Indian Economy

Ans: a

Exp: 

Statement I is incorrect: If the U.S. government misses ro defaults on its debt payment, American or even foreginers debt holder can litigate or sue in either U.S. district court or the U.S. Court of Federal Claims, which oversees (among other things) disputes between the federal government and U.S. contractors. Thus, the  holders of US Treasury Bonds will be able to exercise their claims to receive payment.

Statement II is correct: Treasury securities are backed by the full faith and credit of the U.S. government. Investment professionals use Treasury yields as the risk-free rate or the rate of return offered by an investment that carries no risk. The federal government has never defaulted on an obligation, and it’s universally believed it never will. Investors who hold T-bills can rest assured that they will not lose their investment.

Ans: c

Exp:

Statement I is correct: A syndicated loan is financing offered by a syndicate made up of a group of lenders that work together to provide funds for a borrower. The borrower can be a corporation, a large project, or a sovereign government. Syndicated loans involve large sums, which allows the risk to be spread out among several financial institutions to mitigate the risk in case the borrower defaults.

Statement II is incorrect: In a Syndicate loan, the borrower can be a corporation, a large project, or a sovereign government. The loan can involve a fixed amount of funds, a credit line, or a combination of the two.

Ans: d

Exp:

The Central Bank Digital Currency (CBDC) is the Reserve Bank of India’s official form of currency. The regulator stated that the RBI’s CBDC, also known as the Digital Rupee or e-Rupee, is interchangeable one-to-one at par with the fiat currency and is the same as a sovereign currency.

Main features of Digital Rupee

• CBDC is a sovereign currency that central banks issue in accordance with their monetary policy. Thus, statement 1 is correct
• On the balance sheet of the central bank, it is listed as a liability. Thus, statement 2 is correct
• All individuals, businesses, and governmental organisations must recognise it as a legitimate form of payment, legal tender, and safe place to hold money.
• CBDC is freely convertible into cash and money from commercial banks. Thus, statement 4 is correct
• Holders of CBDC do not need to have a bank account because it is fungible legal money.
• CBDC is anticipated to reduce the price of issuing currency and the cost of transactions.

It is not insured against inflation by its very design. Thus, statement 3 is incorrect

Ans: d

Exp: 

Digital India Land Records Modernization Programme (DILRMP) a Central Sector Scheme with 100% Central Government funding with effect from 1st April 2016. Hence , Statement 1 is correct

It has following major components: 

• Computerization of Record of Rights;
• Digitization of cadastral maps; Hence, Statement 2 is correct
• Integration of Record of Rights (textual) and cadastral maps (spatial);
• Data centres at state level.
• Transliteration of Land Records in Schedule VIII Languages: 
  • Initiative: Addressing linguistic barriers, the government is transliterating land records in local languages to any of the 22 Schedule VIII languages of the Constitution.
  • Progress: 17 States/UTs have adopted transliteration tools in their land records. Hence, Statement 3 is correct

Ans:  c

Exp:

Statement 1 in correct: Liquidity Adjustment Facility(LAF) is monetary policy tool of RBI to inject or absorbs liquidity. Under the LAF Scheme, Reserve Bank will continue to have the discretion to conduct overnight repo or longer term repo auctions at fixed rate or at variable rates depending on market conditions and other relevant factors. Under ,above provisions RBI has planned a Rs 50000-crore liquidity infusion through Targeted Long Term Repo Operations (TLTRO) 2.0 for NBFCs.

Statement 2 is correct: FPI can invest in G-secs. The Reserve Bank of India (RBI) on April 26, 2024 kept the investment limit by Foreign Portfolio Investors (FPI) in government securities unchanged at 6 percent of the outstanding securities stocks for 2024-25. Moreover, the central bank, in a statement, announced that it would maintain the FPI limits for investment in state government securities and corporate bonds at 2 percent and 15 percent, respectively, of the outstanding securities stocks for FY25.

Statement 3 is correct: In India, Stock Exchanges can offer Separate trading platforms for debts. NSE was the first exchange to offer a separate trading platform for debts.

Ans: d

Exp:

A Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments. It acknowledges the Government’s debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more).

• Major participants in the G-Secs market historically have been large institutional investors. With the various measures for development, the market has also witnessed the entry of smaller entities such as co-operative banks, small pension, provident and other funds etc. These entities are mandated to invest in G-Secs through respective regulations.
• Further , Besides banks, insurance companies and other large investors, smaller investors like Co-operative banks, Regional Rural Banks are also required to statutory hold G-Secs under SLR Quota.
• The RBI’s as a part of the Retail Direct Scheme, allowed the investments by the retail investors.

Ans : d

Exp:

Financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Following are the different types of financial instruments :

• Transferable securities 
• Money-market instruments
• Units in collective investment undertakings like Exchange Traded Funds
• Options, futures, swaps, forward rate agreements, and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivative instruments, financial indices or financial measures which may be settled physically or in cash
• Options, futures, swaps, forward rate agreements, and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties (other than by reason of a default or other termination event)
• Derivative instruments for the transfer of credit risk
• Financial contracts for differences

Thus motor Vehicles are not a type of financial instrument.

Ans:  b

Exp:  

• Primary : It forms the base for all other products that we subsequently make. Since most of the natural products we get are from agriculture, dairy, fishing, forestry, this sector is also called agriculture and related sector. Ex: Dairy farm
• Secondary : It covers activities in which natural products are changed into other forms through ways of manufacturing that we associate with industrial activity. It is the next step after primary. The product is not produced by nature but has to be made and therefore some process of manufacturing is essential. This could be in a factory, a workshop or at home.  For example, using cotton fibre from the plant, we spin yarn and weave cloth. Using sugarcane as a raw material, we make sugar or gur.
• Tertiary :  These are activities that help in the development of the primary and secondary sectors. These activities, by themselves, do not produce a good but they are an aid or a support for the production process. For example, goods that are produced in the primary or secondary sector would need to be transported by trucks or trains and then sold in wholesale and retail shops. At times, it may be necessary to store these in godowns (i.e. Storage of Agriculture produce).
• Quaternary: Mineral Exploration

Ans: b

Exp: 

Physical capital refers to tangible assets made by humans that a corporation buys or invests in and then uses to produce finished goods or services. It is one of the three factors of production together with land or natural resources and labor or human resources, involving physical assets, such as machines, cars, computers, buildings, etc. it is of two types:

• Fixed Capital :  Fixed capital can be thought of as physical investments in producing a good that can be used on several occasions or at least multiple accounting periods. Since it is fixed and reusable (e.g., buildings and machinery), it cannot readily be converted to cash. Although it is not consumed during the manufacturing process, it has a long-term value that can fluctuate and, in most cases, deteriorate with time. For example: Farmers Plough and Computer.
• Working Capital:  Working capital refers to a company’s liquid assets, such as cash and inventory in hand, or anything that can be swiftly changed into currency. This type of capital is used during the production of the final product. For example: Yarn used by the weaver and Petrol.

Ans: b

Exp:

Statement 1 is incorrect: As per RBI, the Wholly Owned Subsidiary (WOS) was to have a minimum capital requirement of Rs.300 crore i.e. Rs.3 billion and would need to ensure sound corporate governance. The WOS was to be treated on par with the existing branches of foreign banks for branch expansion with flexibility to go beyond the existing WTO commitments of 12 branches in a year and preference for branch expansion in under-banked areas.

Statement 2 is correct:  As per RBI, the composition of the board of directors of Wholly owned Subsidiary (WOS) should meet the following requirements:

• • not less than 51 percent of the total number of members of the board of directors shall consist of persons as defined under Section 10A of the Banking Regulation Act, 1949;
  • not less than two-third of the directors should be non-executive directors;
  • not less than one-third of the directors should be independent of the management of the subsidiary in India, its parent and any subsidiary or other associate of the foreign bank parent;
• not less than 50 per cent directors should be Indian nationals/NRIs/PIOs subject to the condition that one-third of the directors are Indian nationals resident in India;
• WOSs of foreign banks will have Part-time Chairman and full time Chief Executive Officer (CEO);

Ans : a

Exp:

A company satisfying any of the following criteria during the immediately preceding financial year is required to comply with CSR provisions specified under section 135(1) of the Companies Act, 2013 read with the Companies (CSR Policy) Rules, 2014 made there under:

• net worth of rupees five hundred crore or more, or
• turnover of rupees one thousand crore or more, or
• net profit of rupees five crore or more

Statement 1 is correct : • The CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities in accordance with section 135 of the Act. • One-off events such as marathons/ awards/ charitable contribution/ advertisement/sponsorships of TV programmes etc. would not be qualified as part of CSR expenditure. • Expenses incurred by companies for the fulfillment of any Act/ Statute of regulations (such as Labour Laws, Land Acquisition Act etc.) would not count as CSR expenditure under the Companies Act. • Contribution of any amount directly or indirectly to any political party shall not be considered as a CSR activity. • Activities undertaken by the company in pursuance of its normal course of business.

Statement 2 is not correct:  If the company has not completed three financial years since its incorporation, but it satisfies any of the criteria mentioned in section 135(1), the CSR provisions including spending of at least two per cent of the average net profits made during immediately preceding financial year(s) are applicable.

Example: Company A is incorporated during FY 2018-19, and as per eligibility criteria the company is covered under section 135(1) for FY 2020-21. The CSR spending obligation under section 135(5) for Company A would be at least two per cent of the average net profits of the company made during FY 2018-19 and FY 2019-20.

Ans: c

Exp:

Reserve Bank of India has been promoting collateralised borrowing / lending operations by market participants. The Clearing Corporation of India Ltd. (CCIL) has developed and introduced with effect from January 20, 2003 a money market instrument called Collateralised Borrowing and Lending Obligation (CBLO). since CCIL is considered as a non-bank institution, borrowing bank should classify its borrowing under CBLO as ‘Liability in India to Others’ which qualify for reserve requirements. Accordingly, scheduled commercial banks are required to include in their net demand and time liability (NDTL), the borrowing under CBLO. However, in order to develop CBLO as a money market instrument, it has been decided to grant banks a special exemption from CRR prescription subject to the bank maintaining statutory minimum CRR of 3%;.

Ans: d

Exp:

Infrastructure Investment Trusts (InvITs) are infrastructure developer-sponsored Trusts that own, operate, and invest in completed and under- construction infrastructure projects. These infrastructure assets include roads and highways, power distribution networks, telecom towers, fiber
optic networks, etc.

Statement I is not correct: Any dividend or interest income that you get from an InvIT is completely taxable as per your Income Tax Slab rate. This income has to be declared every year in your Income Tax Return under the head “Income from Other Sources”. So if you are in the highest Income Tax bracket, you may have to pay 30% tax on any dividends or interest that you receive from an InvIT. Capital Gains taxation rules are applicable only if you sell your InvITs units. If you have stayed invested in InvITs for up to 3 years prior to the sale, Short Term Capital Gains (STCG) taxation rules are applicable.

Statement II is correct: InvITs and REITs now recognised as borrowers under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act and lenders to these trusts have adequate statutory enforcement options, absence of which was earlier becoming a constraint for bankers to lend directly at trust level. Insurance regulatory and development authority of India (IRDAI) has recently allowed insurers to invest in debt instruments of InvITs and REITs rated AA and above as a part of their approved investments, which shows growing comfort of lenders as well as investors around such structures.
Hence, Statement-I is incorrect but Statement-II is correct.

Ans: a

Exp:

Statement I is correct: In the post-pandemic recent past, Financial conditions have tightened as central banks continue to hike interest rates. Amid the highly uncertain global environment risks to financial stability have increased substantially.

Statement II is correct: Central banks use monetary policy to manage economic fluctuations and achieve price stability, may it be inflation or deflation. Central banks conduct monetary policy by adjusting the supply of money, usually through buying or selling securities in the open market. Open market
operations affect short-term interest rates, which in turn influence longer-term rates and economic activity. When central banks lower interest rates, monetary policy is easing. When they raise interest rates, monetary policy is tightening. Hence, Both Statement-I and Statement-II are correct
and Statement-II is the correct explanation for Statement-I.

Ans: a

Exp:

Sterilization is a form of monetary action in which a central bank seeks to limit the effect of inflows and outflows of capital on the money supply. Sterilization
most frequently involves the purchase or sale of financial assets by a central bank which is known as Open Market Operations and is designed to offset the effect of foreign exchange intervention. The sterilization process is used to manipulate the value of one domestic currency relative to another and is initiated in the foreign exchange market. It is used by central banks in order to stem the negative effects emerging from capital inflows or outflows from a country’s economy. For example, a U.S. investor looking to invest in India must use dollars to purchase rupees. If a lot of U.S. investors start buying up rupees,
the rupee exchange rate will increase. At this point, the Indian central bank can either let the fluctuation continue, which can drive up the price of Indian exports, or it can buy foreign currency with its reserves in order to drive down the exchange rate.

Ans: b

Exp:

Financial markets refer broadly to any marketplace where securities trading occurs, including the stock market, bond market, forex market, and derivatives
market. It is classified into:

• Capital Market
• Money Market

Capital Market: Capital markets are financial markets where long-term securities such as stocks, bonds, and other financial instruments are bought and sold. These markets facilitate the transfer of capital from investors to those who need it to fund projects, expand their businesses, or make other
investments. This market includes:

• Government Bond Market
• Stock Market

Money Market: The money market is a short-term lending system. Borrowers tap it for the cash they need to operate from day to day. Lenders use it to
put spare cash to work. Examples of money market instruments include:

• Certificates of deposit (CDs)
• Commercial paper
• Treasury bills (T-bills)
• Banker’s acceptances.

Ans: b

Exp:

About ‘Small Farmer Large Field’:

• Collective action model “Small Farmers Large Field (SFLF)” has overcome the disadvantages faced by millions of small and marginal farmers due to diseconomies of scale and lack of bargaining power in the supply chain.
• This model is participatory and flexible and allows small farmers to benefit from achieving economies of scale by organizing themselves into groups and synchronizing and harmonizing selected operations. The basics of the model are that small land holders (Marginal Farmers) join and decide to grow a crop of one or two varieties, synchronize all the agricultural operations (seed to seed) as a group/ community and gain higher bargaining power while dealing with service providers, dealers, and paddy traders/millers. The overall findings from the project are- reduced cost of production of paddy, increased grain yield, comparatively higher price over prevailed market price, enhanced farmers’ gross income and net profit. The standard criteria to develop SFLF on a multi- stakeholder partnership are:
  • Horizontal coordination of small rice farmers – Smallholders are reorganized and integrated in groups to increase their power.
  • Vertical coordination of farmers with input dealers at one end and output market at the other end.

Ans: c

Exp:

About Niger:
Niger seed is cultivated in India as a Kharif crop and is one of the 22 mandated crops for which Government of India announces Minimum Support Price (MSP).

According to a 2013 report by All India Coordinated Research Project (AICRP), Niger seed has traditionally “been the lifeline of tribal agriculture and economy in several states across India. The tribal population uses niger seed oil for cooking, the press cake post oil-extraction as livestock feed, and also consume the seeds as a condiment. Some features of the Niger seed are:

• Niger seed oil has medicinal properties, which is the reason for its commercial demand by the cosmetics, perfumeries and other allied industries.
• Besides, the crop can grow on denuded soil and its cultivation method is fairly basic: After the first rain when the soil is moist, farmers need to plough the field and sprinkle the seeds.
• The crop neither requires much water nor fertilisers and pesticides.

About Minimum Support Price:

• It is the lowest rate at which government procurement agencies buy crops from farmers. It shields farmers from market fluctuations, offering stability and income security.
• It is determined by the Commission for Agricultural Costs and Prices (CACP), considering factors like production costs, market trends, and demand-supply dynamics.
• After the CACP submits its recommendations, the Cabinet Committee on Economic Affairs (CCEA), chaired by the Prime Minister of India, makes the final decision on MSP levels.
• CACP is established in 1965 and operates under the Ministry of Agriculture and Farmers Welfare.

Ans: c

Exp:

An asset is a resource with economic value that an individual, corporation, or country owns or controls. There are two types of asset categories:

• Tangible
• Intangible

Tangible Asset: Tangible assets are physical and measurable assets that are used in a company’s operations. Tangible assets form the backbone of a
company’s business by providing the means by which companies produce their goods and services. These includes:

• Land
• Machinery
• Inventory
• Securities like stocks, bonds, and cash

Intangible Assets: Intangible assets are nonphysical assets used over the long term. Intangible assets are often intellectual assets, and as a result, it’s difficult to assign a value to them because of the uncertainty of future benefits. These Includes:

• Patents.
• Brand
• Intellectual property rights
• mailing list of clients.

Ans: d

Exp:

Statement I is not correct: As per the WTO data India’s share in global exports for merchandise was 1.7 % and in global imports was 2.6 % which is much
less than 3.2%. For the year 2018 for service sector, India’s share in global exports was 3.5 % and imports was 3.2 %.

Statement II is correct: Production-Linked Incentive or PLI scheme is a scheme that aims to give companies incentives on incremental sales (over FY 2019-20) from products manufactured in domestic units. The scheme invites foreign companies to set up units in India, however, it also aims to encourage local companies to set up or expand existing manufacturing units and also to generate more employment and cut down the country’s reliance on imports from other countries.

Ans: b

Exp:

The classification of Micro, Small and Medium Enterprises is defined under the MSMED Act 2006 amendment dated 01/06/2020. The Micro, Small and Medium Enterprises is based on the Investment in Plant, Machinery or Equipment values (excluding land and building) and Annual Turnover.

