Indian Economy Test 3

Answer – d

• Eastern DFC (1839 route kilometres [RKM]) extends from Dankuni near Kolkata toLudhiana in Punjab, while the Western DFC (1499 RKM) extends from the Jawahar LalNehru Port (JNPT) in Mumbai to Dadri /Rewari near Delhi.
• A special purpose vehicle, the Dedicated Freight Corridor Corporation of India Limitedhas been set up to implement the project.

Source – Chapter 9, Ramesh Singh

Answer – c

• The part of the fiscal deficit which was provided by the RBI to the government in a particular year isMonetised Deficit, this is a new term adopted since 1997–98 in India. It evaluates the quantum of market borrowings the government has acquired in respect of its revenue
• Every year both central and state governments in India had been dependingheavily on market borrowings (internal) for its long-term capital requirements. Market borrowings ofthe government are done and managed by the RBI

Source – Chapter 18, Ramesh Singh

Answer – d

• Basically, thegovernments face the problem of managing as much funds, money, capital as isrequired by it for public expenditure. Such expenditure might be of revenue kind or capital kind. The apparent deficit is sometimes termed as capital deficit, though the term does not come in the nomenclature of public finance theoretically. Suchdifficulties have always been with the developing economies due to their high level requirement ofcapital expenditures.
• The fiscal deficit excluding the interest liabilities for a year is the primary deficit, a term India startedusing since the fiscal 1997–98.It shows the fiscal deficit for the year in which the economy had notto fulfill any interest payments on the different loans and liabilities which it is obliged to—shownboth in quantitative and percentage of GDP forms

Source – Chapter 18, Ramesh Singh

Answer – c

• Every form of money generation in the nature of income, earnings are revenue for a firm or agovernment which do not increase financial liabilities of the government—i.e., the tax incomes, nontax incomes along with foreign grants. All of the above except 4 is a form of revenue. 4 is non-revenue as it is a liability
• Non-tax Revenue Receipts includes all money earned by the government from sources other taxes. They are
• Profits and dividends which the government gets from its public sector undertakings (PSUs).
• Interests recieved by the government out of all loans forwarded by it, be it inside the country(i.e., internal lending) or outside the country (i.e., external lending). It means this incomemight be in both domestic and foreign currencies.
• Fiscal services also generate incomes for the government, i.e., currency printing, stampprinting, coinage and medals minting, etc.
• General Services also earn money for the government as the power distribution, irrigation,banking, insurance, community services, etc.
• Fees, Penalties and Fines received by the government.
• Grants which the governments receives—it is always external in the case of the centralgovernment and internal in the case of state governments.

Source – Chapter 18, Ramesh Singh

Answer – d

All the expenditures incurred by the government are either of revenue kind or current kind or compulsive kind. The basic identity of such expenditures is that they are of consumptive kind and do not involve creation of productive assets. They are either used in running of a productive process or running a government. A broad category of things that fall under such expenditures in India—
(i) Interest payment by the government on the internal and external loans;
(ii) Salaries, Pension and Provident Fund paid by the government to the government employees;
(iii) Subsidies forwarded to all sectors by the government;
(iv) Defence expenditures by the government;
(v) Postal Deficits of the government;
(vi) Law and order expenditures (i.e., police & paramilitary);
(vii) Expenditures on social services (includes all social sector expenditures as education, health care, social security, poverty alleviation, etc.) and general services (tax collection, etc.);
(viii)Grants given by the government to Indian states and foreign countries.

Source – Chapter 18, Ramesh Singh

Answer – d

• By the late nineteenth century, the economic thinking of the nationalists (such as M.G. Ranade and Dadabhai Naroji) was in favour of a dominant role of state in the economy and doubted the prudence of the ‘market mechanism’.
• In 1934, a serious need of national planning was recommended by the Federation of Indian Chambers of Commerce and Industry (FICCI), the leading organisation of Indian capitalists. Its President N.R. Sarkar proclaimed that the days of undiluted laissez-faire were gone forever and for a backward country like India, a comprehensive plan for economic development covering the whole gamut of economic activities was a necessity
• Early in June 1941, the Government of India formed (on popular demand) a Post-War Reconstruction Committee which was to consider various plans for the reconstruction of the economy

GS1 – Freedom struggle –  Orientation given by socialist forces to the movement and response of different classes

GS2 – Development process – Evolution of development theory in modern India. Planning obviously forms the centre of that process, shaped by our colonial experience and global developments.

Answer – d

• Though the planning at the central and the state levels are still extra-constitutional activities, it has become constitutional at the local bodies level through 73^rd and 74^th Constitutional amendment.
• It was by the late 1950s and the early 1960s that the states demanded the right to plan at the state level. By the mid 1960s, the states were given the power to plan by the Centre advising them that they should promote planning at the lower levels of the administrative set strata, too i.e. the district level
  planning–via the Municipalities and Corporations in the urban areas and via Block level through Panchayats and the Tribal Boards. By the early 1980s, India was a country of the multi-level planning (MLP) with the structure and strata of planning.

GS 2 – Federalism and issues – Planning at local levels – a unique feature developed in India – how it helped Panchayats and also failures

Answer – c

• Phillips Curve is a graphic curve which advocates a relationship between inflation and unemployment in an economy. As per the curve there is a ‘trade off’ between inflation and unemployment i.e. an inverse relationship between them. The curve suggests that lower the inflation, higher the unemployment and higher the inflation, lower the unemployment
• Williamson’s trade off model is for evaluating the possible benefits and detriments of a proposed merger that could be used in the application of a discretionary competition policy.

