slowdown in certain sectors of the economy and some instances of financial mismanagement in big corporate entities.
• Objective: The S4A aimed to ensure the long-term viability of stressed borrowers with a sustainable portion of debt, and provide banks with an avenue for recovering their loans.
• Eligibility Criteria: The scheme was applicable to projects that had started commercial operations and where the total exposure of all institutional lenders in the account was more than ₹500 crore. Moreover, the scheme was intended for those cases where the stress was due to operational or financial difficulties of the corporate borrower, rather than any fraudulent activity.
• Debt Restructuring: Under S4A, banks were allowed to bifurcate the existing debt of stressed companies into 'sustainable' and 'unsustainable'. The sustainable portion was that part of the debt which could be serviced by the company even in its stressed condition, while the unsustainable part was the portion that could not be serviced.
• Conversion into Equity Instruments: Banks were given the option to convert the unsustainable portion of the debt into equity or equity-like instruments. This was intended to give banks a stake in the future upside of the company’s performance while easing the debt burden on the company.
• Operational and Financial Flexibility: The scheme provided operational and financial flexibility to the stressed company, enabling it to continue its operations and potentially return to profitability.

• To supply credit to small business units: This is one of the primary objectives of Small Finance Banks. They are aimed at providing financial services to small business units, small and marginal farmers, micro and small industries, and other unorganized sector entities, which are often underserved by traditional banks.
• To supply credit to small and marginal farmers: This is also correct. Small Finance Banks are specifically tasked with providing financial services to small and marginal farmers, among others, who may not have access to adequate banking services.
• To encourage young entrepreneurs to set up business particularly in rural areas: While this is a desirable outcome, it is not explicitly stated as a primary objective of Small Finance Banks. The main focus of SFBs is more on providing access to financial services to underserved sections of the society, which may indirectly encourage entrepreneurship.

• Pan-India Electronic Trading Portal for Agricultural Commodities: e-NAM is indeed a pan-India electronic trading portal. It networks the existing Agricultural Produce Market Committee (APMC) mandis to create a unified national market for agricultural commodities​​​​.
• Access to Nationwide Market and Better Price Realization: The scheme provides farmers with access to a nationwide market, enabling them to sell their produce to buyers across India. It also facilitates better price discovery through a transparent auction process based on the quality of the produce, thereby ensuring that farmers receive prices commensurate with the quality of their produce​​​

• The Bureau of Indian Standards (BIS) does require BIS-ISI certification for automotive tyres and tubes. This certification is obligatory under the Pneumatic Tyres and Tubes for Automotive Vehicles (Quality Control) Order, 2009, as per the Ministry of Commerce and Industry, Department for Promotion of Industrial Policy and Promotion (LR Section) after consulting the Bureau of Indian Standards. Manufacturers of automotive vehicles – tubes for pneumatic tyres are obligated to obtain ISI Mark Certification​​​​​​.
• AGMARK is not a quality Certification Mark issued by the Food and Agriculture Organisation (FAO). Instead, it is a certification mark in India used on agricultural products to assure quality. AGMARK is managed by the Directorate of Marketing and Inspection, an agency of the Government of India under the Ministry of Agriculture.

The eligibility criteria for joining the National Pension System (NPS) are as follows:

All Citizen Model:

• Any citizen of India, whether resident, non-resident, or an Overseas Citizen of India (OCI), can join the NPS, provided they are between 18 and 70 years of age at the time of submitting the application.
• They must comply with the Know Your Customer (KYC) norms as per the Subscriber Registration Form (SRF). Hindu Undivided Families (HUFs) and Persons of Indian Origin (PIOs) are not eligible to subscribe to NPS​​​​.

Central Government/CABs:

• The Central Government introduced NPS for all Central Government employees (excluding Armed Forces) from January 1, 2004.
• Thus, all Central Government employees joining on or after January 1, 2004, are mandatorily covered under the NPS scheme.
• This is also extended to the employees of Central Autonomous Bodies (CABs) joining on or after January 1, 2004​​.

State Governments/SABs:

• Employees of State Governments or Union Territories that have adopted NPS are covered under this scheme, as well as employees of State Autonomous Bodies that have adopted NPS​​.

Corporate Model:

• This is applicable if an individual works in a corporate entity that has adopted the NPS scheme. The eligibility criteria include being a citizen of India (resident, non-resident, or OCI), aged between 18 and 70 years, and compliance with KYC norms.
• This model is available to various entities, including companies, cooperative societies, public sector enterprises, partnership firms, LLPs, proprietary concerns, trusts, societies, foreign companies, and international organizations operating in India​​.

The National Nutrition Mission, also known as Poshan Abhiyaan, aims to improve the nutritional health of children, adolescents, lactating mothers, and pregnant women. The key objectives of the National Nutrition Mission include:

1. Prevention and reduction of stunted growth and under-nourishment among children between 0 to 6 years by 2% per year.
2. Reduction of anaemia among children aged between 6 - 59 months and women and adolescent females aged between 15 - 49 years by 3%.
3. Reduction of low birth weight of a baby by 2%​​​​​​.

While consumption of nutritious cereals and food is encouraged, the promotion of specific food items like millets, eggs etc. is not an explicitly stated goal.

key provisions of the Trade Disputes Act of 1929:

• Establishment of Tribunals:
  • The Act made provisions for the establishment of Courts of Inquiry and Boards of Conciliation.
  • This created a system of tribunals to investigate and settle industrial disputes.
• Restrictions on Strikes and Lockouts:
  • Required a 15-day written notice before initiating strikes or lockouts in public utility services (e.g., posts, railways, water, and electricity).
  • Declared any strike or lockout illegal if it pursued objectives other than the furtherance of a trade dispute within the trade or industry.
  • Imposed significant restrictions on the ability of workers to strike, especially without prior notice.
• Focus on Dispute Resolution:
  • The main object of the Act was to provide a formal mechanism for the resolution of industrial disputes.
  • Aimed to ensure continuity of public utility services by regulating strikes and lockouts.

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has specific roles and a defined composition.

1. It decides the RBI’s benchmark interest rates: This statement is correct. The primary function of the MPC is to determine the policy interest rate (repo rate) required to achieve the inflation target set by the Government of India.
2. It is a 12-member body including the Governor of RBI and is reconstituted every year: This statement is incorrect. The MPC consists of six members – three officials of the Reserve Bank of India and three external members nominated by the Government of India. The RBI Governor is the ex-officio Chairperson of the MPC. It is not a 12-member body, nor is it reconstituted every year.
3. It functions under the chairmanship of the Union Finance Minister: This statement is incorrect. The MPC does not function under the chairmanship of the Union Finance Minister. As mentioned earlier, the Governor of the RBI is the ex-officio Chairperson of the MPC.