Statement 2 is correct: The RBI works with banks to encourage them to lend money to priority economic sectors, including agriculture and related industries, education, affordable housing, and food for the less fortunate. All bank loans to MSMEs that meet the requirements outlined therein are eligible to be categorised as priority sector lending. Reserve Bank of India (RBI) has taken some measures for improving flow of credit to MSME sector are as
under:

• Priority Sector Lending Guidelines: In terms of Master Direction on ‘Priority Sector Lending (PSL) – Targets and Classification’ dated September 4, 2020, all bank loans to MSMEs conforming to the conditions prescribed therein qualify for classification under priority sector lending.
• Collateral requirements of MSME units: Scheduled Commercial Banks have been mandated not to accept collateral security in the case of loans up to ₹10 lakh extended to units in the MSE sector.
• Trade Receivables Discounting System (TReDS): The scheme facilitates the financing of trade receivables of MSMEs from corporate and other buyers, including government departments and public sector undertakings (PSUs) through multiple financiers electronically.
• Micro Enterprise: Where the investment in Plant and Machinery or Equipment does not exceed one crore rupees and turnover does not exceed five crore rupees.
• Small Enterprise: Where the investment in Plant and Machinery or Equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees.
• Medium Enterprises: Where the investment in Plant and Machinery or Equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees. Hence, Statement 1 is not correct.
  Classification of Eneerprises (Principal Trade in First Schedule IDR Act, 1951)

Ans: c

Exp:

About Central Bank Digital Currencies:
Statement 1 is correct: A type of digital currency issued by a nation’s central bank is known as a central bank digital currency (CBDC). They resemble cryptocurrencies, with the exception that the central bank sets their value, which is equivalent to the nation’s fiat currency. Countries will be able to transact bilaterally and without the need of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) or other comparable settlement systems in the direct exchange of digital currency.
Statement 2 is correct: CBDC isn’t a brand-new kind of money; rather, it’s a type of central bank electronic cash that may be used by individuals and organisations to make payments. Digital currency can be distributed with a condition programmed into it such as the time frame for spending it.

Ans: d

Exp:

About Beta:

The Capital Asset Pricing Model (CAPM) is a model that describes the relationship between the expected return and risk of investing in a security. It shows
that the expected return on a security is equal to the risk-free return plus a risk premium, which is based on the beta of that security. The beta is a numeric value that is a measure of a stock’s risk (volatility of returns) reflected by measuring the fluctuation of its price changes relative to the overall market. In other words, it is the stock’s sensitivity to market risk. For instance, if a company’s beta is equal to 1.5 the security has 150% of the volatility of the market average. However, if the beta is equal to 1, the expected return on a security is equal to the average market return. A beta of -1 means security has a
perfect negative correlation with the market.

Ans: b

Exp:

About Self-Help Groups (SHGs):

• The Self-Help Group (SHG) programme was originally initiated by National Bank for Agriculture and Rural Development (NABARD) and began extensively marketing self-help groups in 1991–1992. It served as the actual launchpad for the “SHG movement.” The Reserve Bank of India also permitted SHGs to open savings accounts in banks in 1993. Hence, Statement-I is not correct.
• Self Help Groups (SHGs) are small groups of poor people. The members of an SHG face similar problems. They provide collateral-free loans to groups of people who typically struggle to obtain loans from banks. In an SHG, all members of a group take responsibility for a loan that an individual member takes. Additionally, they use group leadership and conversations to resolve disputes. Hence, Statement-II is correct.
• The Regional Rural Banks and Scheduled Commercial Banks support SHGs. Indian financial institutions known as Regional Rural Banks (RRBs) are created with the purpose of offering banking services to rural communities. They are governed by the RBI and structured as scheduled commercial banks. Small enterprises and rural entrepreneurship have received backing from RRBs, which has helped create jobs in rural areas. Hence, Statement-III is correct.

Ans: b

Exp:

Statement-I is correct: According to National Health Policy 2017 the public health care system in India is to improve health status through concerted policy action in all sectors and expand preventive, promotive, curative, palliative and rehabilitative services provided through the public health sector with focus on quality

Statement-II is correct: The states are primarily in charge of planning health services under India’s decentralised system for providing medical care. In the Indian Constitution health is a component of state subject as a part of the Seventh Schedule.

Ans: b

Sub-Theme: Qualitative Tools to control

Statement 1 is incorrect: If the inflation is too high, Reserve Bank of India (RBI) is likely to reduce the money supply in the economy to control inflation. Thus, RBI sells the government securities so as to suck the excess money supply from the economy and to control the inflation.

Statement 2 is correct: RBI intervenes in the currency market to support the rupee because if it becomes a weak domestic unit then it can increase a country’s import bill. It can intervene directly in the currency market by buying and selling dollars. If RBI wishes to prop up rupee value, then it can sell dollars and when it needs to bring down rupee value, it can buy dollars.

Statement 3 is correct: When the US raises its domestic interest rates, this tends to make India less attractive for the currency trade. As a result, it pulls some money from the Indian market out and flows back to the US, thereby decreasing the value of India’s currency against the US dollar. Therefore, if interest rates in the USA or EU were to fall, then it is likely to induce RBI to buy dollars.

Ans: b

Sub-Theme: Credit Rating

Statement 1 is incorrect: In India, credit rating agencies are regulated by Securities and Exchange Board of India (SEBI).

Statement 2 is correct: ICRA (Investment Information and Credit Rating Agency of India Ltd.) was set up in 1991 by IFCI, LIC, SBI and select banks as well as financial institutions to rate debt instruments.

Statement 3 is correct: In India there are six credit rating agencies registered under Securities and Exchange Board of India (SEBI) namely, CRISIL, ICRA, CARE, SMERA, Fitch India and Brickwork Ratings.

Credit Rating

• A credit rating is an assessment of the creditworthiness of a borrower.
• Individuals, corporations and governments are assigned credit ratings, whoever wants to borrow money.
• Individuals are given ‘credit scores’, while corporations and governments receive ‘credit ratings’.
• International credit rating agencies: Fitch Ratings, Moody’s Investors Service and Standard & Poor’s (S&P) are controlling approximately 95% of global ratings
• In India: six credit rating agencies registered under Securities and Exchange Board of India (SEBI) namely, CRISIL, ICRA, CARE, SMERA, Fitch India and Brickwork Ratings.

Ans: b

Sub-Theme: Bank Board Bureau

Statement 1 is incorrect: Banks Board Bureau comprises the Chairman, three ex-officio members i.e. Secretary of the Department of Public Enterprises, Secretary of the Department of Financial Services and Deputy Governor of the Reserve Bank of India, and five expert members, two of which are from the private sector. The Chairman is selected by the central government and the RBI governor does not head it.

Statement 2 is correct: Banks Board Bureau recommends for the selection of head for Public Sector Banks and other key personnel if required.

Statement 3 is correct: BBB develops strategies for raising capital and improving performance of PSBs.

Banks Board Bureau

• The Banks Board Bureau (BBB) has its genesis in the recommendations of ‘The Committee to Review Governance of Boards of Banks in India, May 2014 (Chairman J. Nayak)’.
• It was part of the Indradhanush
• It will make recommendations for appointment of whole-time directors as well as non-executive chairpersons of Public Sector Banks (PSBs) and state owned financial institutions.
• The Ministry of Finance takes the final decision on the appointments in consultation with the Prime Minister’s Office.
• Composition: Banks Board Bureau comprises the Chairman, three ex-officio members i.e. Secretary, Department of Public Enterprises, Secretary of the Department of Financial Services and Deputy Governor of the Reserve Bank of India, and five expert members, two of which are from the private
• The Chairman is selected by the central governmnet.

Ans: d

Sub-Theme: Monetary Policy

Option (d) is correct: In India, the responsibility for maintaining price stability and controlling inflation lies with the Reserve Bank of India (RBI). The RBI is the central bank of India and is responsible for regulating the supply of money in the economy through various monetary policy measures such as adjusting interest rates, controlling the reserve ratios of banks, and buying or selling government securities in the open market.

MONETARY POLICY

• It is the policy under which RBI uses monetary instruments (interest rate and other instruments) under the RBI Act, 1934, to influence money supply in the economy to achieve certain macroeconomic goals.
• Various instruments of Monetary Policy: Repo rate; Reverse Repo Rate; CRR; SLR; LAF; MSF; Bank Rate; MSS; etc.

Ans: a

Sub-Theme: Expenditure

Statement 1 is correct: When a company funds are used to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment are known as Capital Expenditure (CapEx) of a Company.

Statement 2 is incorrect: Equity financing is the process of raising capital through the sale of shares. It is an example of non-debt capital receipts.

Capital Expenditure (CapEx) of a Company:

• When a company funds are used to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment are known as Capital Expenditure (CapEx) of a Company.
• When a company borrows money to be paid back at a future date with interest it is known as debt financing. Example: Repayment of loan is an example of capital

Equity financing:

• Equity financing is the process of raising capital through the sale of shares. It is an example of non-debt capital receipts.
• Capital receipts are receipts that create liabilities or reduce financial They also refer to incoming cash flows. Example: Recovery of loans and advances, disinvestment, issue of bonus shares, etc.

Ans: c

Sub-Theme: Basic Concept of Economy

Statement 1 is correct: The household financial savings used in part to finance government borrowing.  Governmental  securities,  often known as G-secs and Treasury Bills, are issued as a means of borrowing.

Statement 2 is correct: Over 93% of the total state debt is made up of internal debt. Internal loans, which account for the majority of the public debt, are further separated into marketable and non-marketable debt.

Ans: b

Sub-Theme: Financial Assistance

Rapid Financing Instrument (RFI) and Rapid Credit Facility (RCF) is an arm of the International Monetary Fund (IMF) which provides financial assistance to the countries in need,

• Rapid Financing Instrument (RFI)
  • The Rapid Financing Instrument (RFI) provides rapid financial assistance, which is available to all member countries facing an urgent balance of payment needs.
  • The RFI was created as part of a broader reform to make the IMF’s financial support more flexible to address the diverse needs of member countries.
  • The RFI replaced the IMF’s previous emergency assistance policy and can be used in a wide range of circumstances.
• Rapid Credit Facility (RCF)
  • The Rapid Credit Facility (RCF) provides rapid concessional financial assistance to low-income countries (LICs) facing an urgent Balance of Payments (BoP) need with no ex-post conditionality where a full-fledged economic program is neither necessary nor feasible.
  • The RCF was created under the Poverty Reduction and Growth Trust (PRGT) as part of a broader reform to make the Fund’s financial support more flexible and better tailored to the diverse needs of LICs, including in times of crisis.

Ans: c

Sub-Theme: Exchange Rate

Statement 1 is correct: NEER is the Weighted average of bilateral nominal exchange rates of the home currency in terms of foreign currencies. The nominal exchange rate is the amount of domestic currency needed to purchase foreign currency. Therefore, an increase/decrease in NEER indicates the appreciation/depreciation of Rupee against the weighted basket of currencies of its trading partners.

Statement 2 is incorrect: REER is the weighted average of nominal exchange rates adjusted for relative price differential between the domestic and foreign countries. Therefore, an increase in a nation’s REER is an indication that its exports are becoming more expensive and its imports are becoming cheaper, which simply means it is losing trade competitiveness.

Statement 3 is correct: A real effective exchange rate (REER) is the NEER adjusted by relative prices or costs, typically captured in inflation differentials between the home economy and trading partners. Higher the inflation higher will be divergence (difference between) NEER and REER.

Ans: a

Sub-Theme: Monetary Policy and External Commercial Borrowings

Statement 1 is correct: A tight monetary policy is implemented to contract economic growth. It involves increasing interest rates to constrain borrowing and to stimulate savings, this can discourage investment and depress asset prices. It makes borrowing less attractive as interest payment increases. Thus, tight monetary policy of the US Federal Reserve could lead to capital flight by the investors.

Statement 2 is correct: Capital flight can drive up the interest costs as there is reduced money supply in the system. Thus, it would lead to increase in the interest cost of firms that have external commercial borrowings.

Statement 3 is incorrect: ECB is basically a loan availed by an Indian entity from a non-resident lender in foreign currency whereas Devaluation is decreasing the value of currency within a fixed exchange rate system. Therefore, devaluation of the domestic currency would increase the currency risks associated with ECBs and will result in higher interest cost for borrowers.

Ans: a

Sub-Theme: Bonds and Securities

Statements 1 and 2 are correct: Inflation- Indexed Bonds is a debt market securities offered by the government to protect the savings from inflation and offer positive real rates of returns. The principal and interest are linked to WPI/ CPI. Inflation indexed bonds provide returns that are always in excess of inflation, ensuring that price rise does not erode the value of savings. Globally, IIBs were first issued in 1981 in the UK. In India, the Government of India through RBI issued IIBs (linked to WPI) in June 2013. They can be traded in the secondary market like other G-Secs and help the Government to reduce the coupon rates on its borrowings.

Statement 3 is incorrect: The existing tax provisions will be applicable on interest payment and capital gains on IIBs. There will be no special tax treatment for these bonds.

Ans: a          

Sub-Theme: Sectors of Economy

The real sector of an economy is the key section as activities of this sector persuade economic output and is represented by those economic segments that are essential for the progress of GDP of the economy.

Statements 1 and 2 are correct: The sector’s (Farming and Textile Mills) ability to produce enough goods and services to satisfy global demand makes it essential for the economy’s long-term viability.

Statements 3 and 4 are incorrect: The financial sector is an area of the economy that consists of businesses and institutions that offer financial services to wholesale and retail clients. A commercial bank lending money to a trading company or a corporate body issuing rupee denominated bonds overseas constitute financial sector activities and not real sector activities.

Ans: c         

Sub-Theme: Convertible Bond

Statement 1 is correct: A convertible bond is a fixed-income corporate debt security that yields interest payments but can be converted into a predetermined number of common stock or equity shares. Convertible bonds generally offer a lower coupon rate or rate of return in exchange for the value of the option to convert the bond into common stock. Investors will generally accept a lower coupon rate on a convertible bond, compared with the coupon rate on an otherwise identical regular bond, because of its conversion feature.

Statement 2 is correct: The option to convert to equity affords the bondholder a degree of indexation to rising consumer prices as equity prices can differ widely from the given interest and the difference in that can be used as a hedge for inflation.

Ans: d

Sub-Theme: Inflation

Inflation is the rise in prices of goods and services within a particular economy wherein, the purchasing power of consumers decreases, and the value of the cash holdings erode. In India, the Ministry of Statistics and Programme Implementation (MoSPI) measures inflation. Some causes that lead to inflation include the creation of new money to finance a budget deficit. A Budget Deficit refers to a situation where total expenditure exceeds the total revenue.

Other Causes that lead to inflation are: Increase in demand, reduction in supply, demand-supply gap, excess circulation of money, increase in input costs, devaluation of currency, rise in wages among others.

Ans: b

Sub-Theme: Recession

• A fall in the gross domestic product (GDP) for two or more consecutive quarters is often regarded as an economic recession.
• Recessions are brought on by high interest rates because they reduce liquidity, or the quantity of money available for
• An increase in expenditure on public projects will lead to an increase in investments, leading to an increase in GDP and income in the economy and in turn increase in demand, completing the virtuous cycle of

Additional Information:

• Recession is a situation when an economy faces negative growth of GDP in two successive quarters. Cut in tax rates accompanied by an increase in interest rate can create a credit crunch in the economy, which will not be favourable at the moment for the economy.
• When income is falling in the economy then an increase in tax rates accompanied by a reduction of interest rate is not desirable at the moment.
• Reduction of expenditure on public projects in the time of recession will not be favourable as it will reduce the output of the economy.

Ans: a

Sub-Theme: Types of Inflation

Demand-pull inflation is caused by an increase in demand and when the demand in the economy outgrows the supply in the economy. It can be summed up as a condition of “too much money chasing too few goods”. With reference to the Indian economy, demand- pull inflation can be caused/increased by the following:

1. Expansionary Policies: Money in the market rises when the government spends more freely. It leads to an increase in demand for the goods and fuels demand- pull inflation.
2. Fiscal Stimulus: It also increases the money in the market which leads to an increase in demand for the goods and fuels demand- pull inflation.
3. Inflation-Indexing Wages: It means wages are linked to the inflation which means wages move as inflation changes in the economy. Such indexing is provided to reduce the effect of inflation on wages. It can not lead to demand pull inflation in the
4. Higher Purchasing Power: Consumers feel more confidence and spend more when they have a better income. As a result, demand increases, driving up inflation.
5. Rising Interest Rates: It will reduce the money supply in the market. Borrowing money will become costlier, creating a credit crunch in the economy. So, it cannot cause demand to pull inflation in the economy.

Additional Information:

• Effective change in the wages is zero and it does not increase/decrease purchasing power. So, it cannot lead to a demand to pull inflation in the economy.
• Rising interest rates decrease the money supply in the economy. Also, due to this borrowing money becomes costly. So, it cannot cause demand-pull inflation in the

Ans: a

Sub-Theme: Functions of Money Market

• Statement 1 is correct: In the case of Substitute goods, demand for a good usually moves in the direction of the price of its substitutes. Since tea is a substitute for coffee, if the price of coffee increases, the consumers can shift to tea, and hence, the consumption of tea is likely to go up.
• Statement 2 is incorrect: Goods that are consumed together are called Complementary goods such as tea and sugar, pen and ink etc. Since Pen and ink are used together, an increase in the price of pens is likely to reduce the demand for ink and a decrease in the price of ink is likely to increase the demand for Similar is the case with other compliments. With the increase in the price of complement, demand reduces.
• Statement 3 is incorrect: Inferior goods are those goods demanded for which move in the opposite direction as the income of the consumer. As the income of the customer increases, the demand for inferior goods falls, and as the income decreases, the demand for them rises. E.g. coarse cereals.
• Statement 4 is correct: As per Law of demand, When the price of the commodity decreases, demand for it rises.