GS 3 – Indian economy – Phillips curve can be used as an additive in answers

GS3 – Mobilisation of resources – Williamson model can be invoked in, say proposed merger of banks

Answer – a

• The first definition of ‘worker’ by Census was given in 1872. Over time the term ‘work’ and ‘worker’ as defined by Census of India have undergone several amendments to suit the changing dimensions of work. ‘Work’ is defined as participation in any economically productive activity with or without compensation, wages or profit.
• Census classifies ‘Workers’ into two groups namely, Main Workers (those workers who had worked for the major part of the reference period, i.e., 6 months or more) and Marginal Workers (those workers who had not worked for the major part of the reference period i.e. less than 6 months)

GS 3 Employment

Note

• To integrate one’s preparation of prelims and mains better, we will also be providing hints henceforth on how the static portion can be used in specific topics of General Studies papers.

Answer – b

• Base rate is the minimum interest rate at which a bank can lend. It is calculated according to the RBI guidelines. It differs from one bank to another.
• Marginal Cost of Funds Rate refers to the minimum interest rate of a bank below which it cannot lend. It is calculated on the basis of marginal cost of arranging one more rupee to the prospective borrower
• Currently, the banking lending rates are determined by the MCLR or marginal cost of funds lending rate introduced in 2016
• Both the base rate and the MCLR were internally determined by the banks themselves. However, the major difference between the two was that calculation of base rate was done as the bank saw fit while MCLR was to be calculated through a set formula.

Answer – d

• Treasury Bills are government securities (debt instruments) used by the government to raise money for a shorter period of time i.e less than a year. Therefore, they are categorized as money market instruments. T-bills do not pay interest but are rather sold at a discounted rate and can be redeemed at the face value at maturity
• Certificate of Deposits is a money market instrument issued in demat form or as promissory notes by banks against funds deposited at the banks. they can either be offered at a discounted rate or with a floating rate (to be determined by the market forces).

Answer – d

All economic activities of an economy which take place in foreign currency fall in the external sector such as export, import, foreign investment, external debt, current account, capital account, balance of payment, etc.

Answer – a

By December 2016, India’s forex reserves were ate comfortable levels of US$ 360 billion—with a rise of US$ 10 billion since January 2016. This included the gold reserves of US$ 21 billion and SDRs of US$ 5.6 billion (inclusive of reserve tranche of US$ 1.3 billion), as per the Economic Survey 2016-17.

Answer – a

RBI targets neither a particular exchange rate nor foreign exchange reserves, and maintains such interventions by it to just reduce volatility in the forex market. But in the process of supporting weakening rupee, RBI needs to buy dollar, ultimately, leading to higher forex buid-ups. The Chief Economic Advisor of the Finance Ministry, however, clearly stated the kind of reserve accretion the government is looking at. Citing the example of China, the Economic Survey 2014–15 said India could target foreign exchange reserves of US$750 billion to $1 trillion.

Answer – c

• A clear-cut classification of industries (also known as the Reservation of Industries) were affected with three schedules: Schedule A, B and C. All the schedule B industries and a number of schedule C industries came under this proivision. This provision established the so-called ‘Licence-Quota-Permit’ regime (raj) in the economy.
• A powerful industrial house was always able to procure fresh licences at the cost of a new budding entrepreneur. The price regulation policy via licencing was aimed at helping the public by providing cheaper goods, but it indirectly served the private licenced industries ultimately (as central subsidies were given to the private companies from where it was to benefit the poor in the form of cheaper goods). Similarly, the older and wellestablished industrial houses were capable of creating hurdles for the newer ones with the help of different kinds of trade practices forcing the latter to agree for sell-outs and takeovers. Monopolistic and Restrictive Trade Practices (MRTP) Act was passed. The Act intended to regulate the trading and commercial practices of the firms and checking monopoly and concentration of economic power

Answer – c

• Industrial Policy 1973 – A new classificatory term i.e., core industries was created. The industries which were of fundamental importance for the development of industries were put in this category such as iron and steel, cement, coal, crude oil, oil refining and electricity. In the future, these industries came to be known as basic industries, infrastructure industries in the country.
• A limited permission to foreign investment was given, with the multinational corporations (MNCs) being allowed to set up subsidiaries in the country in 1973 policy.  In 1977 policy, Foreign investment in the unnecessary areas were prohibited (opposite to the IPS of 1973 which promoted foreign investment via technology transfer in the areas of lack of capital or technology). In practice, there was a complete ‘no’ to foreign investment.

Answer – a

• Industrial Policy Statement of 1977 was chalked out by a different political set up from the past with a different political fervour—the dominant voice in the government was having an anti-Indira stance with an inclination towards the Gandhian-socialistic views towards the economy.
• Decentralised industrialisation was given attention with the objective of linking the masses to the process of industrialisation. The District Industries Centres (DICs) were set to promote the expansion of small and cottage industries at a mass scale

Answer – a

The agriculture sector was attended with a new scientific approach with many technology missions being launched by the government through Industrial Policy of 1985.

Answer – c

The firms with assets of Rs. 25 crore or more were put under obligation of taking permission from the Government of India before any expansion, greenfield venture and takeover of other firms (as per the MRTP Act). Such firms came to be known as the ‘MRTP Companies’. The upper limit (known as the ‘MRTP limit’) for such companies was revised upward to Rs. 50 crore in 1980 and Rs. 100 crore in 1985.

Answer – d

All economic activities of an economy which take place in foreign currency fall in the external sector such as export, import, foreign investment, external debt, current account, capital account, balance of payment