Ans: c

Sub-Theme: Role and Functions of RBI/Banking Appointment

Statement 1 is correct: According to Section 8 of RBI ACT 1934, A Governor and (not more than four) Deputy Governors are to be appointed by the Central Government. Statement 2 is incorrect: According to Section 7 of RBI ACT 1934, The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider it necessary in the public interest. There is no such provision in the constitution of India.

Statement 3 is correct: The Governor of the RBI draws his power from the RBI Act 1934. RESERVE BANK OF INDIA:

• Before RBI: The functions of a central bank were virtually done by the Imperial Bank of India.
• It was established via the RBI act 1934, and started its operations from April 1, 1935 → statutory body. Similarly, SBI is also a statutory body deriving its legality from SBI Act 1955.
• The RBI was initially a privately held bank rather than a government-owned
• Following independence, the government enacted the Reserve Bank (Transfer to Public Ownership) Act of 1948, which allowed it to acquire the RBI from private owners after providing fair compensation.
• The RBI was nationalised in 1949, and as of January 1, 1949, it operated as a government-owned bank.
• It oversees the Indian financial sector and is the top monetary and banking authority in the nation.
• Since it holds the reserves of all commercial banks, it is known as the “Reserve Bank.”

Ans: b

Sub-Theme: Cooperative Bank

Statement 1 is incorrect: After Banking Regulation (Amendment) Act 2020 was passed, all the powers were transferred to RBI from the Registrars of the cooperative societies. Even some powers are left with the registrar but RBI powers will override them.

Statement 2 is correct: RBI has issued guidelines allowing cooperative banks to raise funds through the issuance of equity shares, preference shares and debt instruments.

Statement 3 is correct: Large cooperative banks with paid-up share capital and reserves of Rs.1 lakh were brought under the purview of the Banking Regulation Act 1949 with effect from 1st March 1966.

CO-OPERATIVE BANKS

• A Co-operative bank belongs to its members, who are at the same time the owners and the customers of their bank.
• Under dual control of the RBI and Registrar of Cooperative Societies.
• The board of members are elected with each member having one vote.
• Agriculture, some small-scale businesses, and independent contractors primarily receive funding from cooperative banks.
• These banks are cooperative credit institutions that are registered under the Cooperative Societies Act 1912. These banks work according to the cooperative principles of mutual assistance.
• Co-operative banks have a three-tier structure:
  • Primary Credit Societies-PCSs (agriculture or urban).
  • District Central Co-Operative Banks-
  • State Co-Operative Banks-SCBs (at the apex level).

Ans: b

Sub-Theme: RBI

Option (b) is correct: In India, the central bank’s function as the ‘lender of last resort’ usually refers to providing liquidity to banks that are facing temporary financial difficulties and are unable to meet their obligations. The Reserve Bank of India (RBI) can lend money to these banks, either directly or through other channels, to help them meet their short-term liquidity needs and avoid a crisis. This function is important for maintaining financial stability in the banking system and ensuring that banks can continue to serve their customers even in times of stress.

Lender of Last Resort

• A “lender of last resort” means that the RBI (also called banker of banks) offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse.
• This helps to protect individuals who have deposited funds and to prevent customers from withdrawing out of panic from banks with temporarily limited liquidity.
• Commercial banks usually try not to borrow from the “lender of last resort” e. RBI because such action indicates that the bank is experiencing a financial crisis.

Ans: c

Sub-Theme: Money Multiplier/Money Supply

• The money multiplier is the amount of money created by banks for a given fixed amount of base money and reserve ratio. For example, if the commercial banks gain deposits of Rs1 Lakh and this leads to a final money supply of Rs 10 lakh. The money multiplier is 10.
• An increase in the banking habit of the population will increase the lending, thereby will lead to more deposits in the banks hence increasing the money

Ans: d

Sub-Theme: Black Money

Option (d) is correct: The creation of black money in India causes the loss of revenue to the State Exchequer due to tax evasion, which is the main cause of worry for the Government of India.

• Black money is the money that comes from illegal activity or unreported activity (maybe legal).
• The first category includes everything that is earned through illegal means and the second category includes everything that is not reported to tax authorities when the income of an individual or a firm is under- Shell companies are another major source of black money coming to an economy when companies evade the tax authorities by routing their income/profits through tax havens.

Ans: a

Sub-Theme: BoP

Statement 1 is correct: Devaluation is decreasing the value of currency within a fixed exchange rate system. Exports become cheaper to foreign customers. Thus, it improves the competitiveness of domestic exports in the foreign markets.

Statement 2 is incorrect: Devaluation of a currency decreases the foreign value of the domestic currency. Example- Let us assume that the prevailing exchange rate of $1 is 20 Rs. So currently 1 Rs is worth $0.05. If the devaluation of currency is done and now the exchange rate of $1 is 50 Rs, this means 1 Rs is worth $0.02. So, the value of domestic currency (Rs) is decreased in terms of value of foreign currency ($).

Statement 3 is incorrect: Balance of Trade (BOT) is the difference between the value of exports and imports of a country in a given period of time. When foreign loans are valued in the native currency, devaluation also raises the debt burden on those loans. Devaluation might not, then, ultimately lead to an improvement in the trade balance. Hence, statements 3 is incorrect.

Ans: a          

Sub-Theme: Foreign Investment

Statements 1, 2 & 3 are correct: Foreign Currency Convertible Bonds (FCCB), Foreign Institutional Investment with certain conditions (overall limit of 24%), and Global Depository Receipts (GDR) are the instruments for foreign investment in India.

Statement 4 is incorrect: Non-resident external deposits will create debts in the balance of payment accounts, hence not a part

of FDI.

Ans: d          

Sub-Theme: Debt Instrument

Statement 1 is correct: Bond yield is the return an investor gets on that bond or on a particular government security. It depends on the price of the bond which is impacted by its demand. The actions of the US federal reserve can impact the investments flowing in India. This will lead to a decrease in demand for Government Securities (G-sec) and thus impacting its yield.

Statement 2 is correct: The actions of RBI directly impacts the bond yield because it is directly related to liquidity in the market which is controlled by RBI through various tools.

Statement 3 is correct: The purchasing capacity of an economy is directly related to inflation. So any change in short term rates will impact the demand and price of G-sec and thereby influencing the yield.

Ans: b         

Sub-Theme: Debt Instrument

Statement 1 is correct: Bond yield is the return an investor gets on that bond or on a (T-Bills) and Government bonds. It is mandatory to open a Demat account for a retail investor to invest in ‘Treasury Bills’ and ‘Government of India Debt Bonds’ in the primary market.

Statement  2  is  correct:  The  Negotiated Dealing System Order Matching is an electronic trading platform operated by the Reserve Bank of India to facilitate the issuing and exchange of government securities and other types of money market instruments.

Statement 3 is incorrect: CDSL was promoted by BSE Ltd. jointly with leading banks such as State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank and Union Bank of India.

Ans: c

Sub-Theme: Water Conservation

Statements 1 and 3 are correct: Water Credit is a powerful solution and the first to put microfinance tools to work in the water and sanitation sector. It helps bring small loans to those who need access to affordable financing and expert resources to make household water and toilet solutions a reality.

Statement 2 is incorrect: Water Credit Initiative is a loan program started by water.org to address the barrier of affordable financing for safe water and sanitation.

Ans: b

Sub-Theme: Economic Reforms

“Changing Structure of Rural Economy of India: Implications for Employment and Growth 2017,” is a report published by NITI Aayog, which made the following observations:

Statement 1 is incorrect: Both rural and urban regions have seen an improvement in worker productivity as well as the absolute level of income per worker. For rural areas, it was Rs. 37273 in 2004 -05 and Rs. 101755 in 2011-12, while for urban areas it was Rs. 120419 in 2004-05 and Rs. 282515 in 2011-12.

Statement 2 is incorrect: As per the 2011 Census, 68.8% of India’s population and 72.4% of the workforce resided in rural areas. However, the steady transition to urbanisation over the years has led to a decline in the rural share of the workforce, from 77.8% in 1993-94 to 70.9% in 2011-12.

Statement 3 is correct: About two-thirds of rural income is now generated in non- agricultural activities. Non-farm economy has increased in rural areas. The share of agriculture in the rural economy has decreased from 57% in 1993-94 to 39% in 2011-12.

Statement 4 is correct: After 2004-05, the rural areas have witnessed negative growth in employment in spite of high growth in output. The growth rate of rural employment was 1.45% during 1994-2005, which fell to -0.28% between 2005-12.

Ans: d

Sub-Theme: Government Policies Factors/Policies Affecting the Price of Rice in recent past are:

• Minimum Support Price: MSP is a type of market intervention that the government uses to protect farmers against a sudden drop in farm prices. Rice is included in MSP and thus impacts the price of rice.
• Governments Trading: The Government’s Trading and Minimum Support Price of rice results in the diversion of stocks from the open market hence driving up the price for the ultimate Though factors like climatic shocks determine rice production and prices in the short run, the future scenario of rice prices must be based on long-term projections of rice demand and supply.
• Government’s Stockpiling: Low stock levels constrain the ability to buffer the price rise resulting from other factors.
• Consumer Subsidies: Subsidies given to consumers lower the prices for the ultimate consumer. These subsidies are generally provided by the government.

Ans: b

Sub-Theme: Agriculture Fertilizer

Statement 1 is incorrect: The Union Government subsidizes fertilizers to ensure that fertilizers are easily available to farmers at reasonable prices and the county remains self- sufficient in agriculture. Thus, the fertilizer price in India is administered by the government.

Statement 2 is correct. Ammonia’s chemical formula is NH₃. It is a colourless gas and is used as an industrial chemical in the production of fertilizers, plastics, synthetic fibers, dyes and other products. It occurs naturally in the environment from the breakdown of organic waste matter and may also find its way to ground and surface water sources through industrial effluents, contamination by sewage or through agricultural runoff. In the Haber– Bosch process, the atmospheric nitrogen (N₂) is converted to ammonia (NH₃) by reacting it with hydrogen (H₂), (this Hydrogen is provided by breaking methane (CH₄) from natural gas) while maintaining the high temperatures and pressures.

Statement 3 is correct. In India, the domestic production of elemental sulphur is limited to by-product recoveries from petroleum refineries and fuel oil used as feedstock for manufacturing fertilizer.

Ans: c

Sub-Theme: Public investment in agriculture

Public Investment: It is an investment by the State (Central, state and local governments orthrough publicly owned companies) to build the nation’s capital stock by devoting resources to the basic physical infrastructure (such as roads, bridges, rail lines, airports, and water distribution), research and development, etc. that leads to increased output and/or living standards.

The following can be considered as Public Investment in Agriculture.

• Computerization of Primary Agricultural Credit Societies: Computerization of Primary Agricultural Credit Societies will enhance productivity in the agricultural sector, as there will be easy and timely access of credit.
• Social Capital Development: Building social capital for smallholders can also positively impact the adoption of new technologies such as the use of improved seeds, soil and water conservation practices, and agroforestry.
• Setting up cold storage facilities by the governments: Setting up cold storage facilities will enhance productivity in the agricultural sector as agricultural products are generally perishable in nature and the facility of cold storage may help in increasing the shelf life of the products.

Additional Information:

• Fixing Minimum Support Price for Agriculture for agricultural products of all crops and free electricity supply to farmers are subsidies, hence they are not categorized as public investment in agriculture.
• Subsidies and incentives are not considered as public investment.

Ans: b

Sub-Theme: Agricultural credit

Announced in the 1998–1999 budget, the Kisan Credit Card Scheme aims to provide farmers with the institutional credit they need to meet their financial needs at various phases of farming. It is implemented by all public sector banks, regional rural banks, and cooperative banks across the nation. Under the Kisan Credit Card scheme, short-term credit support is given to farmers for the following purposes:

• Working Capital for Maintenance of Farm Assets: To provide Working capital for maintenance of farm assets and activities allied to agriculture.
• Consumption Requirement of Farm Households: To fulfill the consumption requirements of farmers is one of the main objectives of KCS.
• Post Harvest Expenses: Supporting the farmer in their post-harvest expenses.

Additional Information:

• The Kisan Credit Cards are issued to the farmers so that they may use them to purchase agriculture inputs such as seeds, fertilizers, pesticides etc. and draw cash for their production needs.
• Construction of a family house is covered under PMAY and setting up a village cold storage facility is not covered under KCC

Ans: d

Sub-Theme: MSP

Statement 1 is incorrect: Procurement of all cereals, pulses and oilseeds at Minimum support price is open-ended. It is limited since our buffer stock is limited. Open ended procurement means whatever foodgrains are offered by the farmers, within the stipulated procurement period and which conforms to the quality specifications prescribed by Government of India, are purchased at MSP (and bonus/ incentive, if any) by the Government agencies including FCI for central Pool.

Statement 2 is incorrect: Market price has no link with minimum support price and it can go below or above the MSP, depending upon the demand of the crop in the market.

Ans: a

Sub-Theme: Crude oil Trade

Crude Oil Trade:

• There are about 160 crude oils that are traded internationally.
• They vary in terms of their characteristics & quality.
• The two main benchmarks for crude oil used internationally are West Texas Intermediate and Brent Crude.

Difference of WTI and Brent Crude oil:

Ans: c

Sub-Theme: WTO Agreements

Statement 1 is correct: Trade-Related Investment Measure (TRIMs) provides quantitative restrictions on imports by foreign investors. TRIMs agreement stipulates that certain measures adopted by Governments to regulate FDI can cause trade-restrictive and distorting effects.

Statement 2 is incorrect: As per Article 1 of the TRIMs agreement, it applies only to investment measures related to trade in goods and not in services.

Statement 3 is correct: TRIMs are not intended to deal with the regulation of investment as such and does not impact directly on WTO members’ ability to regulate and place conditions upon the entry and establishment of foreign investment.

Ans: a

Sub-Theme: Inflation

Statement 1 is correct: The Wholesale Price Index (WPI) measures wholesale price changes. The Wholesale goods or services sold by businesses to smaller businesses for selling further. The WPI does not include services. The weightage for food is lower in WPI whereas the weightage of food in the CPI is close to 50%.

Statement 2 is correct: WPI indicates the wholesale price, whereas CPI shows the retail price i.e., the price at which people make purchases from the retail market. WPI does not show the impact of inflation on the people. Any policy should consider the impact on the people. WPI does not account for the price of services. It is an international best practice – most of the countries have shifted to CPI.

Statement 3 is incorrect. The Reserve bank of India adopted the new Consumer Price Index (CPI) (combined) as the key measure of inflation in 2014. The Consumer Price Index measures retail-level price changes. It includes services as well.

Ans: a

Sub-Theme: Mechanism to counter Financial crisis

Statement 1 is correct: Due to the global economic crisis, both creditor and debtor nations face hardships to keep the economy afloat. Various  political and economic considerations make it difficult to come to the rescue of a distressed nation. Hence India should not depend on short term borrowings.

Statement 2 is incorrect: Opening up to more foreign banks would lead to enhanced exposure to the global economy, and hence an increased risk. Strengthening the domestic banks would prove more helpful in a situation like a global economic crisis.

Statement 3 is incorrect: Capital account convertibility means no restriction on the amount you can convert into foreign currency to enable you to acquire any foreign assets and vice versa. In a situation of a financial crisis, it will be a big mistake. It can create a situation of “Capital flight” where a foreign investor can withdraw all his money at once.

Ans: d

Sub-Theme: Demand and Supply of Money

Demand Deposit

• Demand deposit accounts consist of funds held in a bank account from which deposited funds can be withdrawn at any time while a term deposit account restricts access for a predetermined time (Fixed deposits accounts, Recurring deposits accounts). Current accounts and savings accounts are demand deposits.
• Money = total currency with the public + demand deposits of the public with banks. In this given situation when you withdraw Rs. 1,00,000 from the bank, it goes to the currency in hand from demand deposits in banks but it does not change the value of the money supply.

Ans: a

Sub-Theme: Banking Interest

Statements 1 and 2 are correct: The interest coverage ratio is a debt and profitability ratio used to determine how easily a company can pay interest on its outstanding debt.

Lenders, investors, and creditors often use this formula to determine a company’s riskiness relative to its current debt or for future borrowing.

Statement 3 is incorrect: The higher the coverage ratio, the easier it should be to make interest payments on its debt or pay dividends. Interest Coverage Ratio:

• The interest coverage ratio is a debt and profitability ratio used to determine how easily a company can pay interest on its outstanding debt.
• The interest coverage ratio is calculated by dividing a company’s earnings before interest and taxes (EBIT) by its interest expense during a given period. Lenders, investors, and creditors often use this formula to determine a company’s riskiness relative to its current debt or for future
• A coverage ratio, broadly, is a metric intended to measure a company’s ability to service its debt and meet its financial obligations, such as interest payments or dividends.
• The higher the coverage ratio, the easier it should be to make interest payments on its debt or pay dividends.

Ans: b

Sub-Theme: Monetary policy

Statement 1 is incorrect: Reducing SLR leaves more liquidity with banks, which in turn can fuel growth and demand in the economy.

Statement 2 is correct: With the increase of MSF Rate, cost of borrowing increases for banks resulting in reduced available resources to lend.

Statement 3 is incorrect: Under expansionary monetary policy, RBI reduces repo rate and bank rate to increase liquidity in the banking sector.

RBI Monetary Policy:

• When the government reduces spending and raises taxes simultaneously in the nation, it is said to be implementing a contractionary fiscal policy, but when the government increases expenditure and lowers tax rates to spur economic growth, it is said to be implementing an expansionary fiscal
• Contractionary policy slows the rate of growth in the money supply to control
• When the government reduces spending and raises taxes simultaneously in the nation, it is said to be implementing a contractionary fiscal policy, but when the government increases expenditure and lowers tax rates to spur economic growth, it is said to be implementing an expansionary fiscal

Ans: b

Sub-Theme: Cooperative Banking

Statement 1 is incorrect: Although the focus of rural cooperative lending is agriculture, the share in credit flow to the agriculture of rural cooperatives is only 12.1%, as compared to 76% of Scheduled Commercial Banks (SCBs), and 11.9% of Regional Rural Banks.

Statement 2 is correct: DCCBs mobilise deposits from the public and provide credit to the public and PACS.

District Central Co-operative Banks (DCCBs):

• Rural co-operatives include District Central Co-operative Banks (DCCBs), State Co-operative Banks (StCBs), and Primary Agricultural Credit Societies (PACS).

3-tier structure  of Short  term Co-operative Banks:

1. State Co-operative Banks
2. District Central Co-operative Banks
3. Primary Agricultural Credit Societies.

• • Although the focus of rural cooperative lending is agriculture, the share in credit flow to the agriculture of rural cooperatives is only 12.1%, as compared to 76% of Scheduled Commercial Banks (SCBs), and 11.9% of Regional Rural Banks.
  • DCCBs mobilise deposits from the public and provide credit to the public and PACS.

Ans: d

Sub-Theme: Debt Financing

Option (d) is correct: Types of non-financial debt are Housing loans owed by households, Amounts outstanding on credit cards, Treasury bills, Credit Card balance etc.

Debt Financing:

• When an economy borrows money to be paid back at a future date along with interest, it is known as Debt Financing.
• Debt financing mainly includes two types of debt:

1. Public Debt:
   • It is the total amount borrowed by the government of a country.
   • It is further divided into two types:
2. Internal Public Debt
3. External Public Debt
4. Non-Financial Debt:
   • It is made up of credit instruments that are not included in the financial sector and are issued by businesses, consumers, and governments.
   • Types of non-financial debt: Housing loans owed by households, Amounts outstanding on credit cards, Treasury bills, Credit Card balance etc.

Ans: d         

Sub-Theme: BoP

Statement 1 is correct: The major portion of India’s current account deficit is in the area of merchandise trade. As per RBI’s data, India’s Merchandise exports during April-August 2019- 2020 was USD 133.14 billion, as compared to USD 210.39 billion of imports during the same period.

Statement 2 is incorrect: Between 2011–12 and 2018–19, the composition of imports by commodity reveals that imports of iron and steel, organic chemicals, and industrial machinery have experienced positive growth rates as a percentage of total imports.

Statement 3 is correct: India has a surplus of net services (service exports minus service imports). India’s Service exports during April- August 2019- 2020 was USD 67.24 billion, as compared to USD 39.25 billion of imports during the same period.

Statement 4 is correct: Current Account Deficit (CAD) or trade deficit is the shortfall between exports and imports. As per Economic Survey 2019-20, India’s CAD was 2.1% in 2018-19, and 1.5% of GDP in H1 of 2019-20.

Ans: b

Sub-Theme: Foreign Investment – FDI

Option (a) is incorrect: FDI is the investment through a capital instrument by a non- resident entity/person resident outside India in an unlisted Indian company, or 10% or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.

Option (b) is correct: A non-debt creating capital flow is the one where there is no direct repayment obligation for the residents. FDI is largely a non-debt creating capital flow.

Option (c) is incorrect: Debt servicing is the regular repayment of interest and principal on a debt for a particular period. FDI has no link with this concept.

Option (d) is incorrect: The investment can be made in equities or equity linked instruments or debt instruments issued by the company. Thus, FDI isn’t directly associated with government securities.

Ans: d

Sub-Theme: Functions of IMF

Option (d) is correct: A Reserve Tranche is a portion of the required quota of currency each member country must provide to the IMF that can be utilized for its own purposes without a service fee or economic reform conditions.

Gold or Reserve Tranche:

• The International Monetary Fund (IMF) is funded through its members and their quota contributions.
• A reserve tranche is a component of the required quota of currency that each member nation must contribute to the IMF and can be used for its own needs free of charges or requirements for economic reform.
• Essentially, the reserve tranche serves as an emergency account that IMF members can use whenever necessary.
• The reserve tranches that nations have with the IMF are regarded as their facilities of last resort, which means they will use the reserve tranche urgently before requesting a formal credit tranche.

There are no interest costs for the initial 25% reserve tranche. Any additional items would incur a service charge.

Ans: c

Sub-Theme: Instruments of Money Market

Statement 1 is correct: Commercial Paper is a money market instrument for financing working capital requirements of companies. It is an unsecured instrument issued in the form of promissory notes which can be issued for a period ranging from 15 days to one year.

Statement 2 is incorrect: Certificate of Deposit are short term money market instruments issued by Commercial Banks and special financial institutions which are freely transferable between parties. Its maturity period ranges from 91 days to 1 year. These can be issued to individuals, cooperatives and companies.

Statement 3 is correct: Call money is a money market instrument used by the banks to meet their temporary requirement of cash. They borrow and lend money from each other normally on a daily basis. It has a maturity period of one day to fifteen days and is used by banks for adjusting to their short-term liquidity imbalances.

Statement 4 is incorrect: Zero coupon Bond is a type of bond which is issued at a discount to its face value, at which it will be redeemed. There are no intermittent payments of interests and they are generally issued for long tenure.

Ans: a

Sub-Theme: Economic Planning

Statement 1 is correct: From the Second Five Year Plan (1956-61), there was determined thrust towards substitution of basic and capital goods industries. This plan focused on Rapid Industrialization with an emphasis on capital goods and heavy industries. It was based on the PC Mahalanobis Model.

Statement 2 is correct: The Fourth Plan (1969-74) provided a necessary corrective to the earlier trend which helped particularly the stronger sections in agriculture as well as in industry to enable them rapidly to enlarge and diversify the production base. It has adopted the objective of correcting the earlier trend of increased concentration of wealth and economic power. Thus, it targeted Growth with Stability and progressive achievement of self- reliance.

Statement 3 is incorrect: The Fifth plan (1974-78) aimed at removal of poverty and attaining self-reliance. The financial sector became an integral part of the plan in the Ninth five -year plan (1997-2002).

Ans: c

Sub-Theme: Government Policies/Food Security

Food Corporation of India (FCI):

• Food Corporation of India (FCI) is a Public Sector Undertaking that falls under the Ministry of Consumer Affairs’ Department of Food and Public Distribution.
• In 1965, the Food Corporations Act of 1964 created the FCI, a statutory body. It was founded in the midst of a severe grain crisis, particularly in wheat.
• In order to suggest remunerative pricing to farmers, the Commission on Agricultural

Costs and Prices (CACP) was established in 1965.

• The Economic Cost of food grains to the FCI is the Minimum Support Price and bonus (if any) paid to the farmers plus the procurement incidentals and distribution
• Procurement incidentals are expenses incurred during procurement till the food grains reach the first point of godown.
• Distribution costs are now included in economic costs, whilst buffer carrying costs are now included in buffer subsidies.

Ans: d

Sub-Theme: Agricultural commodity Trading

Import of Agricultural commodities:

• Vegetable oils account for the highest import in terms of value in the last five years. India relies on imports for 70% of its edible oil consumption.
• Pulses account for second-most highest while fresh fruits account for third highest and spices account for least imports in terms of value in the last five years among the above-mentioned agricultural commodities imported in India.

Ans: b

Sub-Theme: Land Reforms

Land Reforms in Independent India:

• The Land Reforms in India aimed at the redistribution of ownership holdings and reorganizing operational holdings from the view point of optimum utilization of land.
• It was a major aim of land reforms to provide agricultural land to all the landless.
• The Objectives of the Land Reforms are as follows:
  • Removing institutional discrepancies of the agrarian structure.
  • Providing agricultural land to all the landless.
  • Issues of socio-economic inequality.
  • In order to address the interconnected issues of poverty, hunger, and food insecurity, agricultural productivity must be increased.

Additional Information:

• Land Ceiling laws were applied to family holdings as well as individual holdings depending upon the region/state.
• The outcome of Land reforms: (i) abolition of intermediaries, (ii) fixation of ceilings on land holdings, and (iii) redistribution of surplus land among landless or semi-landless peasants. Cultivation of cash crops requires much more other inputs rather than the mere availability of holdings. Commercialization of agriculture, and not land reforms, led to an increase in the cultivation of cash crops.
• Certain exemptions to the ceiling limits were allowed for plantations of crops like tea and coffee.

Ans: b

Sub-Theme: Agricultural commodity Trading

In recent years (2014-18), Vietnam’s rice exports were between 13 and 16 percent, Thailand’s between 22 and 25 percent, and India’s between 25 and 26 percent. Since the beginning of this decade, India has been the leading exporter of rice worldwide (2011-12).

Ans: a

Sub-Theme: Coal Sector

Statement 1 is correct: The nationalisation was done in two phases, the first with the coking coal mines in 1971-72 and then with the non -coking coal mines in 1973. Indira Gandhi served as the Prime Minister of the country from 1971-1973.

Statement 2 is incorrect: After the Supreme Court cancelled the coal block allocations in 2014. To manage and reallocate the cancelled blocks in a transparent and accountable manner, the Coal Mines (Special Provisions) Act, 2015 enabled the provisions for ‘allocation of coal mines by way of auction and allotment for the sale of coal’.

Statement 3 is incorrect: India has the 5th largest coal reserves in the world, but due to the monopolies of some firms, it cannot produce enough coal to meet the shortages. It imports coal to meet the shortages. Domestic coal has been able to meet only 75% of our annual coal demand. About 200 mt of imports are used to make up for the shortage of local coal supply.

Ans: b

Sub-Theme: Government Policies/Financial Inclusion

Option (b) is correct: Service Area Approach is a developed version of the “area approach” method of the Lead Bank Scheme.

Service Area Approach (SAA):

• It is a developed version of the “area approach” method of the Lead Bank
• Under SAA, each commercial bank branch in the rural and semi-urban area was designated to serve 15 to 25 villages for the planned and orderly development of the areas and the concerned branch was responsible for meeting the needs of bank credit of its service area.
• The service area approach was introduced in 1989 as part of the Lead Bank Scheme.
• The main goals of SAA were to boost lending that was productive and create solid connections between bank credit, production, productivity, and rising income

Ans: (a)

Sub-Theme: PSU Bank/Banking Appointment

Option (a) is correct: Banks Board Bureau recommends for selection of heads – Public Sector Banks and Financial Institutions and helps banks in developing strategies and capital raising plans.

Bank Board Bureau

• It was established as an independent organisation in February 2016 based on the suggestions of the RBI appointed Nayak
• It was part of the Indradhanush
• It suggested for the selection of full-time directors and non-executive chairs for Public Sector Banks (PSBs) and state-owned financial institutions.
• In cooperation with the Prime Minister’s Office, the Ministry of Finance makes the final decision regarding the appointments.

Composition:

• Banks Board Bureau comprises the Chairman, three ex-officio members i.e., Secretary, Department of Public Enterprises, Secretary of the Department of Financial Services and Deputy Governor of the Reserve Bank of India, and five expert members, two of which are from the private sector.

Ans: b

Sub-Theme: Banking mechanism

Bank Assets:

• A bank places its funds in assets to earn
• The assets include investments, money at call and short notice, loans and advances and bills discounted and purchased.
• Additionally, it covers the cash in hand with the banks and also the cash held with the RBI.
• The liabilities include deposits (both time and demand) and borrowings.

Ans: d

Sub-Theme: Foreign Investment

P-Notes or Participatory Notes

• These are overseas derivative instruments with underlying assets that are Indian
  • They permit unregistered overseas investors to purchase equities listed on Indian exchanges.

Ans: d

Sub-Theme: RBI monetary policy

Option (a) is incorrect: This would help control imports and thus the depreciation of the rupee.

Option (b) is incorrect: Masala bonds were brought in to curb the slide of rupee since the borrowing is rupee-dominated and does not put pressure on our currency through borrowing dollars.

Option (c) is incorrect: Easing ECBs will lead to higher borrowing abroad and would temporarily bridge the deficit of forex in India preventing the slide of rupee.

Option (d) is correct: An expansionary monetary policy may lead to lower interest rates and thus flight of foreign capital from India (which would get better returns abroad). Also, such a policy may fuel inflation and higher imports through higher government spending and further cause a slide of the rupee.

Ans: (c)

Sub-Theme: Money Multiplier/Money Supply

• The money multiplier is the amount of money created by banks for a given fixed amount of base money and reserve ratio. For example, if the commercial banks gain deposits of Rs1 Lakh and this leads to a final money supply of Rs 10 lakh. The money multiplier is 10.
• An increase in the banking habit of the population will increase the lending, thereby will lead to more deposits in the banks hence increasing the money

Ans: b         

Sub-Theme: Currency crisis/BoP

Currency crisis is brought about by a decline in the value of a country’s currency which negatively affects an economy. It creates instabilities in exchange rates, meaning that one unit of a certain currency no longer buys as much as it used to in another currency.

Statements 1 and 3 are correct: The foreign current earnings of India’s IT sector and remittances from abroad would lead to more inflow of foreign currencies in the economy and boost the foreign exchange reserves.

Statement 2 is incorrect: Increasing government expenditure will have no effect on the value of the currency since it is not related to change in foreign exchange reserves or any currency fluctuations.

Ans: d          

Sub-Theme: External Debt

Statement 1 is incorrect: As per the Government report on External debt, December 2018-Commercial borrowings are the largest component of external debt with a share of 37.1%, followed by NRI deposits (23.9%) and short-term trade credit (19.9%).

Statement 2 is incorrect: US dollar- denominated debt continued to be the largest component of India’s external debt with a share of 45.9 % at the end of December 2018, followed by the Indian Rupee (24.8 %), SDR (5.1 %), Yen (4.9 %) and Euro (3.1 %).

Ans: a         

Sub-Theme: Purchasing Power

Statement 1 is correct: PPP is an economic theory that compares different countries’ currencies through a “basket of goods” approach. The PPP between two countries measures the amount of one country’s currency required to purchase a basket of goods and services in the country that is compared to the amount of another country’s currency in order to purchase a similar basket of goods and services. e.g. -If a dumpling is selling in India for Rs100 and in China for ¥2, this would imply a PPP exchange rate of 1¥ to Rs 50.

Statement 2 is incorrect: In terms of PPP dollars. China is the world’s largest economy, followed by the US and India at third position (2018) respectively.

Ans: b

Sub-Theme: Poverty

• Poverty Lines: Poverty is pronounced deprivation in well-being and comprises many dimensions. It includes low incomes and the inability to acquire the basic goods and services necessary for survival with dignity – World Bank.
• Poverty lines would vary from State to State because of inter-state price
• According to the Planning Commission, the national poverty line for rural regions in 2011–12 was estimated to be Rs. 816 per capita per month in rural areas and Rs. 1,000 per capita per month in urban areas using the Tendulkar methodology.
• The population’s income distribution and the basis for consumer spending determine the poverty line.
• The poverty line is a function of the cost of the consumption basket which varies from state to state.

Ans: c

Sub-Theme: Economic Growth

Option (c) is correct: It is possible that an increase in absolute and per capita Gross National Product (GNP) will only reflect the economic growth of a small portion of society, leaving the rest of the population in poverty and unemployment. This is because the concept of per capita real income or per capita GDP are not able to capture the true picture in terms of non-monetary social indicators. Thus, an increase in absolute and per capita real GNP does not connote a higher level of economic development, if poverty and unemployment increase.

Additional Information: Economic Growth and Economic Development:

• Economic Growth: A rise in real national income or national output is known as Economic Growth.
• Economic Development: It includes raising living standards and the quality of life, as seen in indicators like literacy rates, life expectancy, and access to healthcare.
  • Economic Development occurs when a country undergoes different economic developments that enhance quality of life, such as a decline in poverty and unemployment, a narrowing of wealth and income disparities, a rise in literacy rates, and improvements in health and sanitation.
  • An essential aspect of development is to enable the maximum number of people to experience the fruits of development.
  • This component of progress cannot be captured by ideas of per capita income (per capita GDP or per capita NSDP).
  • Non-financial social indicators with multiple dimensions are better indicators of a society’s overall economic progress.

Ans: a

Sub-Theme: Agricultural commodity Trading

Statement 1 is correct: India occupies a prominent position in the world oilseeds industry with contribution of around 10% in worldwide production. But the demand of edible oils (extracted from oilseeds in addition to palm oil) is significantly higher than the domestic production, leading to dependence on imports (60% of requirement).

Statement 2 is incorrect: Government imposes customs duty on edible oils to safeguard the interests of the domestic oil crushing industry. The duty on two major edible oils, namely crude sunflower seed oil and crude canola/ rapeseed/mustard is 25% while crude soybean oil attracts 30% duty.

Ans: b

Sub-Theme: MSP

• The Commission on Agricultural Costs and Prices’ (CACP) recommendations serve as the foundation for the Being a statutory agency, the CACP provides separate reports outlining its suggested pricing for the Kharif and Rabi seasons. Initially, MSP covered paddy, rice, wheat, jowar, bajra, maize, ragi (Finger Millet), barley, gram, tur, moong, urad, sugarcane, groundnut, soybean, sunflower seed, rapeseed and mustard, cotton, jute and tobacco.
• Along with the edible oilseeds previously covered by the Commission, Niger seed and Sesame were included in the MSP Scheme of CACP as of 1994-1995. Similar to this, in 2001-2002, the government expanded the Commission’s mandate by adding lentil (masur).

Ans: a

Sub-Theme: Measures of NPA Resolution

Statement 1 is correct: Capital Adequacy Ratio (CAR) is the ratio of a bank’s capital in relation to its risk weighted assets and current liabilities.

Statement 2 is incorrect: CAR is decided by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process.

Ans: b         

Sub-Theme: Money as a legal tender

Legal tender is any official medium of payment recognized by law which the creditor is obligated to accept towards repayment of a debt.

Ans: c         

Sub-Theme: Debt Instrument

Statement 1 is incorrect: The RBI is the debt manager for both the Central Government and the State Governments. RBI manages the debt of state governments on the basis of separate agreements.

Statement 2 is correct: Treasury bills are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 days, 182 days and 364 days.

Statement 3 is correct: Treasury bills are issued at a discount from the par value (also known as the face value) of the bill, meaning the purchase price is less than the face value of the bill. For example, a $1,000 bill might cost the investor $950 to buy the product.

Ans: b          

Sub-Theme: Government policies

Statement 1 is incorrect: Capital infusion into public sector banks by the Government of India has not steadily increased in the last decade.

Statement 2 is correct: Merger of associate banks with the parent State Bank of India has been affected to create improved operational efficiency and economies of scale. It will also result in improved risk management and unified treasury operations.

Ans: d

Sub-Theme: IP Related issues/WTO

• Option (d) is correct: Geographical Indications (GI) are one of the eight intellectual property items coming under WTO’s TRIPS (Trade-Related Intellectual Property Rights).
• According to the WTO, “Geographical indications are indications which identify a good as originating in the territory of a member, or a region or locality in that territory, where a given quality, reputation or other characteristics of the good is essentially attributable to its geographical origin.”
• India enacted the Geographical Indication of Goods (Registration and Protection) Act, 1999 which came into force with effect from September 15, 2003, to comply with India’s obligations under the TRIPS agreement.
• TRIPS Agreement: It is an international legal agreement between all the member nations of the World Trade Organization (WTO) to provide strong protection for Intellectual Property Rights. It came into effect on 1 January 1995.
• The Controller General of Patents, Designs & TradeMarks (CGPDT), (under the Dept of Industrial Policy and Promotion of the Ministry of Commerce and Industry) is the ‘Registrar of Geographical Indications’. The CGPDT directs and supervises the functioning of the Geographical Indications Registry (GIR).

Ans: c

Sub-Theme: Human Capital

Statement 1 is incorrect: As per RBI, Gross capital formation refers to the aggregate of gross additions to fixed assets (that is fixed capital formation) plus change in stocks during the counting period.

Statement 2 is correct: OECD defines human capital as “the knowledge, skills, competencies and other attributes embodied in individuals or groups of individuals acquired during their life and used to produce goods, services or ideas in market circumstances”. Human capital formation is the outcome of investments in education, health, on-the job training, migration and information.

Statement 3 is incorrect: Tangible capital is also GCF as it involves largely infrastructural components.

Statement 4 is correct: Intangible wealth of a nation comprises the skilled population, human resource base, culture, arts etc.

Ans: d

Sub-Theme: Capital Formation

• Capital formation entails building up a nation’s actual capital stock. In other words, capital creation entails creating new capital goods, such as factories, machinery, tools, materials, electricity,  transport equipment, etc., all of which are used to produce goods in the future.
• Capital Output Ratio (COR): It serves as a measure for the proportional increase in capital formation needed to produce an increase in COR is a measure of capital required for producing one unit of output. If capital to output ratio is high, then capital formation may not result in a significant increase in the output.

Ans: c        

Sub-Theme: Opportunity Cost

Opportunity cost represents the benefits an individual, investor, or business misses out on when choosing one alternative over another. If a commodity is provided free to the public by the Government, then the opportunity cost is transferred from the consumers of the product to the tax-paying public. As per microeconomics, the opportunity cost is zero for free goods such as air and common goods such as fish/grazing land. For public goods such as street lights and defence, the opportunity cost is involved (The government could have spent that much money on street lights rather than on the military). So, the opportunity cost is not zero. Opportunity cost is also called Economic cost.

Ans: b

Sub-Theme: Economic Reform

Statement 1 is incorrect: India’s agriculture sector has shown a gradual decline in contribution to the Indian economy post-reform. India’s traditional occupation, agriculture, currently makes up only 15% of the GDP, down from 29% in 1991.

Statement 2 is correct: India is seen as a successful exporter of IT software, auto parts, textiles, and engineering goods in the reform period. Thus, the share of India’s exports in world trade increased after its liberalisation of economic policies in 1991.

Statement 3 is correct: The Foreign investments including FDI and FII have increased from about US $ 100 million in 1990-91 to US $ 467 billion in 2012-13.

Statement 4 is correct: The opening up of the economy has led to rapid increase in foreign direct investment and foreign exchange reserves.

NOTE: This question came verbatim from Economics NCERT Class 11 Pg. 48. This highlights the importance of reading and understanding the concepts from NCERTs.

Ans: c

Sub-Theme: Government Policies/e-technology to aid farmers.

Statement 1 is correct: National Agriculture Market (NAM) is a pan-India electronic trading portal which networks the existing APMC mandis to create a unified national market for agricultural commodities.

Statement 2 is correct: NAM promises more options for sale. It would increase farmers’ access to nationwide markets (with prices commensurate with the quality of their produce) through warehouse based sales and thus obviate the need to transport his produce to the mandi.

National Agriculture Market (NAM):

A national market for agricultural commodities is created by connecting the current APMC mandis through the pan-Indian electronic trading portal known as the National Agriculture Market (NAM).

Advantages of e-NAM:

For the Farmers: NAM promises more options for sale. It would increase farmers’ access to nationwide markets (with prices commensurate with the quality of their produce) through warehouse based sales and thus obviate the need to transport his produce to the mandi.

For the Local Trader: NAM provides access to a bigger national market for secondary trading in the mandi/market.

By participating directly in trading at the local mandi/market level through the NAM platform, bulk buyers, processors, exporters, etc. benefit from lower intermediation costs.

All of the major mandis in the States will gradually be incorporated into NAM, ensuring uniform processes for issuing licences, collecting fees, and moving products.

The NAM will also aid in the development of value chains for the nation’s most important agricultural commodities and support the movement and storage of agricultural products in a scientific manner.

Ans: a          

Sub-Theme: Inflation Targeting/Banking and NBFCs

Statement 1 is correct: MPC determines the policy interest rate, which is required to achieve the inflation target.

Statement 2 is incorrect: As per the provisions of the RBI Act, Members of the Monetary Policy Committee is a six-member body of which three Members will be from the RBI and the other three Members of MPC will be appointed by the Central Government.

Statement 3 is incorrect: The Governor of the Reserve Bank of India is the ex-officio Chairperson of MPC.

Ans: a

Sub-Theme: Indirect Taxes/GST

Statement 1 is correct: GST is one indirect tax for the whole nation, which will make India one unified common market.

Statement 2 is incorrect: There is no information which says GST will drastically reduce the Current account deficit (CAD) of India.

Statement 3 is incorrect: GST implementation neither ensures enormous growth of the Indian economy nor does it enable India to take over China.

Goods and Services Tax (GST)

Ans: d

Sub-Theme: Tax Revenue/Fiscal Deficit

Statement 1 is incorrect: Service tax, personal income tax and corporation tax have been reduced in the recent past to boost aggregate demand, so as to protect the economy from global recession. Excise duty rates have recently been lowered in order to raise aggregate demand and safeguard the economy from a worldwide recession; as a result, tax revenue as a percentage of India’s GDP hasn’t increased over the past ten years.

Statement 2 is incorrect: Fiscal deficit as a percent of GDP of India has not steadily increased in the last decade.

Ans: c

Sub-Theme: IP Related issues

Statement 1 is correct: National Intellectual Property Rights Policy was introduced as India’s commitment to the Doha Development Agenda (trade negotiation round of the WTO) and the TRIPS Agreement. It is an international legal agreement between all the member nations of the World Trade Organization (WTO) to provide strong protection for Intellectual Property Rights. It came into effect on 1 January 1995.

Statement 2 is correct: The Department of Industrial Policy and Promotion (DIPP) has been nominated as the nodal department to coordinate, guide and oversee implementation and future development of IPRs in India.

National Intellectual Property Rights Policy:

• In terms of IP awareness and development, commercialization, and enforcement, it seeks to create an ecosystem in the nation that is supportive of innovation and creativity.
• The nodal department has been nominated as being the Department of Industrial Policy and Promotion (DIPP).
• This policy was introduced as India’s commitment to the Doha Development Agenda and the TRIPS Agreement.
• National Intellectual Property Rights Policy encompasses and brings to a single platform all IPRs. It aims to incorporate and adapt global best practices to the Indian

TRIPS Agreement:

• It’s an agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). It is an international legal agreement between all the member nations of the World Trade Organization (WTO). It came into effect on 1 January 1995.

Ans: c

Sub-Theme: Sustainable Agriculture

Drip Irrigation:

• It is a form of irrigation where water is applied near the plant root through emitters or drippers, on or below the soil surface, at a low rate varying from 2-20 litres per Frequent watering helps to maintain the optimum level of soil moisture.
• The most effective irrigation technique is drip irrigation, which may be used for a wide range of crops, including vegetables, orchard crops, flowers, and plantation

Advantages of Drip Irrigation:

• Maximum use of available
• No water being available to
• Maximum crop
• High efficiency in the use of
• Weed growth is reduced and restricts the population of potential hosts.
• Low labour and relatively low operation
• No soil
• Improved infiltration in soil of low
• Ready adjustment to sophisticated automatic control.
• No runoff of fertilizers into
• Less water is lost to evaporation than during surface irrigation.
• Improves seed
• Decreased tillage

Disadvantages of Drip Irrigation:

• Sensitivity to clogging
• Moisture distribution problem
• Salinity hazards
• High cost compared to
• For design, installation, and operation, high competence is needed.

Ans: d

Sub-Theme: Government Policies

UDAY Scheme

• It is the Government of India’s financial recovery and revival package for India’s electricity distribution firms (DISCOMs), which aims to permanently fix the financial crisis of the power distribution industry.
• Objectives:
  • Improving operational efficiencies of discoms,
  • Reduction of cost of power,
  • Reduction in interest cost of discoms and
  • Enforcing financial discipline on discoms through alignment with state finances.

Ans: b

Sub-Theme: Government policies

Statement 1 is incorrect: DMFs don’t work in promotion of mineral exploration activities in mineral rich districts, rather it work on the benefit of the persons and areas affected mining related operations.

Statement 2 is correct: The main objective of DMFs is to work for the interest of the benefit of the persons and areas affected mining related operations in such manner as may be prescribed by the State Government.

Statement 3 is incorrect: It does not authorise states to issue a licence for mineral exploration. Additional Information:

District Mineral Foundations (DMFs):

• DMFs were instituted under the Mines and Minerals (Development and Regulation) (MMDR) Amendment Act 2015.
• They are non-profit trusts created to operate in the interest of those impacted by mining activities and for their own
• Miners’ contributions provide the funding for it.
• Objective: To work for the interest of the benefit of the persons and areas affected mining related operations in such manner as may be prescribed by the State
• Jurisdiction: Its manner of operation comes under the jurisdiction of the relevant State government.

Ans: b

Sub-Theme: Cryptocurrency

Statement 1 is incorrect: Bitcoin is a digital currency that is not tied to a bank or government and allows users to spend money anonymously.

Statements 2 and 3 are correct: Bitcoins have become popular because transactions can be made anonymously, making the currency popular with libertarians as well as tech enthusiasts, speculators and criminals. Also, anyone with a Bitcoin address can send and receive Bitcoins from anyone else with a Bitcoin address.

Bitcoin:

• Bitcoin is a digital currency that is not tied to any formal institution like bank or government and it also allows users to transact anonymously.
• Generally the coins are created by users who “mine’’ them by lending computing power to verifying other users’ transactions.
• They receive bitcoins in exchange. The buying and selling of coins also can be done on exchanges with U.S. dollars and other
• Bitcoins became popular due to its anonymous transactions, making the currency popular with libertarians as well as tech enthusiasts, speculators and
• Anyone with a Bitcoin address can send and receive Bitcoins from anyone else with a Bitcoin address.

Ans: c

Sub-Theme: Government policies

Statements 1 and 3 are correct: The primary objectives of these schemes were to reduce India’s gold imports and bring all the gold lying idle with individuals and households.

Statement 2 is incorrect: All Scheduled Commercial Banks excluding RRBs are eligible to implement the Scheme. Both the schemes are not intended to promote FDI in the gold and jewellery sector.

Gold Monetization Scheme and Sovereign Gold Bond Scheme:

• The government had introduced three ambitious plans to lower the physical demand for gold and remove 20,000 tonnes of the precious metal from households where it was sitting inert and worth $800 billion.
• PM launched the maiden sovereign gold bond, gold monetisation and the Indian gold coin scheme.
• Objective: To reduce India’s gold imports and bring all the gold lying idle with individuals and Sovereign Gold Bond Scheme was launched under the Gold Monetisation Scheme in November 2015.
• Sovereign Gold Bonds (SGBs) are government securities denominated in grams of gold issued by the RBI on behalf of the Government.
• The Gold Monetization Scheme aims to minimise the nation’s dependency on gold imports by enabling the use of gold held by households and facilitating their mobilisation for productive uses.
• Except for RRBs, all Scheduled Commercial Banks may implement the Scheme. Both programmes are not meant to encourage FDI in the gold and jewellery industry.

Ans: b        

Sub-Theme: Banking Licences

Statement 1 is correct: Eligible promoters for payment banks include Mobile phone companies, supermarket chains, public sector entities, real sector cooperatives, etc.

Statement 2 is incorrect: Credit risk is not involved with the Payments Bank. It can carry out most banking operations but cannot advance loans or issue credit cards.

Statement 3 is correct: As per RBI guidelines, Payment Banks are not permitted to engage in lending activities.

Ans: a

Sub-Theme: Banking Functions: Core banking solution (CBS)

Statement 1 is correct: Core Banking Solution (CBS) is a network of bank branches, which allows customers to manage their accounts, and use various banking facilities from any part of the world.

Statement 2 is incorrect: RBI doesn’t use CBS as a tool to exercise control over commercial banks through computerization.

Statement 3 is incorrect: CBS has nothing to do with NPAs.

Ans: c

Sub-Theme: Banking Mechanisms/Functions

Objectives of MCLR:

• Improving the transmission of the policy rate into lending rates of the bank
• Bringing transparency in the methods followed by various banks for the determination of interest rate.
• Ensuring the availability of bank loans at rates that are fair to both lenders and borrowers.

Enabling the lender and bank to be competitive and improve their worth in the long run.

Ans: c

Sub-Theme: Budget

Statement 1 is correct: Reducing the revenue expenditure will certainly help in bridging the gap.

Statement 2 is incorrect: Introducing new welfare schemes will most likely result in increasing expenditure and so will expanding industries which would require capital infusion. These steps will increase the budget deficit.

Statement 3 is correct: Subsidies are a part of expenditure and rationalizing them would reduce the deficit.

Statement 4 is incorrect: Reducing import duty will result in further widening of the gap.

Ans: d

Sub-Theme: Budget

Statement 1 is correct: Capital Expenditure includes the expenditure on the acquisition of land, building, machinery, equipment, creating assets such as roads and hospitals, repayment of government borrowings.

Statement 2 is correct: Capital receipts components are: Loan borrowings, disinvestments, funds received from the issue of shares or debentures, etc.

Statement 3 is correct: Loans, and advances by the central government to state and union territory governments, etc. are also included in the capital budget of the Government of India.

Ans: c

Sub-Theme: Banking and NBFCs

Statement 1 is incorrect: The Financial Stability and Development Council (FSDC) under the chairmanship of the Union Finance Minister was set up by the government as the apex-level forum in December 2010. It was set up much before NITI Aayog was even set up. Statement 2 is correct: The Chairman of the council is the finance minister.

Statement 3 is correct: The Council monitors macro-prudential supervision of the economy, which includes functioning of large financial conglomerates.

Financial Stability and Development Council (FSDC):

• In order to serve as the apex level forum, the Financial Stability and Development Council (FSDC) was established by the government in December 2010.
• The Chairman of the Council is the Union Finance Minister and its members include:
  • The heads of financial sector Regulators (RBI, SEBI, PFRDA, IRDA & FMC)
  • Finance Secretary and/or Secretary, Department of Economic Affairs,
  • Secretary,     Department    of     Financial Services,
  • Chief Economic Adviser.
• The Council can invite experts to its meeting if required.
• Functions:
  • To improve inter-regulatory coordination, institutionalize financial sector development, and strengthen the system for preserving financial stability.
  • To monitor macro-prudential super- vision of the economy. It assesses the functioning of the large financial conglomerates.

Ans: d         

Sub-Theme: BoP

Import cover serves as a crucial currency stability indicator. It measures the number of months of money available in the national bank to cover the cost of imports or the stock of foreign exchange reserves in terms of months of retained imports of goods as at end of year. Hence, it is the number of months of imports that could be paid for by a country’s international reserves.

Ans: a

Sub-Theme: WTO

• In WTO jargon Domestic agricultural subsidies are denoted by “Boxes,” specifically Green Box, Amber Box, and Blue Box.
  • Amber Box: It refers to a category of domestic support or subsidies under the WTO’s Agreement on Agriculture. With limited exceptions, all domestic assistance policies that distort commerce and production are classified under amber box.
  • Blue Box: This is the “amber box with conditions” – conditions designed to reduce distortion. Any support that would normally be in the amber box, is placed in the blue box if the support also requires farmers to limit production by imposing production quotas. It is an exemption from the general rule that all subsidies linked to production must be reduced or kept within defined minimal levels.
  • Green Box: Subsidies that do not distort trade or at most cause minimal distortions are placed in Green Box. These subsidies have to be government- funded (not by charging consumers higher prices) and must not involve price support.

Ans: c

Sub-Theme: Various Financial Committee/ Organisations

Statement 1 is correct: International Monetary and Financial Committee (IMFC) advises and reports to the IMF Board of Governors on the supervision and management of the international monetary and financial system. Although it lacks formal decision- making authority, in practice it has developed into a key tool for providing strategic direction to the work and policies of the IMF.

Statement 2 is correct: A number of international institutions, including the World Bank, participate as observers in the IMFC’s meetings.

Ans: c

Sub-Theme: Reports and Indexes/ World Bank Reports

• Ease of Doing Business Index is published by the World Bank. It is an aggregate figure that includes different parameters which define the ease of doing business in a It is calculated by adding up the distance to frontier ratings of various economies. The “regulatory best practices” for conducting business serve as the basis for the distance to frontier score, which compares economies based on that parameter. The index for ease of doing business is calculated based on the following indicators: Construction permits, registration, obtaining financing, tax payment mechanisms, etc.
• Other Reports of World Bank:
  • Remittance Report
  • Universal Health Coverage Index
  • The Service trade restriction index
  • Ease of Living Index
  • Global Economic Prospect (GEP) Report
  • World Development Report
  • Human Capital Index

Ans: a

Sub-Theme: Government Policies

Fair and Remunerative Prices (FRP):

• The Sugarcane Control Order, 1966, published under the Essential Commodities Act (ECA), 1955, specifies that FRP must be paid nationwide within 14 days of the cane’s delivery date.
• The Cabinet Committee on Economic Affairs (CCEA) announced the decision following the Commission on Agricultural Costs and Prices’ (CACP) recommendation.
• The report by the Rangarajan Committee on restructuring the sugarcane sector serves as the foundation for the FRP.

Ans: b

Sub-Theme: Government Policies

Agricultural Produce Market Committee (APMC):

• Agricultural Produce Market Committee (APMC) under the State Government regulates the notified agricultural produce and livestock.
• The State Government’s Agricultural Produce Market Committee (APMC) oversees the listed agricultural products and livestock.
• According to Schedule 7 of the Indian Constitution, agriculture is a state subject.
• The entire state’s area has been divided up and designated as a market area (Yard Mandis), and market management is carried out by Market Committees established by the state governments.
• No person or organisation is permitted to engage in wholesale marketing operations after a certain area is designated as a market area and comes under the control of a Market In order to transact, buyers must also get unique licences from each APMC.
• It is a component of government policy aimed at ensuring food security, paying remunerative prices to the farmers, and providing fair prices to consumers.

Ans: b

Sub-Theme: Sustainable Agriculture

Statement 1  is   incorrect:   Accelerated Irrigation Benefits Programme was launched in 1996-97 to give loan assistance to the states to help them to develop their major irrigation projects which are in an advanced stage of completion. Its objective was to expedite completion of ongoing irrigation projects.

Statement 2 is correct: The command area development programme was launched in 1974-75 to bridge the gap between irrigation potential and actual utilized major and medium irrigation schemes. Delivery of irrigation water to the fields is the ultimate objective of this scheme. The plan includes the creation of field channels, land contouring, and rotational water supply to ensure equitable distribution. It was restructured into the Command Area Development and Water Management Program 2004.

Ans: b

Sub-Theme: Agricultural Infrastructure

• Labour Augmenting is technology that increases skills and productivity of the existing labour force (example – teaching people how to use the computer).
• Capital Augmenting technology enhances the productivity of existing capital goods. In this case, replacement of wood by steel, increases the productivity of plough.

Ans: b

Sub-Theme: Government Policies

Seed village Concept:

• A village is referred to as a “seed village” if a trained group of farmers produces seeds for a variety of crops and provides for the requirements of themselves, their fellow villagers, and villagers in nearby villages at an affordable price.
• Major focus areas are:
  • Clustering  or concentrating seed production in a small area
  • Introducing new, high-yielding types to replace the current local ones.
  • Increasing the seed production
  • To meet the local demand, timely supply and reasonable cost
  • Self-sufficiency and self-reliance of the village
  • Increasing the seed replacement rate
  • This allows seed to be available at the door steps of farms at an appropriate time and at an affordable cost. It also facilitates fast spread of new cultivars of different kinds.

Ans: c

Sub-Theme: Inflation Measures to Combat Inflation

Inflation is the rise in prices of goods and services within a particular economy wherein, the purchasing power of consumers decreases, and the value of the cash holdings erode.

Additional Information:

• Reserve Bank of India is the authority to control inflation through monetary policies which it does by increasing bank rates, repo rates, cash reserve ratio, buying dollars, regulating money supply and availability of
• Controlling Inflation: Decreased money circulation helps in controlling the Inflation.
• Causes that Lead to Inflation are: Increase in demand, reduction in supply, demand- supply gap, excess circulation of money, increase in input costs, devaluation of currency, rise in wages among others.

Ans: c

Sub-Theme: Government Policies

Financial Inclusion & Access to financial products & services are one of the key objectives of PMJDY Scheme.

Ans: c

Sub-Theme: Monetary Policy Tools

The Statutory Liquidity Ratio (SLR) cut by the RBI is likely to give more room for banks to cut rates. Scheduled Commercial Banks may cut their lending rates.

The portion of deposits that banks must hold in the form of gold or government securities before extending credit to consumers is known as the SLR.

Ans: b

Sub-Theme: BASEL III Norms

BASEL-III NORMS

• The Basel Accords are 3 series of banking regulations (Basel I, II, and III) set by the Basel Committee on Bank Supervision (BCBS).
• Basel Accords  aim  to  strengthen the regulation, supervision and risk management of banks.
• Presently the Indian banking system follows Basel II norms.
• Under Basel III, a bank’s tier-1 and tier-2 assets must be at least 10.5% of its risk – weighted assets.

Ans: c

Sub-Theme: RBI Monetary Policy

The monetary policy tool is implemented by the RBI through open market operations, bank rate, CRR, SLR, the repo rate, reverse repo rate. Statement 1 is correct: The bank rate is the rate of interest at which RBI charges while lending loans to a commercial bank.

Statement 2 is correct: The Open market operations are conducted by the RBI by way of sale and purchase of Government Securities (G-Secs) to adjust liquidity in the market.

Statements 3 and 4 are incorrect: Public Revenue and debt are not part of monetary policy. These are related to fiscal policy.

Ans: a

Sub-Theme: Finance Commission

Statement 1 is correct: The Fourteenth Finance Commission has radically enhanced the share of the states in the central divisible pool from the current 32% to 42% which is the biggest ever increase in vertical tax devolution.

Statement 2 is incorrect: The Fourteenth Finance Commission has not made any recommendation concerning sector specific grants unlike the Thirteenth Finance Commission.

Ans: c

Sub-Theme: Public Finance

Statement 1 is incorrect: The budget is prepared by the Department of Economic Affairs.

Statement 2 is correct: Consolidated Fund of India (Article 266) is a fund to which all receipts are credited and all payments are debited. No money out of this fund can be appropriated (issued or drawn) except in accordance with parliamentary law.

Statement 3 is incorrect: Provident fund deposits, savings bank deposits, remittances etc are credited to the Public Account. The Public Account is operated by the executive action i.e. payment from this account can be made without Parliamentary appropriation.

Annual Financial Statement (Budget): Article 112

• The term ‘Budget’ is nowhere mentioned in the Constitution.
• Budget is referred to as the Annual Financial Statement in the constitution under Art. 112.
• The Budget is a statement of the Government estimated receipts and expenditure in a financial year starting from APRIL 1 and ending on 31 MARCH.
• Contains Appropriation Bill (Expenditure Side) and Finance Bill (Receipts).
• Revenue Account: Receipts and expenditure that relate to the current financial year only (revenue budget)
• Capital Account: Concern with the assets and liabilities of the government (capital budget).
• On the Acworth Committee’s recommenda-tion, the Rail Budget was separated from the General Budget in However, it was merged again in 2017.
• Some recent reforms related to budget:
  • Budget is preponed to 1st FEB
  • Railway budget merged with general budget
  • No vote on account
  • Plan and non-plan expenditure removed.
• Presented in terms of:
  • Consolidated Fund of India,
  • Contingency Fund of India
  • Public Account of India

Ans: a

Sub-Theme: Economic Growth

Statement 1 is correct: A lower tax-to-GDP ratio puts pressure on the government to meet its fiscal deficit Targets.

Statement 2 is incorrect: Tax-GDP ratio does not indicate the distribution of national income in the economy.

Tax to GDP Ratio:

• A tax-to-GDP ratio is a gauge of a nation’s tax revenue relative to the size of its economy as measured by gross domestic product (GDP).
• The tax-to-GDP ratio is a measure of a nation’s tax revenue relative to the size of its economy. It determines how well a nation’s government uses its economic resources via
• The tax to GDP ration is often higher in developed countries than in developing countries. A low tax to GDP ratio indicates sluggish economic The ratio represents that the government can finance its expenditure.
• An economy’s tax buoyancy is robust if the tax to GDP ratio is higher. With a lower tax-to-GDP ratio, the government is under more pressure to stick to its budget deficit

Ans: b

Sub-Theme: Economic Growth

Statement 1 is incorrect: Real Gross Domestic Product is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year (expressed in base-year prices). Real GDP makes comparing GDP from year to year and from different years more meaningful because it shows comparisons for both the quantity and value of goods and services. Rate of growth of Real Gross Domestic Product has fluctuated a lot during the last decade and decreased significantly in 2008-09 due to the global financial crisis.

Statement 2 is correct: Gross domestic product at market prices is the sum of added values of all activities which produce goods and services, plus taxes and minus subsidies on products. Its objective is to determine the total wealth generated by both private and public agents in a nation’s territory over a specific time frame. The most important component of national accounts, it shows the outcome of productive activity carried out by local producing units. Gross Domestic Product at market prices (in rupees) has increased and did not show a declining trend even once during the last decade as clearly seen from the planning commission data.

Ans: a

Sub-Theme: Public Finance

Statement 1 is correct: Budget deficit is used to define a status of financial health in which expenditures exceed revenue. Revenue Expenditure is the part of government spending that does not result in the production of assets. Example: Salaries, wages, pensions, subsidies, and interest payments etc. The government incurs revenue expenses to meet its operating demands. Reducing the revenue expenditure will certainly help in bridging the gap.

Statement 3 is correct: Subsidies are a part of expenditure and rationalizing them would reduce the deficit.

Statements 2 and 4 are incorrect: Introducing new welfare schemes will most likely result in increasing expenditure and so will expanding industries which would require capital infusion.

Ans: c         

Sub-Theme: Currency Convertibility

Currency convertibility is the ease with which the currency of a country can be freely converted into any other foreign currency or gold at market determined exchange rate. It refers to the ability of rupees to be converted into any foreign currency backed with the exchange rate that prevails at the time of conversion. It allows for easy financial transactions for the export and import of goods and services.

Ans: c          

Sub-Theme: Basic Economic Concepts

International payments resulting from trade in goods and services are linked to the idea of international liquidity. International liquidity consists of all the resources that are available to the monetary authorities of countries for the purpose of meeting balance of payments deficits. Such liquidity ranges from assets readily available to resources that become available only after extensive negotiation. Gold and those foreign currencies that are accepted everywhere for the settlement of international transactions are the main sources of international liquidity. This problem of international liquidity exists essentially for developing countries.

Ans: b

Sub-Theme: Index of Industrial Production

• Index of Industrial Production (IIP):
  • It details the growth of various sectors in an economy such as mining, electricity and manufacturing.
  • The all India IIP is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period with respect to that in a chosen base period.
  • It is compiled and published monthly by the Central Statistical Organisation (CSO) six weeks after the reference month ends.
• Eight Core Sectors:
  • Comprising 40.27% of the weight of items included in the Index of Industrial Production (IIP).
  • The eight core sector industries in decreasing order of their weightage:

Refinery Products > Electricity > Steel

> Coal > Crude Oil > Natural Gas > Cement > Fertilisers.

Ans: d

Sub-Theme: Economic Planning

Twelfth FYP (2012-2017):

The Twelfth Five Year Plan (2012-2017) was launched with the objective of faster, sustainable, and more inclusive growth. It was the last five-year plan. Its growth rate target was 8%. Later, the government dissolved the Planning Commission with the NITI Aayog. Twelfth Five-Year Plan objectives:

• To remove gender and social gaps in school
• To enhance access to higher
• To reduce malnutrition among children aged 0–3 years.
• To provide electricity to all
• Create 50 million new job opportunities in non-agricultural sectors.

Ans: b

Sub-Theme: Business Funding

Option (b) is correct: Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential.

Venture Capital:

• Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long- term growth potential.
• The majority of venture capital is often provided by wealthy individuals, investment banks, and other financial organisations. However, it is not always in the form of money; it can also come in the form of managerial or technological know-how.
• Venture capital is often given to startups with outstanding growth potential or to businesses that have had rapid growth and seem well-positioned to keep growing.
• The possibility of above-average profits is an alluring payout, even though it might be risky for investors who put up money.
• Venture capital is gradually becoming a popular—even necessary—source for obtaining funds for new businesses or projects with a brief working history (under two years), especially if they do not have access to capital markets, bank loans, or other debt instruments.
• The main downside is that the investors usually get equity in the company, and, thus, a say in company decisions.

Ans: a

Sub-Theme: Banking functions

Marginal standing facility (MSF) is a window for banks to borrow from the Reserve Bank of India in an emergency when interbank liquidity dries up completely.

The difference between a bank’s total demand and time liabilities (deposits) of a bank and its deposits in the form of assets held by another bank is represented by the term “Net Demand and Time Liabilities”.

Ans: c

Sub-Theme: Banking Functions

Statement 1 is correct: The Reserve Bank of India (RBI) launched the Business Correspondent (BC) Model in 2006 to improve financial inclusion in India. It enables government subsidies and social security benefits to be directly credited to the accounts of the beneficiaries, enabling them to draw the money from the bank saathi or business correspondents in their village itself.

Statement 2 is correct: Banks facilities are essentially brought to the communities via the BC model in their village. They can deposit and withdraw money from their account.

Ans: a

Sub-Theme: Banking Mechanism/Functions

Statement 1 is correct: When the central bank wants to increase the money supply in the economy, it lowers the reserve ratio. Hence it enables the Central Bank to control the amount of advances the banks can create.

Statement 2 is incorrect: RBI does not requires commercial banks to keep reserves in order to ensure that banks have sufficient assets to draw on when account holders want to be paid. It aims to make banks invest in G-Secs.

Statement 3 is incorrect: Reserve requirements are designed as “precautionary measures” to control the economy and not to stop banks from making “excessive” profit.

Statement 4 is incorrect: Statutory Reserve Requirements are not to force the banks to have sufficient cash to meet their day-to-day requirements.

Ans: c         

Sub-Theme: Public Finance

Non-plan Expenditure is largely the revenue expenditure of the government, although it also includes capital expenditure. It covers all expenditure not included in the Plan Expenditure. The majority of non- plan expenses include interest payments, pensions, and statutory transfers to state and union territory governments, interests and debt servicing costs, defence costs, and subsidies. Non-Plan Expenditure constitutes the biggest proportion of the government’s total expenditure. Both revenue and capital expenses are incurred for defence services.

Ans: c         

Sub-Theme: BoP

The balance of payment (BoP) is a record of all monetary transactions made between the residents of one country and the rest of the world. A balance of payments deficit means the nation imports more than it exports. The current account and capital account are the two components that constitute the balance of payments. The current account comprises balance of trade (exports-imports), net remittances, transfers of money as well as transactions in commodities and services (Invisibles). The capital account includes Foreign Direct Investment, Foreign Portfolio Investment, External Commercial Borrowings, SDR. The capital account records all international purchases and sales of assets such as money, stocks, bonds, etc.

Ans: a

Sub-Theme: IMF Reports

• The World Economic Outlook (WEO) is a report by the International Monetary Fund (IMF) that analyses key parts of the IMF’s surveillance of economic developments and policies in its member countries. The World Economic Outlook (WEO) presents the IMF’s analysis and projections of global economic developments and classifies their analysis by region and stage of economic development. The World Economic Outlook database is created during the bi-annual WEO exercise, which begins in January and June of each year and results in the April and September/October WEO publication. It is usually prepared twice a year and is used in meetings of the International Monetary and Financial Committee.
• Other Report published by IMF:

Global Financial Stability Report

Ans: c

Sub-Theme: Money and Banking

Relationship between  investment  and interest rates: The investment curve of the economy serves as another example of expenditure. A decrease in interest rates results in an increase in investment spending. Hence, if the interest rate is decreased in an economy, it will increase the investment expenditure in the economy. Decreased interest rates would ensure the availability of capital for investment expenditure.

Ans: a

Sub-Theme: Inflation

Statement 1 is correct: Inflation is the rise in prices of goods and services within a particular economy wherein, the purchasing power of consumers decreases, and the value of the cash holdings erode. Inflation redistributes wealth from creditors to debtors i.e. lenders suffer and borrowers benefit out of inflation. Bondholders have lent money (to debtors) and received a bond in return. So he is a lender, he suffers (Debtor benefits from inflation).

Statement 2 is incorrect: The statement has not used specifically the word “inflation- indexed bonds”, hence we cannot say Inflation benefits the bond-holders.

Ans: d

Sub-Theme: Inflation

Option (d) is correct: Borrowing from banks to finance a budget deficit and Borrowing from the public to finance a budget deficit will lead to a decrease in the money supply in the market. Creating new money to finance a budget deficit will have more inflationary effect than Repayment of public debt, as it will lead to an increase in total money supply in the market.

Budget Deficit:

• It refers to a situation where total expenditure exceeds the total revenue.
• A tool for raising money to create a budget deficit is known as deficit financing.
• There are three ways to finance a budget:
  • Creating new currency
  • Borrowing from internal sources like RBI, issuing bonds, etc.
  • Borrowing from External sources like WB, IMF, etc.
• Inflation won’t occur if the government borrows money from the public by issuing bonds with lower interest In a similar manner, bank loans won’t cause inflation.

Ans: d

Sub-Theme: Inflation

There are several factors that can contribute to a rise in overall prices, including an influx of money into the economy, a decrease in the total amount of goods and services being produced, an uptick in demand for those goods and services, an increase in people’s earnings, and a rapid expansion of the population.

Statement 1 is correct: An increase in the money supply will cause Inflation.

Statement 2 is correct: A decrease in output will cause Inflation.

Statement 3 is correct: An increase in demand will cause Inflation.

Inflation:

• It is the rise in prices of goods and services within a particular economy wherein, the purchasing power of consumers decreases, and the value of the cash holdings erode.
• Inflation measures the average price change in a basket of commodities and services over time.
• The opposite and rare fall in the price index of this basket of items is called ‘deflation’.
• In India, the Ministry of Statistics and Programme Implementation (MoSPI) measures inflation.
• Some causes of inflation: Increase in demand, reduction in supply, demand-supply gap, excess circulation of money, increase in input costs, devaluation of currency, rise in wages, among others.
• In India, inflation is primarily measured by two main indices: Wholesale Price Index (WPI) and Consumer Price Index (CPI). (Refer PYQ for detailed and comparative explanation on WPI and CPI).

Ans: b

Sub-Theme: Inflation

• If the supply of money remains the same when there is an increase in demand for money, there will be an increase in the rate of interest.
• This happens so that the banks can draw customers and encourage deposits from them. It will lead to more savings than

Ans: c

Sub-Theme: Monetary Policy

Open Market Operations: It is the purchase and sale of securities by the RBI.

Ans: d

Sub-Theme: Priority Sector

The RBI under the PSL, mandates banks to lend a certain portion of their funds to specified sectors: agriculture, Micro, Small and Medium Enterprises (MSMEs), export credit, education, etc.

Ans: c

Sub-Theme: Banking Roles and Functions/Credit Assistance

Statement 1 is correct: RRB’s main objective was to provide credit and banking facilities to small and marginal farmers, artisans, labourers, and small entrepreneurs in order to contribute towards the development of the rural economy.

Statement 2 is incorrect: The main agenda behind NABARD’s establishment is to promote agricultural and rural development and provide refinance facilities to Commercial banks, State Cooperative Banks, Central Cooperative Banks, Regional Rural Banks, and Land Development Banks. NABARD does not grant direct credit assistance to rural households.

Statement 3 is correct: To provide long term loans facility to farmers to borrow equipment such as tractors, pump sets, etc. is the objective behind establishment of Land Development Banks.

Ans: d

Sub-Theme: Functions of RBI

Statement 1 is correct: Reserve Bank of India is the regulator of banks in India. By issuing mechanisms like SLR, CRR, RBI keeps a check on liquidity of assets of the banks.

Statement 2 is correct: As per Reserve Bank of India’s (RBI) Branch Authorisation Policy, general permission has been granted to domestic Scheduled Commercial Banks (other than RRBs) to open branches by these banks in Tier-1 and Tier-2 centres (centres with population of 50,000 and above) requires prior approval of RBI except in North Eastern States and Sikkim.

Statement     3     is     correct:     Mergers     and acquisitions (M&As) in the banking space may require clearance from fair market watchdog, Competition Commission of India (CCI), as well as the sector regulator, Reserve Bank of India (RBI). Earlier, the indications were that only involuntary mergers and acquisitions, the ones directed by the RBI, would go to the central bank along with the CCI. However, all mergers and acquisitions may now come under both. While the CCI will look at the competition part of such deals, the RBI sees prudential aspects.

Statement 4 is correct: RBI issued orders to wind up a few banks in the recent past. (Sahara India Financial Corp (SIFCL), the para banking arm of Sahara India Pariwar, Siddharth Cooperative Bank, some Banks from Gujarat). Implied from deposit insurance and credit guarantee corporation (DICGC) scheme.

Ans: d

Sub-Theme: Money Supply

• Demand deposits with the banks: A demand deposit is money deposited into a bank account with funds that can be withdrawn on-demand at any time. The depositor will typically use demand deposit funds to pay for everyday For funds in the account, the bank or financial institution may pay either a low or zero interest rate on the deposit.
• Time deposits with the banks: A time deposit is an interest-bearing bank account that has a date of maturity, such as a certificate of deposit (CD). The money in a time deposit must be held for the fixed term to receive the interest in full. Typically, the longer the term, the higher the interest rate that the depositor receives. Time deposits are the least liquid.
• Savings deposits with the banks: A savings account is an interest-bearing deposit account held at a bank or other financial institution. Though these accounts typically pay a modest interest rate, their safety and reliability make them a great option for parking cash you want available for short- term needs.
• Liquidity of currency is Demand liabilities will have less liquidity comparatively, as they have to be cleared when demanded. Next will be saving deposits with banks. Currency is the most liquid.

Ans: b

Sub-Theme: BoP

Statement 1, 2 and 4 are correct: The capital account shows the net change in the physical or financial asset ownership for a country. It includes Foreign Direct Investment, Portfolio Investment, foreign loans, changes in the reserve account, etc.

Statement 3 is incorrect: Private remittances come under the Current account and not the Capital account.

Balance of Payment (BoP):

• A systematic record of all economic transactions between the residents of one country with the residents of the other country in a financial year.
• It consists of balance of trade, balance of current account and capital account.
• Positive Balance/Trade Surplus: When a country exports more than its imports.
• Negative Balance/Trade Deficit: When imports are greater than its export.
• Balance of payments divides transactions in two accounts:
  1. Current account
  2. Capital account

Ans: b

Sub-Theme: Forex Reserve

Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves. RBI accumulates foreign currency reserves by purchasing from authorised dealers in open market operations. Foreign exchange reserves of India act as a cushion against rupee volatility. India’s foreign exchange reserves comprise foreign currency assets (FCA), gold, special drawing rights (SDRs) and reserve tranche position (RTP) in the International Monetary Fund (IMF).

Ans: a

Sub-Theme: Demographic Dividend

Option (a) is correct: Skill development is needed to increase employability of the young population. Government has established ‘Skill India’ as a mission to skill India’s youth and the National Skill Development Corporation (NSDC) with the overall target of skilling/up skilling 500 million people in India by 2022. Option (b) is incorrect: Social security schemes can be used for providing security to the nonworking population like old-age pensions etc. It will not provide any benefit of demographic dividend.

Option (c) is incorrect: Reducing Infant Mortality Rate is one of the Millennium Development Goals, but it does not provide any benefit of demographic dividend.

Option (d) is incorrect: Privatisation of Higher Education will have a negative effect as it will make education costlier thus making it out of reach of a large section of the eligible population.

Ans: c

Sub-Theme: Unemployment

Unemployment is a phenomenon that occurs when a person who is capable of working and is actively searching for work is unable to find work. The unemployment rate, which is calculated by dividing the number of jobless persons by the total labour force, is the most widely used indicator of unemployment. Disguised unemployment means that more people are engaged in a job which can be done with less people, normally seen in agriculture where the whole family is It means extra people can be removed without affecting productivity, i.e., their marginal productivity is zero.

Ans: c

Sub-Theme: Economic Growth and Development

• Capital Formation is defined as that part of a country’s current output and imports which is not consumed or exported during the accounting period but is set aside as an addition to its stock of capital goods. Capital formation in any country boosts its development as investment activities increase resulting in high production, increase in   per-capita   income, employment generation, the standard of living, poverty reduction.
• The increase in population has both pros and cons for the economy. If the population is skilled then it will generate more output for the economy. But in case if the economy itself is not in a position to stand still then in such case it will prove to be a burden to the country.
• The development of new and better technologies for the manufacture of goods and services is referred to as technical advancement. Despite having their advantages, when these technologies enter the market, it requires a heavy investment in training workers and sometimes these technologies replace human beings resulting in unemployment.

The volume of trade may be favourable or non- favourable depending upon the overall trade surplus or deficit.

Ans: d        

Sub-Theme: National Income

Option (d) is correct: The entire monetary/ money value of the goods and services produced on a nation’s territory over the course of a certain amount of time is its national income. Thus, it is the result of every economic activity that takes place throughout the course of a year in every nation. The total amount of income that a nation accrues from all of its economic operations over the course of a year is, in a nutshell, its national income. It is also helpful in determining the progress of the country. It includes wages, interest, rent, profit, received by factors of production like labour, capital, land and entrepreneurship of a nation.

Ans: a          

Sub-Theme: BoP

Option (a) is correct: The balance of payments (BoP) records the transactions in goods, services and assets between residents of a country with the rest of the world for a specified time period typically a year. The balance of payments (BOP), also known as balance of international payments, summarises all transactions that a country’s individuals, companies, and government bodies complete with individuals, companies, and government bodies outside the country. These transactions consist of imports and exports of goods, services, and capital, as well as transfer payments, such as foreign aid and remittances.

Ans: d          

Sub-Theme: Monetary Policy/Money and Banking

Option (d) is correct: Bank rate refers to the rate at which the Reserve Bank of India (RBI)  gives loans to banks. An increase in this rate means that RBI is following a tight monetary policy as an increase in rates will lead to decrease in money circulation leading to a

decrease in inflation.

Ans: (a)          

Sub-Theme: Budget

Option (a) is correct: Deficit financing is the process of raising money to cover the deficit that is brought on by an excess of spending in comparison to income. By selling bonds or printing new money, the government is borrowing money from the people to close the shortfall. For developing countries like India, higher economic growth is a priority. A higher economic growth requires finances. With the private sector being shy of making huge expenditures, the responsibility of drawing financial resources rests on the government. Many times, neither tax nor non-tax revenues are able to raise enough money. Hence, the deficit is often funded through borrowings or printing new currency notes.

Ans: c

Sub-Theme: Inclusive growth

Statement 1 is incorrect: Permitting the NBFCs to do banking cannot be a part of Inclusive Governance. The prime motive of Banks is to earn profits; for an inclusive governance concept to be successful, the government has to focus more on support being provided to all citizens irrespective of their economic and social status, rather than allowing entities to churn out profits out of them.

Statement 2 is correct: According to Article 243ZD of the Indian Constitution, the District Planning Committee (DPC) must have been established at the district level to oversee planning at the district and below. The committee in charge of each district shall compile the district’s Panchayat and Municipality development plans and create a draft development plan for the district.

Statement 3 is correct: The Government aims to increase public health expenditure to 2.5% of GDP by 2025. The 15th Finance Commission, the Union Health Minister Dr. Harsh Vardhan, highlighted that the government aims at gradually increasing the public health expenditure to 2.5% of the nation’s GDP by the year 2025.

Statement 4 is correct: The Mid-Day Meal Program or MDMP is a program of, “Nutrition Support to Primary Education” and is considered as a means of mitigating the classroom hunger to all children below the age of 14 years who are enrolled in schools. It was aimed at improving enrolment, attendance, and retention, while simultaneously improving the nutritional status of students in primary classes.

Ans: d

Statement 1 is correct: The National manufacturing Policy provides for the promotion of clusters and aggregation, especially through the creation of National Investment and Manufacturing Zones (NIMZs).

Statement 2 is correct: Initiating the process of simplification and rationalization of state-level business regulations and developing single-window clearance.

Statement 3 is correct: Advisory to States on simplification & rationalization of business regulations and skill Development. Constitution of the approval/monitoring mechanism under the policy. Scheme prepared under NMP on Technology Acquisition and Development Fund (TADF).

Ans: c

Sub-Theme: Core Industry

Eight Core Industries:

• Eight Core Industries measures combined and individual performance of production in selected eight core industries viz. Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity. The Eight Core Industries comprise 27% (2021) of the weight of items included in the Index of Industrial Production (IIP).
• These industries have a major impact on general economic activities and also industrial activities.
• They significantly impact most other industries as well. The capital basis of the economy is represented by the core
• The IIP provides the economic growth rates for various industrial categories over a certain time period.

Ans: b

Sub-Theme: Coal Sector

Statement 1 is incorrect: There is no such policy of India to save its own coal reserves for the future and import it from other countries for the present use.

Statement 2 is correct: Coal based power plants, cement plants, captive power plants, sponge iron plants, industrial consumers and coal traders are importing non-coking coal.

Statement 3 is correct: The production of steel requires 0.8 tonnes of coking coal to produce one tonne of Steel. And about 85% of the coking coal requirement of the domestic steel industry is presently being met through imports.

Additional Information:

Import of Coal:

• According to the current import policy, consumers themselves may freely import coal (under Open General Licence) based on their own requirements and business
• Steel Authority of India Limited (SAIL) and other steel-making facilities import coking coal primarily to fill the gap between demand and supply domestically and to raise the level of production quality. About 85% of the coking coal requirement of the domestic steel industry is presently being met through imports.
• Coal based power plants, cement plants, captive power plants, sponge iron plants, industrial consumers and coal traders are importing non-coking coal.
• Coke is imported mainly by pig-Iron manufacturers and Iron & Steel sector consumers using mini-blast furnace.

Ans: c

Sub-Theme: Money Supply

Statement 1 is correct: The Central Bank pays investors holding bonds. If the Central  Bank  buys  Government  securities (or corporate bonds) people who are holding the bonds have more money to spend. Banks see illiquid assets become liquid. Therefore, in certain circumstances, this can lead to an increase in the money supply.

Statement 2 is incorrect: Deposit of currency in commercial banks by the public does not increase, instead decreases the supply of money in the market.

Statement 3 is correct: Borrowing by the government from the Central Bank leads to the release of money to the Central Bank which eventually releases money in the market via loans etc.

Statement 4 is incorrect: Sale of the government securities to the public by the Central Bank leads to more flow of money in the market.

Ans: d

Sub-Theme: Role and Functions of RBI

Statement 1 is correct: The Reserve Bank acts as the Banker, Agent, and Adviser to the Government of India and states. It performs the same functions for the other commercial banks as the other banks ordinarily perform for their customers.

Statement 2 is correct: RBI lends money to all the commercial banks of the country.

Statement 3 is correct: The RBI is also providing advisory functions to banks on financial matters and also on general economic problems.

Ans: c

Sub-Theme: Lead Bank Scheme

The basic aid of the Lead Bank Scheme is that the individual banks should adopt a particular district for intensive development.

Lead Bank Scheme:

• RBI introduce on the recommendation of the Gadgil Study Group and Banker’s
• Introduced towards the end of 1969, envisages the assignment of lead roles to individual banks (both in the public sector and private sector) for the districts allotted to them.
• Objective: To help in removing regional imbalances through appropriate credit deployment and to extend banking facilities to unbanked areas.

Ans: b

Sub-Theme: Taxation

Option (b) is correct: ‘Capital gains’ occur when the value of an asset, such as a property or a painting, increases over time, resulting in a profit when it is sold. This increase in value can happen naturally or due to a rise in demand or popularity, as in the case of a painting.

Statement 1 is incorrect: Increase in sales of products not counted under capital gains. Hence, statement 1 is wrong.

Statement 2 is correct: A capital gain is the increase in a capital asset’s value and is realised when the asset is sold.

Statement 3 is correct: Capital gains apply to any type of asset, including investments and those purchased for personal use.

Capital Gain:

• The increase in value realised upon selling a capital asset is referred to as a capital gain. All assets, including investments and those bought for personal use, are subject to capital gains.
• The gain may be short-term (one year or less) or long-term (more than one year) and must be claimed on income taxes. Any profit or gain that arises from the sale of a ‘capital asset’ is a capital gain.
• Gains from the sale of capital assets are subject to the capital gains tax. This gain or profit is charged to tax in the year in which the transfer of the capital asset takes place.
• ‘Capital Gains’ arise when,
  • Whenever the property’s value naturally increases.
  • A product’s value increases when you buy it because of an uptick in popularity.

The following are not included under capital assets:

• Any stock, consumables or raw materials that are held for the purpose of business or
• Goods such as clothes or furniture or paintings which are held for personal use.
• Land or there is natural increase in
• Special bearer bonds were issued in
• Gold bonuses issued by the Central
• Gold deposit

Ans: d          

Sub-Theme: Foreign Investment

Statements 1, 2 and 3 are correct: Foreign Direct Investment (FDI): is the investment through capital instruments by a person resident outside India (a) in an unlisted Indian company; or (b) in 10 percent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company. FDIs include Subsidiaries of foreign companies in India, Majority foreign equity holding in Indian companies, Companies exclusively financed by foreign companies, Non-debt Financial resources, Day to day operations of the company. Etc.

Statement 4 is incorrect: Foreign Portfolio Investment (FPI): is any investment made by a person resident outside India in capital instruments where such investment is (a) less than 10 percent of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company or (b) less than 10 percent of the paid up value of each series of capital instruments of a listed Indian company. Portfolio investment comes under FPI.

Ans: b          

Sub-Theme: Currency Value/IMF

Statement 1 is incorrect: The World Bank is important to the source of financial and technical assistance to developing countries around the world. It has no relation to the price of the currency in the International Market.

Statement 2 is correct: Demand and supply factors have a role in setting the price of every currency. A currency’s demand is influenced by two things: its exports to other nations and the investments people desire to make in that currency.

Statement 3 is correct: The stability of the government is a very important factor as an unstable government may not be able to take effective economic decisions which will, in turn, affect export and import.

Statement 4 is incorrect: The value of any currency on the international market has no bearing on the economic capacity of a nation.

Ans: b

Sub-Theme: Government Schemes and Policies Statement 2 is correct and Statement 1 and 3 are incorrect:

• Deen Dayal Antyodaya Yojana – National
• Livelihoods Mission (NRLM):
  • Launched: by the Ministry of Rural Development (MoRD), Government of India in June 2011 as a restructured version of Swarna Jayanti Gram Swarozgar Yojna (SGSY).
  • Aims: To build strong institutional frameworks for the rural poor that will enable them to improve their access to financial services and raise household incomes through improvements to their sustainable means of subsistence.
• Objective: To Cover 7 crore rural poor families throughout 600 districts, 6000 blocks, 2.5 lakh Gram Panchayats, and 6 lakh villages through self-managed Self-Help Groups (SHGs) and federal institutions, and assist them for livelihood collectives during an 8–10 year timeframe.

Ans: a

Sub-Theme: Government Schemes and Policies

Statements 1 and 3 are correct: ASHA will mobilise the community and facilitate them in accessing health and health related services such as providing immunization, Antenatal Check-up (ANC), Post Natal Check-up supplementary nutrition, etc.

Statement 2 is correct: Empowered with knowledge and a drug-kit to deliver first- contact healthcare along with identifying and registering new pregnancies, births, and deaths.

Statement 4 is incorrect: Delivery of a baby is being conducted by a professional medical practitioner not by ASHA worker.

NOTE: By general understanding, we know that ASHAs are not paramedics and not trained in providing “delivery of a baby” as it is conducted by a professional medical practitioner. However, supporting health service delivery through home visits, first- aid and immunisation sessions are done by ASHA workers. With this information, we can eliminate option 4.

Ans: a          

Sub-Theme: Government Schemes and Policies

Statement 1 is correct: Janani Suraksha Yojana (JSY) is a safe motherhood intervention under the National Rural Health Mission (NRHM). The objective is to reduce maternal and neonatal mortality by promoting institutional delivery among the poor pregnant women.

Statement 2 is correct: JSY is a 100 % centrally sponsored scheme and it integrates cash assistance with delivery and post- delivery care.

Statement 3 is incorrect: To provide compensation for the wage loss in terms of cash incentives so that the woman can take adequate rest before and after delivery of the first living child comes under Pradhan Mantri Matru Vandana Yojana.

Ans: d          

Sub-Theme: Government Schemes and Policies

Statements 1, 2, 3 and 4 are correct: Employees State Insurance Scheme •    The Employees’ State Insurance Act of 1948 is a piece of social security legislation that covers medical care and financial benefits in the events of sickness, maternity, disability, or worker death as a result of work-related injuries.

• The Act applies, in the first instance, to non- seasonal factories employing 10 or more persons.
• The provisions of the Act are being extended area wise by stages.
• An enabling clause in the Act gives the “appropriate government” the authority to apply the Act’s provisions to various types of institutions, including industrial, commercial, agricultural, and other types.
• In accordance with these provisions, the majority of State governments have expanded the application of the Act’s provisions to new classes of businesses, including shops, hotels, restaurants, cinemas, including preview theatres, road-motor transportation undertakings, and newspaper businesses with 20 or more employable workers.

Ans: b          

Sub-Theme: Water conservation

Statements 1 and 2 are correct: National Water Mission is one of the eight missions launched under the National Action Plan on Climate Change (NAPCC) for combating the threats of global warming. The main objective of NWM is “conservation of water, minimising wastage and ensuring its more equitable distribution both across and within States through integrated water resources development and management”. It will seek to ensure that a considerable share of the water needs of urban areas are met through recycling of wastewater and ensuring that the water requirements of coastal cities with inadequate alternative sources of water are met through adoption of new and appropriate technologies such as low temperature desalination technologies that allow for the use of ocean water.

Statement 3 is incorrect: All the rivers of Himalayan origin will be linked to the rivers of peninsular India falling under Interlinking of Rivers Programme, where linking different surplus rivers of the country with deficient rivers take place.

Statement 4 is incorrect: Reimbursement of complete expenses on digging bore wells and motors and pump installations sound absurd, as the government would not encourage something which will deplete the groundwater further.

Ans: b          

Sub -Theme: Poverty Alleviation/Rural Development/Inclusive Growth

Statement 1 is incorrect: The DRDAs are expected to coordinate effectively with the Panchayati Raj Institutions (PRIs). Under no circumstances will they perform the functions of PRIs.

Statement 2 is incorrect: No such provisions are there for DRDAs to undertake an area- specific scientific study of the causes of poverty and malnutrition and prepare detailed remedial measures.

Statement 3 is correct: The role of the DRDA is in terms of planning for effective implementation of anti-poverty programmes; coordinating with other agencies- Governmental, non-Governmental, technical and financial for successful programme implementation; etc.

Statement 4 is correct: DRDA will watch over and ensure effective utilisation of the funds intended for anti-poverty programmes, it will need to develop a far greater understanding of the processes necessary for poverty alleviation/ eradication.

Ans: a

Sub-Theme: Reports and Indices

• • Global Multidimensional Poverty Index is a key international resource that measures acute multidimensional poverty across more than 100 developing countries. It was first launched in 2010 by the Oxford Poverty and Human Development Initiative (OPHI) and the Human Development Report Office of the UNDP.
  • Poverty is often defined by one-dimensional measures usually based on But no single indicator can capture the multiple dimensions of poverty.
  • Multidimensional poverty includes: poor health, lack of education, inadequate living standards, disempowerment, poor quality of work, the threat of violence, and living in areas that are environmentally hazardous, among others.

Ans: c

Sub-Theme: Sustainable Agriculture

Drip Irrigation:

• It is a form of irrigation where water is applied near the plant root through emitters or drippers, on or below the soil surface, at a low rate varying from 2-20 litres per Frequent watering helps to maintain the optimum level of soil moisture.
• The most effective irrigation technique is drip irrigation, which may be used for a wide range of crops, including vegetables, orchard crops, flowers, and plantation

Advantages of Drip Irrigation:

• Maximum use of available
• No water being available to
• Maximum crop
• High efficiency in the use of
• Weed growth is reduced and restricts the population of potential hosts.
• Low labour and relatively low operation
• No soil
• Improved infiltration in soil of low
• Ready adjustment to sophisticated automatic control.
• No runoff of fertilizers into
• Less water is lost to evaporation than during surface irrigation.
• Improves seed
• Decreased tillage

Disadvantages of Drip Irrigation:

• Sensitivity to clogging
• Moisture distribution problem
• Salinity hazards
• High cost compared to
• For design, installation, and operation, high competence is needed.

Ans: b

Sub-Theme: Inflation/Types of Inflation

Inflation:

• It is the rise in prices of goods and services within a particular economy wherein, the purchasing power of consumers decreases, and the value of the cash holdings erode.
• Inflation measures the average price change in a basket of commodities and services over time.
• The opposite and rare fall in the price index of this basket of items is called ‘deflation’.
• In India, the Ministry of Statistics and Programme Implementation (MoSPI) measures inflation.
• Some causes of inflation: Increase in demand, reduction in supply, demand-supply gap, excess circulation of money, increase in input costs, devaluation of currency, rise in wages, among others.

COBWEB PHENOMENON

• Explains large scale fluctuations in the prices of Pulses in the Indian Market.
• If prices were higher in the previous year, more farmers would sow pulses in the current year leading to its over-production and subsequent decline in the prices.
• The lower prices in the current year disincentive the farmers from growing crops in the next cropping season, leading to underproduction and subsequent increase in the prices.

Ans: d

Sub-Theme: Disinvestment

Statement 1 is incorrect: External debt is the portion of a country’s debt that is borrowed from foreign lenders, including commercial banks, governments, or international financial institutions. The Government does not necessarily intend to use the revenue earned from the disinvestment mainly to pay back the external debt.

Statement 2 is incorrect: From time to time, the Government takes the decision to disinvest the CPSEs but largely it decides to retain the management control on a case to case basis.

Central Public Sector Enterprises: These are the businesses where the Central Government or other CPSEs directly own 51% or more. The Ministry of Heavy Industries and Public Enterprises is in charge of managing these. Additionally, these are divided into strategic and non- strategic CPSE.

Ans: d

Sub-Theme: Food Processing

Mega Food Park Scheme 2008-09:

• It was introduced in 2008–09 with the goal of significantly boosting the food processing industry by increasing value and lowering food waste at every point in the supply chain, with a focus on perishables. The Mega Food Park Scheme is being carried out in the nation by the Ministry of Food Processing Industries.
• Through a cluster-based approach, mega food parks build cutting-edge infrastructure facilities for food processing along the value chain from farm to market with strong forward and backward connections.
  • Aim: To provide a method for connecting agricultural production to the market by bringing together producers, processors, and retailers in order to maximise value addition, reduce wastage, boost farmers’ incomes, and create jobs, particularly in the rural sector.
  • Approach: The “Cluster” approach- based Scheme plans to build state- of-the-art support infrastructure in a clearly defined agri/horticultural zone to facilitate the establishment of contemporary food processing units on the industrial plots offered in the park with a well-established supply chain.
  • Components: A Mega Food Park normally includes cold chain, collection centres, primary processing centres, central processing centres, and about 25 to 30 fully completed plots for entrepreneurs to build food processing units.
  • Financial Assistance: The central government provides financial assistance up to Rs. 50 Crore per Mega Food Park (MFP) project. The MFP project is implemented by a Special Purpose Vehicle (SPV) which is a Body Corporate registered under the Companies Act, 2013.
  • Present Status: Presently, 22 Mega Food Parks are operational. It is in line with the ‘Make in India’ and ‘Atma Nirbhar Bharat’ vision of the Government of India.

Ans: a

Sub-Theme: NPA

Statement 1 is correct: Teaser loans are considered an aspect of subprime lending.

Statement 2 is incorrect: Teaser loans are generally offered/provided to entrepreneurs and new homeowners. Experience is not a criterion.

Teaser Loan:

• A teaser loan is any loan that offers a lower interest rate for a fixed amount of time as a purchase incentive.
• Teaser loans are a common promotional offering for loan issuers that frequently attract a wide range of borrowers.
• Low-introductory-rate credit cards and adjustable-rate mortgages are examples of common teaser loans. State Bank of India pioneered the teaser loan concept in home loans in 2009.
• Teaser loans are considered an aspect of subprime lending.
• Teaser loans are generally offered/provided to entrepreneurs and new homeowners.
• Experience is not a
• Subprime lending is the practice of lending to borrowers with a low credit rating that may be exposed to the risk of default in

Ans: a

Sub-Theme: Credit disbursement

• In India, commercial banks have the highest share in the disbursement of credit to agriculture and allied activities.
• The commercial banks disburse around 60% credit followed by cooperative banks around 30% and RRB and others.

Ans: d

Sub-Theme: Inclusive Growth

Statement 1 is correct: The more the Self- Help Groups, the better the financial inclusion. Statement 2 is correct: MSMEs are an important sector for the Indian economy and have contributed immensely to the country’s socio-economic development. It can help in financial inclusion.

Statement 3 is correct: The RTE Act mandates 25% reservation for disadvantaged sections of the society where disadvantaged groups include: SCs and STs. Education can help uplift the backward and downtrodden society.

Inclusive Growth:

• Inclusive growth is economic growth that is distributed fairly across society and creates opportunities for all-as defined by OECD (Organisation for Economic Co-operation and Development).
• It refers to the impoverished having access to essential services in health and education. It entails promoting equality of opportunity and empowering individuals via skill development and education.
• It also includes a growth process that is environmentally friendly, strives for good governance, and aids in the development of a society that is gender aware.
• Self Help Groups (SHGs) are working at the grassroots level in India right now, especially in rural India, on the tenets of mutual aid, solidarity, and shared responsibility. The more the Self Help Groups, the better the financial inclusion.
• The Government of India has introduced MSME or Micro, Small, and Medium Enterprises in agreement with the Micro, Small and Medium Enterprises Development (MSME) Act of 2006.
• MSMEs are an important sector for the Indian economy and have contributed immensely to the country’s socio-economic development. It not only generates employment opportunities but also works hand-in-hand towards the development of the nation’s backward and rural It can help in financial inclusion.

The RTE Act aims to provide primary education to all children aged 6 to 14 years. The act mandates 25% reservation for disadvantaged sections of the society where disadvantaged groups include: SCs and STs. Education can help uplift the backward and downtrodden society.

Ans: d

Sub-Theme: Microfinance/NBFCs

Microfinance:

• A type of banking service provided to unemployed or low-income individuals or groups to help them to come out of poverty through income generating activities.
• Besides SCBs, RRBs, small finance banks, Co-operative banks, NBFCs and NBFC-MFIs also provide microfinance services.
• Microfinancing is offering financial services to low-income populations. These services include micro-loans, micro-savings and
• Microfinance institutions (MFIs) are financial companies that provide small loans to people who do not have any access to banking facilities. The definition of “small loans” varies between countries. In India, all loans that are below Rs.1 lakh can be considered microloans.
• In most cases the so-called interest rates are lower than those charged by normal banks, certain rivals of this concept accuse microfinance entities of creating gain by manipulating poor people’s money.

Ans: d

Sub-Theme: Indirect Taxes

Option (d) is correct: A value-added tax (VAT) is a type of tax on consumption that is levied on a product whenever its value increases during its production and final sale. The VAT paid by the consumer is the cost of the product minus the VAT on the materials already taxed during its production. For instance, a TV manufacturer pays VAT on all the supplies it uses to make the TV, and the buyer pays the VAT on the final sale price of the TV.

• Value Added Tax is a ‘tax on sale or purchase of goods within a State e., it is a State Subject by virtue of Entry 54 of State List of the Seventh Schedule of the Constitution of India. Since VAT/Sales tax is a “State subject”, the Central Government has been playing the role of a facilitator for successful implementation of VAT.
• VAT is a kind of tax levied on the sale of goods and services when these commodities are ultimately sold to the VAT is an integral part of the GDP of any country.
• VAT is a multi-stage tax that is levied at each step of production of goods and services which involves sale/purchase. Any person earning an annual turnover of more than Rs.5 lakh by supplying goods and services is liable to register for VAT payment. Value-added tax or VAT is levied both on local as well as imported goods.

Ans: a          

Sub-Theme: International Trade

Option (a) is correct: Exports are goods and services that are produced in one country used by another. In this case, Foreign nationals visiting India will buy Indian goods and use Indian services and Indian companies will get foreign currency.

• Imports are goods and services bought in one country produced by another. In this case foreign nationals will import goods from India after watching the XIX Commonwealth Games.
• Production is the process of manufacturing goods while Consumption is the usage of manufactured goods.

Ans: d         

Sub-Theme: BoP

Statement 1 is correct: The Government can reduce the substantial current account deficit by increasing exports or by decreasing imports which can be through import restrictions, quotas, or duties or by subsidising exports. Manipulating the exchange rate for cheaper exports tends to increase balance of payments through devaluing of domestic currency.

Statement 2 is incorrect: Reduction in the export subsidy might impact negatively.

Statement 3 is correct: Current account deficit can be lowered by promoting an investor friendly environment. In a capital account, capital inflows result from instruments like foreign investment, loans and banking capital, etc.

Ans: c        

Sub-Theme: IMF

Option (c) is correct: The International Monetary Fund (IMF) is an international organisation that aims to reduce global poverty, encourage international trade, and promote financial stability and economic growth. It was created in 1945 and is based in Washington, DC. There are a total of 190 member countries, each of which is represented on the group’s board. This representation is based on how important its financial position is in the world, so countries with a stronger financial position have a greater say in the organisation than countries with a weaker financial position. Instead of providing money to fund specific projects, the IMF supports the economy of its member nations that are experiencing balance of payments issues.

Ans: b        

Sub-Theme: Foreign Investment

Option (b) is correct: An investment that a parent firm makes in another nation is known as a foreign direct investment (FDI). On the contrary, Foreign Institutional Investor (FII) is an investment made by an investor in the markets of a foreign nation. FDI targets the primary market whereas FII flows only into the secondary market. Foreign Direct Investment targets a specific enterprise and brings better management skills and technology. While the FII increases capital availability in general. Compared to Foreign Institutional Investors, foreign direct investment is regarded as being more stable.

Ans: b          

Sub-Theme: Economic Growth/Inflation

Option (b) is correct: Economic growth: Increased consumer disposable income as a result of economic growth raises both the total demand for goods as well as the quantity that is readily available to customers. This rise in demand leads to inflation, which finally becomes a necessary evil for a growing economy.

Ans: a         

Sub-Theme: Money and Banking/Monetary Policy

Option (a) is correct: Bank rate refers to the interest rate charged by the central bank (RBI) on loans granted to commercial banks. When Bank Rate is lowered by RBI, bank’s borrowing costs decrease (less interest) which in return, increases the supply of money in the market. It means more loans will be provided by banks, which will increase Liquidity in the market. On the other hand, an increase in this rate means that RBI is following a tight monetary policy as an increase in rates will lead to decrease in money circulation leading to a decrease in inflation.

Ans: b

Sub-Theme: Inflation/Monetary Policy/Fiscal

Policy/Money and Banking

Option (b) is correct: A ‘stimulus’ is an attempt by policymakers of a country to kickstart a sluggish economy through a package of measures. The central bank will use a monetary stimulus to boost consumer spending by increasing the money supply or lowering interest rates. A fiscal stimulus is when the government increases spending out of its own funds or lowers tax rates. Consumer spending increases as a result of stimulus measures, which boosts demand and growth. It’s common to refer to a stimulus as “priming the pump” or “pump priming.”

Ans: c

Sub-Theme: Inflation/Monetary Policy/Fiscal

Policy/Money and Banking

Option (c) is correct: Base Effect refers to the impact of an increase in the price level (i.e., previous year’s inflation) over the corresponding rise in price levels in the current year (i.e., current inflation). If the inflation rate was low in the corresponding period of the last year, then even a small increase in the price index will give a high rate of inflation in the current year.

Ans: b

Sub-Theme: Demographic Dividend

Demographic Dividend:

According to United Nations Population Fund (UNFPA), demographic dividend means, “the economic growth potential that can result from shifts in a population’s age structure, mainly when the share of the working-age population (15 to 64) is larger than the non-working-age share of the population (14 and younger, and 65 and older)”.

Ans: d          

Sub-Theme: Types of Economy

Refer to table below: