Test 7 Solutions

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ANSWERS & EXPLANATION

GENERAL STUIDES (P) TEST – 2434 (2018)
Q 1.D
o Fiscal deficit is the difference between the government"s total expenditure and its total receipts excluding
borrowing. It indicates total borrowing requirements of the government from all sources.
o Gross fiscal deficit= Net borrowing at home + Borrowing from RBI + Borrowing from abroad
o Net borrowing at home includes that directly borrowed from the public through debt instruments (for
example, the various small savings schemes) and indirectly from commercial banks through Statutory
Liquidity Ratio (SLR).
Q 2.C
The industrial policy that we adopted was closely related to the trade policy. In the first seven five year
plans, trade was characterised by what is commonly called an inward looking trade strategy. Technically,
this strategy is called import substitution. This policy aimed at replacing or substituting imports with
domestic production. For example, instead of importing vehicles made in a foreign country, industries
would be encouraged to produce them in India itself.
Q 3.A
o Goods and Services Tax (GST) refers to the single unified tax created by amalgamating a large number of
Central and State taxes presently applicable in India.
The salient features of GST are as under:
 GST comes under the broad spectrum of what is known as Value Added Tax which provides for
input credits and taxes only the value addition that happened in the process of production / provision
of service.
 GST would be applicable on supply of goods or services as against the present concept of tax on the
manufacture or on sale of goods or on provision of services.
 GST would be a destination based tax as against the present concept of origin based tax. i.e, tax is
imposed at the point of consumption.
 It would be a dual GST with the Centre and the States simultaneously levying it on a common base.
 The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State
supply of goods and services. There will be seamless flow of input tax credit from one State to
another. Proceeds of IGST will be apportioned among the States.
 Import of goods or services would be treated as inter-State supplies and therefore, would be
subject to IGST in addition to the applicable customs duties. In other words, all imported goods will
be charged integrated tax (IGST) which is equivalent to Central GST + State GST. This will bring
equality with taxation on local products.
Q 4.B
o The WTO was founded in 1995 as the successor organisation to the General Agreement on Trade and
Tariff (GATT). GATT was established in 1948 with 23 countries as the global trade organization to
administer all multilateral trade agreements by providing equal opportunities to all countries in the
international market for trading purposes. WTO is expected to establish a rule-based trading regime in
which nations cannot place arbitrary restrictions on trade. In addition, its purpose is to enlarge production
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and trade of services, to ensure optimum utilisation of world resources and to protect the
environment. Hence, statements 1 and 3 are correct.
o IMF aims to lessen the degree of disequilibrium in the international balance of payments of
members. Hence, statement 2 is not correct.
Q 5.A
o Automatic stabilizers are economic policies and programs designed to offset fluctuations in a nation's
economic activity without intervention by the government or policymakers on an individual basis. The
best-known automatic stabilizers are corporate and personal taxes, and transfer systems such as
unemployment insurance and welfare. Automatic stabilizers are so called because they act to stabilize
economic cycles and are automatically triggered without explicit government action.
o Under certain spending and tax rules, expenditures that automatically increase or taxes that automatically
decrease when economic conditions worsen, therefore, stabilising the economy automatically are known
as Automatic Stabilizers. An example of how automatic stabilizers would work in a recession is as
follows. When the country takes an economic downturn, more people become unemployed. As a result
more people file for unemployment and other welfare measures, which increases government spending
and aggregate demand. The unemployed also pay less in taxes because they are not earning a wage, which
in turn decreases government revenue.
o The purpose of an economic stabilizer is to prevent the negative consequences relating to unexpectedly
high growth rates or recessions. For example, as an individual taxpayer earns higher wages, his additional
income may be subjected to higher tax rates based on the current tiered structure. If wages fall, the
individual will remain in the lower tax tiers as dictated by his earned income.
Q 6.C
o Both the statements are correct.
o Real Estate investment Trusts or REITs are mutual fund like institutions that enable investments into the
real estate sector by pooling small sums of money from multitude of individual investors for directly
investing in real estate properties so as to return a portion of the income (after deducting expenditures) to
unit holders of REITs, who pooled in the money.
o REITS are regulated by the securities market regulator in India- Securities and Exchange Board of India
(SEBI). In September 2014, SEBI notified the SEBI (Real Estate Investment trusts) Regulations, 2014 for
providing a framework for registration and regulation of REITs in India.
o REIT can invest in commercial real estate assets, either directly or through Special Purpose Vehicle
(SPVs) which invests more than 80% of its assets in properties. If REIT is investing through an SPV,
REIT has to hold controlling interest with not less than 50% of the equity share capital or interest in SPV.
Q 7.C
o There are three methods for calculating national income i.e., Expenditure method, Income method
and Value Added method.
o Expenditure method is sum-totalofprivateconsumptionexpenditure,Government consumption expenditure,
gross capital formation (Government and private) and net exports (Export-Import). National income is
measured as a flow of expenditure.
o In Income method, there are generally four factors of production labour, capital, land and
entrepreneurship. Labour gets wages and salaries, capital gets interest, land gets rent and entrepreneurship
gets profit as their remuneration.
o Value Added method is calculated on money value of all final goods and services produced in an
economy during a year. Final goods here refer to those goods which are directly consumed and not used in
further production process.
o Consumption and investment are expenditures which constitute as components of calculating Expenditure
method. Hence, options 1 and 3 are not correct.
Q 8.A
o Statement 1 correct because The National Agriculture Market (NAM) is envisaged as a pan-India
electronic trading portal which seeks to network the existing Agricultural Produce Market Committees
(APMCs) and other market yards to create a unified national market for agricultural commodities.
o Statement 2 is also correct because NAM will be implemented as a Central Sector Scheme through Agri-
Tech Infrastructure Fund (ATIF).
o Statement 3 is incorrect because it is voluntary on States to join it and it does not seek to abolish existing
APMCs but seeks network of the existing Agricultural Produce Market Committees (APMCs) and other
market yards to create a unified national market for agricultural commodities.
o Only those States/UTs that have completed these three pre-requisites are eligible for assistance under the
scheme:
a single license to be valid across the State, single point levy of market fee and provision for
electronic auction as a mode for price discovery.
NAM is said to have the following advantages:
 For the farmers, NAM promises more options for sale. It would increase his access to markets through
warehouse based sales and thus obviate the need to transport his produce to the mandi.
 For the local trader in the mandi / market, NAM offers the opportunity to access a larger national
market for secondary trading.
 Bulk buyers, processors, exporters etc. benefit from being able to participate directly in trading at the
local mandi / market level through the NAM platform, thereby reducing their intermediation costs.
 The gradual integration of all the major mandis in the States into NAM will ensure common
procedures for issue of licences, levy of fee and movement of produce. In a period of 5-7 years Union
Cabinet expects significant benefits through higher returns to farmers, lower transaction costs to
buyers and stable prices and availability to consumers.
 The NAM will also facilitate the emergence of value chains in major agricultural commodities across
the country and help to promote scientific storage and movement of agri goods.
Q 9.C
o Statement 1 is correct. Fiat money does not have intrinsic value like a gold or silver coin that is they are
guaranteed by the government but they do not have any underlying value itself. For eg during the recent
demonetization drive, the government withdrew its guarantee for 500 and 1000 rupee note. As they lacked
intrinsic value (unlike gold/silver coin) these notes became useless.
o Statement 2 is correct. Fiat money is also called legal tenders as they cannot be refused by any citizen of
the country for settlement of any transaction.
Q 10.A
o The balance of exports and imports of goods is referred to as trade balance. Adding trade in services and
net transfers to the trade balance, we get the current account balance.
o Trade in services is denoted as invisible trade (because they are not seen to cross national borders)
and net transfers are not included in trade balance. Transfer payments are receipts which the residents
of a country receive for free, without having to make any present or future payments in return. They
consist of remittances, gifts and grants. They could be official or private.
Q 11.D
o Systemically Important Financial Institutions (SIFIs) are perceived as institutions that are Too Big to Fail
(TBTF). Financial Stability Board (FSB) refers Systemically Important Financial Institutions (SIFIs) as
institutions ―whose distress or disorderly failure, because of their size, complexity and systemic
interconnectedness, would cause significant disruption to the wider financial system and economic
activity‖.
o In August 2015, RBI announced, for the first time, State Bank of India (SBI) and ICICI as D-SIBs; and
the list is revised annually.
Q 12.C
o A non-tariff barrier is a form of non-tax restrictions trade where barriers to trade are set up and take a
form other than a tariff. It includes quotas, embargoes, sanctions, levies and other restrictions and are
frequently used by large and developed economies. Tariff is a tax on imports and exports. Both the tools
are used by countries in International market for trade and services.
o The WTO agreements cover trade in goods as well as services to facilitate international trade (bilateral
and multilateral) through removal of tariff as well as non-tariff barriers and providing greater market
access to all member countries. A developing country like India still does not have the access to
developed countries‘ markets because of high non-tariff barriers.
Q 13.D
o Outsourcing is one of the important outcomes of the globalisation process. In outsourcing, a company
hires regular service from external sources, mostly from other countries. As a form of economic activity,
outsourcing has intensified, in recent times, because of the growth of fast modes of communication.
o Most multinational corporations, and even small companies, are outsourcing their services to India where
they can be availed at a cheaper cost with reasonable degree of skill and accuracy. The low wage rates
and availability of skilled manpower in India have made it a destination for global outsourcing in
the post-reform period. Hence, all statements are correct.
Q 14.D
o National Investment and Infrastructure Fund (NIIF) is a fund created by the Government of India
for enhancing infrastructure financing in the country.This is different from the National Investment
Fund.
o NIIF was proposed to be set up as a Trust, to raise debt to invest in the equity of infrastructure
finance companies such as Indian Rail Finance Corporation (IRFC) and National Housing Bank
(NHB). The idea is that these infrastructure finance companies can then leverage this extra equity,
manifold. In that sense, NIIF is a banker of the banker of the banker. National investment fund (NIF)
was setup to recieve and invest disinvestment proceeds of Central public sector enterprises(CPSEs).
Hence, statement 2 is not correct.
o NIIF is envisaged as a fund of funds with the ability to make direct investments as required. As a fund of
fund it may invest in other SEBI registered funds.
o Its creation was announced in the Union Budget 2015-16. The operational framework was approved on 20
August 2015.NIIF got registered with SEBI as Category II Alternative Investment Fund (AIF) on
December 28, 2015.
o The objective of NIIF would be to maximize economic impact mainly through infrastructure
development in commercially viable projects, both greenfield and brownfield, including stalled
projects. It could also consider other nationally important projects, for example, in manufacturing, if
commercially viable. Hence, statement 1 is not correct.
Q 15.C
o Option (c) is correct as Effective Revenue Deficit is the difference between revenue deficit and
grants for creation of capital assets. The government introduced the Effective Revenue Deficit concept
from Union Budget 2011-12. From 2012-13 onwards the Effective Revenue Deficit is being brought in as
a fiscal parameter. Effective Revenue Deficit is the difference between revenue deficit and grants for
creation of capital assets. In other words, the Effective Revenue Deficit excludes those revenue
expenditures which were done in the form of grants for creation of capital assets (GoCA). Such grants
include the grants given under: Pradhan Mantri Gram Sadak Yojana Accelerated Irrigation Benefit
Programme Jawaharlal Nehru National Urban Renewal Mission MGNREGA etc. The logic is clear; these
expenses despite being shown in the accounts as Revenue Expenditures, are involved with asset creation
and cannot be considered completely 'unproductive'
o Option (a) is not correct as fiscal deficit minus net interest payments is Primary Deficit.
o Option (b) is not correct as total revenue expenditure minus total revenue receipts is Revenue Deficit.
o Option (d) is not correct as total government expenditure minus total government receipts is Budget
Deficit.
Q 16.B
o Industrial Policy Resolution 1956 (IPR 1956): In accordance with the goal of the state controlling the
commanding heights of the economy, the Industrial Policy Resolution of 1956 was adopted. This
resolution formed the basis of the Second Five Year Plan, the plan which tried to build the basis for a
socialist pattern of society. Hence, statement 1 is not correct.
o This resolution classified industries into three categories. The first category comprised industries which
would be exclusively owned by the state; the second category consisted of industries in which the private
sector could supplement the efforts of the state sector, with the state taking the sole responsibility for
starting new units; the third category consisted of the remaining industries which were to be in the private
sector. Hence, statement 3 is not correct.
o Although there was a category of industries left to the private sector, the sector was kept under state
control through a system of licenses. No new industry was allowed unless a license was obtained from the
government. This policy was used for promoting industry in backward regions; it was easier to obtain a
license if the industrial unit was established in an economically backward area. In addition, such units
were given certain concessions such as tax benefits and electricity at a lower tariff. The purpose of this
policy was to promote regional equality. Hence, statement 2 is correct.
Q 17.A
o Green GDP is a term used generally for expressing GDP after adjusting for environmental damage. It is an
index of economic growth with the environmental consequences of that growth factored into a country's
conventional GDP. Green GDP monetizes the loss of biodiversity, and accounts for costs caused by
climate change. Some environmental experts prefer physical indicators (such as 'waste per capita' or
'carbon dioxide emissions per year'), which may be aggregated to indices such as the 'Sustainable
Development Index'.
Q 18.D
o Price Stabilization Fund (PSF) refers to any fund constituted for the purpose of containing extreme
volatility in prices of selected commodities. It was created in 2015 for perishable agricultural and
horticultural commodities, but initially limited to support potato and onion prices only.
o The Government of India, in 2015, approved the creation of a Price Stabilization Fund (PSF) with a
corpus of Rs.500 crores as a Central Sector Scheme, to support market interventions for price control of
perishable agri-horticultural commodities during 2014-15 to 2016-17. Initially the fund was proposed to
be used for market interventions for onion and potato only and pulses were added subsequently. Non-
perishable products include cereals, pulses, edible oil, sugar, salt and tea. Hence, statement 1 is not
correct.
o PSF mechanism is apart from the Minimum Support Price (MSP) based initiatives already existing in the
country for certain agricultural goods. The MSP system has some price tempering properties, but it is
from the perspective of the growers / farmers and becomes operative when prices fall below the cost of
production. The output thus procured by the Government at MSP is later distributed at affordable rates
through the public distribution system. In contrast to MSP and consumer fed operations, a PSF is
generally conceived to be operative in both directions of price movement, subject to prices crossing some
threshold level. Hence,statement 2 is not correct.
Q 19.C
o All except NABARD are the Institute structure of rural banking involves in direct credit to rural
population. Hence option (c) is correct.
o Among all commercial banks is the biggest lender to the rural population.
o Whereas NABARD do not involves in direct credit system. It mainly provide loan to RRB, cooperatives
and State government in the area of Rural Development and Agricultural Development.
Q 20.D
o Banking Correspondents (BCs) are individuals/entities engaged by a bank in India commercial
banks, Regional Rural Banks (RRBs) and Local Area Banks (LABs)) for providing banking services in
unbanked / under-banked geographical territories. A banking correspondent works as an agent of the bank
and substitutes for the brick and mortar branch of the bank.
o BCs engage in
 identification of borrowers;
 collection and preliminary processing of loan applications including verification of primary
information/data;
 creating awareness about savings and other products and education and advice on managing money
and debt counselling;
 promoting, nurturing and monitoring of Self Help Groups/ Joint Liability Groups/Credit
Groups/others;
 sale of micro insurance/ mutual fund products/ pension products/ other third party products and
 receipt and delivery of small value remittances/ other payment instruments.etc
o The banks in India may engage the following individuals/entities as BCs.
o Individuals like retired bank employees, retired teachers, retired government employees and ex-
servicemen, individual owners of kirana (small shops) / medical /Fair Price shops, individual Public Call
Office (PCO) operators, agents of Small Savings schemes of Government of India/Insurance Companies,
individuals who own petrol pumps, authorized functionaries of well-run Self Help Groups (SHGs) which
are linked to banks, any other individual including those operating Common Service Centres (CSCs);
o NGOs/Micro Finance Institutions set up under Societies/ Trust Acts or as Section 25 Companies ;
o Cooperative Societies registered under Mutually Aided Cooperative Societies Acts/ Cooperative Societies
Acts of States/Multi State Cooperative Societies Act;
o Post Offices;
o Companies registered under the Indian Companies Act, 2013 with large and widespread retail outlets
o Non-banking Finance Companies (NBFCs) were not allowed to be appointed as Business Correspondents
(BCs) by banks. However, since June 2014 banks have been permitted to engage non-deposit taking
NBFCs (NBFCs-ND) as BCs, subject to certain conditions.
Q 21.C
o Professor Rajkrishna, an Indian economist, coined the term 'Hindu rate of growth' in 1978 to characterise
the slow growth and to explain it against the backdrop of socialistic economic policies. The Hindu rate of
growth is a term referring to the low annual growth rate of the planned economy of India before the
liberalisations of 1991, which stagnated around 3.5% from 1950s to 1980s, while per capita income
growth averaged 1.3%.
Q 22.A
o Soil Health card (SHC) is a printed report card issued to farmers in once in three years indicating the
status of his soil in terms of 12 parameters. It is also accompanied by an advice on the various fertilizers
and other soil amendments he is suppose to make.
o The 12 parameters tested are:
 Major Nutrients
 pH (Soil Reaction; acidity / alkalinity of the soil) , Total Dissolved salts, Organic Carbon,
Phosphorous, and Potash
 Minor Nutrients
 Sulphur, Magnesium, and Calcium
 Micro-nutrients
 Zinc, Ferrous, Manganese and Copper.
o SHC will ensure that farmers do not spend money unnecessarily on purchase of fertilizers by adding more
than required. Once there is economy on the use of chemical fertilizers, the cost of production is expected
to decrease. Hence, statement 1 is correct.
o Promotion of integrated nutrient system is expected to reduce the consumption of chemical fertilizers by
20% thereby easing the fiscal strain on Government. Fertilizer sector accounts for a significant percentage
of the total subsidies and power consumption in the country. Hence, statement 2 is correct.
o India imports large quantity of various fertilizers to meet the demand. About 25-30% of the requirement
of Urea is met by imports. The soil test based fertilizer usage will reduce import bill and reduce Current
Account Deficit. Hence, statement 3 is correct.
Q 23.A
o Double coincidence of wants is a situation where two economic agents have complementary demand for
each other's surplus production. For instance, a coincidence of wants would occur when a fisherman wants
a packet of rice, and a farmer who needs fish, is willing to accept fish in exchange for his rice.
Q 24.D
o Current daily status approach to measuring unemployment seeks to ascertain the activity status of an
individual for each day of the reference week. It reports time disposition of an individual on each day of
the reference week. This means that in addition to recording the activity being pursued, time intensity is
also recorded in quantitative terms for each day of the reference week.
o Current Weekly Status (CWS) approach to measuring unemployment uses seven days preceding the
date of survey as the reference period.
o A person is considered to be employed if he or she pursues any one or more of the gainful activities for at
least one-hour on any day of the reference week. On the other hand, if a person does not pursue any
gainful activity, but has been seeking or available for work, the person is considered as unemployed.
Q 25.A
o Micro Units Development Refinance Agency (MUDRA) Bank is a refinance institution for micro
finance institutions. MUDRA is conceived not only as a refinance institutionand but also as a regulator for
the micro finance institutions (MFIs).
o In lending, MUDRA gives priority to enterprises set up by the under-privileged sections of the society
particularly those from the scheduled caste / tribe (SC/ST) groups, first generation entrepreneurs and
existing small businesses. Hence, all the statements are correct.
Q 26.A
o All the given options are correct.
o Income Method → Based on factor cost
o Factor cost = Labour (Wages) + Capital (Interest) + Entrepreneurship (Profit) + Land (Rent)
o GDP at Current Market Price = GDP at Factor cost + Taxes – Subsidies
o GDP at Current Market Price when adjusted for inflation → GDP at Constant market prices
Q 27.A
o Market Intervention Scheme (MIS) is a price support mechanism implemented on the request of State
Governments for procurement of perishable and horticultural commodities in the event of a fall in market
prices. Hence, Statement 1 is correct.
o Its objective is to protect the growers of these horticultural/agricultural commodities from making distress
sale in the event of bumper crop during the peak arrival period when prices fall to very low level. Thus it
provides remunerative prices to the farmers in case of glut in production and fall in prices.
o Proposal of MIS is approved on the specific request of State/Union Territory (UT) Government, if the
State/UT Government is ready to bear 50% loss (25% in case of North-Eastern States), if any, incurred on
its implementation. Hence, Statement 2 is also correct.
o The Scheme is implemented when there is at least 10% increase in production or 10% decrease in the
ruling rates over the previous normal year. Hence, Statement 3 is also correct.
Q 28.C
o Chit funds are essentially saving institutions. They are of various forms and lack any standardized
form. Chit funds have regular members who make periodical subscriptions to the fund. The periodic
collection is given to some member of the chit funds selected on the basis of previously agreed criterion.
The beneficiary is selected usually on the basis of bids or by draw of lots or in some cases by auction or
by tender. In any case, each member of the chit fund is assured of his turn before the second round starts
and any member becomes entitled to get periodic collection again. Hence, statement 1 is correct.
o Chit funds are included in the definition of Non- Banking Financial Companies by RBI under the sub-
head miscellaneous non-banking company (MNBC). Hence, statement 2 is correct.
o Chit fund business currently is regulated under the Central Act of Chit Funds Act, 1982 and the Rules
framed under this Act by the various State Governments for this purpose.
Q 29.C
o In India‘s developmental plan exercise we have two types of schemes viz; central sector and centrally
sponsored scheme. The nomenclature is derived from the pattern of funding and the modality for
implementation.
o Under Central sector schemes, it is 100% funded by the Union government and implemented by the
Central Government machinery. Central sector schemes are mainly formulated on subjects from the
Union List.In addition, the Central Ministries also implement some schemes directly in States/UTs which
are called Central Sector Schemes but resources under these Schemes are not generally transferred to
States.
o Under Centrally Sponsored Scheme (CSS) a certain percentage of the funding is borne by the
States in the ratio of 50:50, 70:30, 75:25 or 90:10 and the implementation is by the State Governments.
Centrally Sponsored Schemes are formulated in subjects from the State List to encourage States to
prioritise in areas that require more attention.Funds are routed either through consolidated fund of States
and or are transferred directly to State/ District Level Autonomous Bodies/Implementing Agencies.
Q 30.D
o Rules and laws which were aimed at regulating the economic activities became major hindrances in
growth and development. Liberalisation was introduced to put an end to these restrictions and open up
various sectors of the economy. A few liberalisation measures were introduced in 1980s, the reform
policies initiated in 1991 were more comprehensive.
o Deregulation of Industrial Sector: In India, regulatory mechanisms were enforced in various ways (i)
industrial licensing (ii) private sector was not allowed in many industries (iii) some goods could be
produced only in small scale industries and (iv) controls on price fixation and distribution of selected
industrial products. Hence, option 1 is correct.
o Foreign Exchange Reforms: In 1991, as an immediate measure to resolve the balance of payments crisis,
the rupee was devalued against foreign currencies. Now, more often than not, markets determine
exchange rates based on the demand and supply of foreign exchange. Hence, option 2 is correct.
o Tax Reforms: Tax reforms involving lowering of tax rates, broadening the tax base and reducing
loopholes. Hence, option 3 is correct.
o Financial Sector Reforms: One of the major aims of financial sector reforms is to reduce the role of RBI
from regulator to facilitator of financial sector. This means that the financial sector may be allowed to take
decisions on many matters without consulting the RBI.
Q 31.D
o The balance of payments (BoP) record the transactions in goods, services and assets between residents of
a country with the rest of the world. Errors and Omissions constitute the third element in the BoP (apart
from the current and capital accounts) which is the ‗balancing item‘ reflecting our inability to record all
international transactions accurately.
o Open market operations refers to the buying and selling of government securities in the open
market in order to expand or contract the amount of money in the banking system. Hence, it is not a
component of BoP.
Q 32.A
o In order to reduce wastage of food grains, milk, poultry, fish, fruits and vegetables due to lack of adequate
processing facilities. Ministry of Food Processing Industries has launched a new scheme called National
Mission on Food Processing (NMFP) during 12th Plan (2012-17) for implementation through States /
UTs.
o The objective of NMFP is to promote the growth of food processing industries in the country, by creating
a National Mission at the Centre and State Missions in the various States/UTS. Hence, statement 1 is
correct. Better planning, supervision and monitoring of various schemes is expected through this
decentralized approach. Self help groups will be encouraged to become viable commercial
entities. Hence, statement 3 is correct.
The other objectives are-
 To raise the standards of food safety and hygiene to the globally accepted norms. Hence, statement 2
is also correct
 To facilitate food processing industries to adopt HACCP and ISO certification norms;
 To augment farm gate infrastructure,
 Supply chain logistic,
 Storage and processing capacity and
 To provide better support system to organized food processing sector.
Q 33.D
o Both the statements are not correct.
o Public goods, as distinct from private goods, are collectively consumed. Two important features of public
goods are: they are non-rivalrous in that one person can increase her satisfaction from the good without
reducing that obtained by others and they are non-excludable, and there is no feasible way of excluding
anyone from enjoying the benefits of the good. These make it difficult to collect fees for their use and
private enterprise will in general not provide these goods. Hence, they must be provided by the
government.
o A private good is a product that must be purchased to be consumed, and its consumption by one
individual prevents another individual from consuming it. The private goods are referred to as
rivalrous and excludable.
Q 34.B
o According to the Purchasing Power Parity (PPP) theory, differences in the domestic inflation and foreign
inflation are a major cause of adjustment in exchange rates.
o A low rate of inflation in one country than another does not necessarily guarantee an
appreciating/favorable exchange rate. However, an extremely high inflation rate in one country than
another is very likely to have a depreciating effect on the exchange rate. Hence, option b is correct.
Q 35.D
o All the statements are correct.
Lending by a commercial bank for certain sectors which are identified as ―priority sector‖ by the central
bank (Reserve Bank of India) is called as priority sector lending.
Priority sector lending (PSL) should constitute 40 percent of Adjusted Net Bank Credit ANBC] or Credit
Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.Categories or sectors of economy
falling under the ―priority sector are:
o Agriculture
It essentially consists of Farm Credit which will include short-term crop loans and medium/long-term
credit to farmers, agriculture Infrastructure and ancillary activities etc.,loans to distressed farmers, loans
under Kisan Credit Card Scheme,
o Loans to corporate farmers, farmers' producer organizations/companies of individual farmers, partnership
firms and co-operatives of farmers directly engaged in agriculture and allied activities, viz., dairy, fishery,
animal husbandry, poultry, bee-keeping and sericulture up to an aggregate limit of ₹ 2 crore per borrower
etc
o Micro, Small and Medium Enterprises.
This includes loans to Khadi and Village industries, outstanding deposits with Small Industries
Development Bank of India (SIDBI) and Micro Units Development Refinance Agency Bank (MUDRA
Ltd.) on account of priority sector shortfall etc.
o Social Infrastructure
Bank credit to Micro Finance Institutions (MFIs) extended for on-lending to individuals and also to
members of Self Help Group (SHGs)/Joint Liability Groups (JLGs) for water and sanitation facilities etc.
Q 36.D
o Micro-insurance policies are a special category of insurance policies created to promote insurance
coverage among economically vulnerable sections of society. These policies are regulated by the
Insurance Regulatory Development Authority of India (IRDA). Hence, statements 1 and 2 are correct.
o The IRDA Micro-insurance Regulations, 2005 defines and enables micro-insurance. Micro insurance can
be either a general insurance policy (which can ensure health, belongings, house, tools, personal accident
contract, livestock etc) or life insurance policy with a sum assured of Rs 50,000 or less. Micro- insurance
business is done through the NGOs, SHGs & Micro Finance Institutions.Hence, statement 3 is correct.
Q 37.B
o Corporate Social Responsibility (CSR) is generally understood in a broader sense, as a self-regulatory
mechanism, whereby a business entity monitors and ensures its active compliance with the spirit of the
law, ethical standards and international norms.
o India is considered as the first country to have made CSR a statutory liability for the corporate entities
under the Companies Act, 2013 . Unlike many other countries wherein CSR activities are voluntary, the
same is mandated by law in India.
o CSR spending is applicable to every company incorporated in India, including its holding or subsidiary,
and a foreign company having its branch office or project office in India. CSR norms are applicable
only to companies(including foreign companies) registered under the Companies Act, 2013 and not to
other forms of body corporate like limited liability partnerships.
o CSR fund can be utilized by companies only in India and not abroad. Activities which are related to
normal course of business are excluded from the purview of CSR activities.
Q 38.C
o WPI food index is a new Food price Index launched on 12 May 2017 as part of revised WPI series
with base year 2011-12. WPI food index measures the changes in prices of food items at the level of
producers.
o The WPI Food index is compiled by taking the aggregate of WPI for 'Food Products' under 'Manufacture
Products' and 'Food Articles' under 'Primary Article' using weighted arithmetic mean. (Indices for Food
Articles and Food Products were being released separately in WPI (2004-05) also. But no separate
estimate like WPI food index was being generated then).
o Together with the Consumer Food Price Index released by Central Statistics Office, this would help
monitor the price situation of food items better.
Q 39.A
o Participatory Note (PN or P-Note) is a derivative instrument issued in foreign jurisdictions, by a SEBI
registered Foreign Institutional Investor (FII). Hence, statement 1 is correct. PNs are also known as
Overseas Derivative Instruments, Equity Linked Notes, Capped Return Notes, and Participating Return
Notes etc. In January 2014 when the Indian securities market regulator, SEBI issued the new Regulations
for Foreign Portfolio Investors, participatory notes got formally defined under the tag 'Offshore Derivative
Instrument'(ODIs) in Section 2(1)(j) of the said regulation.
o As per this definition, participatory notes or ODIs are issued by selected FPI (which is a broad category
also including FIIs. Hence, Regulation excludes certain category of Foreign portfolio investors, like
individuals, from issuing the PNs) against securities held by it that are listed or proposed to be listed on
any recognized stock exchange in India.
The underlying Indian security instrument may be equity, debt, derivatives or may even be an index.
Further, a basket of securities from different jurisdictions can also be constructed in which a portion of the
underlying securities is Indian securities or indices.
o The investor in PN does not own the underlying Indian security, which is held by the FII who issues
the PN. Thus the investors in PNs derive the economic benefits of investing in the security without
actually holding it. They benefit from fluctuations in the price of the underlying security since the value of
the PN is linked with the value of the underlying Indian security. The PN holder also does not enjoy any
voting rights in relation to security/shares referenced by the PN. Hence, statement 2 is not correct.
Q 40.D
o Under clean floating(also known as flexible exchange rates or floating exchange rate), the exchange
rate is market-determined without any central bank intervention. Clean floats can only exist where there is
no government interference, as would be the case in a purely capitalistic economy. Clean floats are a
result of Laissez-Faire or free market economics.
o In case of managed floating, also called dirty floating the central banks intervene to buy and sell foreign
currencies in an attempt to moderate exchange rate movements whenever they feel that such actions are
appropriate.
o From around 1870 to 1914, the prevailing system was the gold standard which was fixed exchange rate
system in which each participant country committed itself to convert freely its currency into gold at a
fixed price.
Q 41.B
o An unorganised sector is defined according to Section 2 (l) of the Unorganized Workers Social Security
Act, 2008. It is defined as a production or service oriented enterprise owned by individuals or self
employed workers (one who is not working for an employer and is engaged in an unorgnised sector job
earning an income below a threshold or owning land below a notified limit) and if workers are employed,
then the total number of workers cannot exceed 10. Hence, statement 1 is not correct.
o In general, unorganised sector covers most of the rural labour and a substantial part of urban labour. lt
includes activities carried out by small and family enterprises, partly or wholly with family labour. Hence,
statement 2 is correct
o Unorganised Sector contributes more than 50% of the GDP . Different estimates have been arrived at
following different methodologies. For instance according to CSO; the share of unorganized sector has
been varying between 57-60% since 1993-94. Unorganised or informal sector constitutes more than 90
per cent of workforce as per the Report of the Committee on Unorganised Sector Statistics 2012. Hence,
statement 3 is not correct.
Q 42.D
o There are some of the notable objectives of the government budget:
 Through the budgetary policy, government allocate resources in a balanced manner that take care of
profit maximization and social welfare.
 Government redistribute income and wealth through the way of taxes and subsidies.
 Goverment uses budget as an important policy instrument to deal with the situations of inflation and
deflation, hence maintain the economic stability.
Q 43.B
o Definitions of Micro, Small & Medium Enterprises In accordance with the provision of Micro, Small &
Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises
(MSME) are classified in two Classes:
 Manufacturing Enterprises-The enterprises engaged in the manufacture or production of goods
pertaining to any industry specified in the first schedule to the industries (Development and
regulation) Act, 1951) or employing plant and machinery in the process of value addition to the final
product having a distinct name or character or use. The Manufacturing Enterprise are defined in terms
of investment in Plant & Machinery.
 Service Enterprises:-The enterprises engaged in providing or rendering of services and are defined in
terms of investment in equipment. Hence, statement 2 is correct.
o On the basis of the limit for investment in plant and machinery / equipment for manufacturing / service
enterprises, MSME are classified.Hence, statement 1 is not correct.
Q 44.B
o Agricultural marketing is a process that involves the assembling, storage, processing, transportation,
packaging, grading and distribution of different agricultural commodities across the country.
o Prior to independence, farmers, while selling their produce to traders, suffered from faulty weighing and
manipulation of accounts. Farmers who did not have the required information on prices prevailing in
markets were often forced to sell at low prices. They also did not have proper storage facilities to keep
back their produce for selling later at a better price. Even today, more than 10 per cent of goods produced
in farms are wasted due to lack of storage. Therefore, state intervention became necessary to regulate the
activities of the private traders. Hence, option 2 is not correct.
Measures that were initiated to improve the marketing aspect:
 The first step was regulation of markets to create orderly and transparent marketing conditions. By
and large, this policy benefited farmers as well as consumers. However, there is still a need to develop
about 27,000 rural periodic markets as regulated market places to realise the full potential of rural
markets.
 Second component is provision of physical infrastructure facilities like roads, railways, warehouses,
godowns, cold storages and processing units. The current infrastructure facilities are quite inadequate
to meet the growing demand and need to be improved. Hence, option 1 is correct.
 Cooperative marketing, in realising fair prices for farmers‘ products, is the third aspect of government
initiative.
 The fourth element is the policy instruments like (i) assurance of minimum support prices (MSP) for
agricultural products (ii) maintenance of buffer stocks of wheat and rice by Food Corporation of
India and (iii) distribution of food grains and sugar through PDS. These instruments are aimed at
protecting the income of the farmers and providing food grains at a subsidised rate to the poor. Hence,
option 3 is correct.
Q 45.C
o Hydrocarbon Exploration and Licensing Policy (HELP) is a policy indicating the new contractual and
fiscal model for award of hydrocarbon acreages towards exploration and production (E&P). HELP is
applicable for all future contracts to be awarded.
o Four main aspects of HELP are:
o Uniform License: It provides for a uniform licensing system to cover all hydrocarbons such as oil, gas,
coal bed methane etc. under a single licensing framework. Hence, statement 1 is correct.
o Open Acreages: It gives the option to a hydrocarbon company to select the exploration blocks throughout
the year without waiting for the formal bid round from the Government.
o Revenue Sharing Model: Present fiscal system of production sharing contract (PSC) is replaced by an
easy to administer ―revenue sharing model‖. Hence, statement 2 is correct.
o Other features of HELP are:
o Exploration is allowed through-out the contract period.
o Exploration Phase for onshore areas have been increased from 7 years to 8 years and for offshore
increased from 8 years to 10 years.
o Objectives of HELP
The major Guiding Principles behind HELP are to:
 enhance domestic oil and gas production
 bring substantial investment
 generate sizable employment
 enhance transparency and
 reduce administrative discretion
Q 46.B
o Special drawing rights (SDR) refer to an international type of monetary reserve currency created by the
International Monetary Fund (IMF) in 1969 that operates as a supplement to the existing reserves of
member countries. Created in response to concerns about the limitations of gold and dollars as the sole
means of settling international accounts, SDR's augment international liquidity by supplementing the
standard reserve currencies. Hence, statement 1 is not correct and statement 2 is correct.
o Gold was displaced by creating the Special Drawing Rights (SDRs), also known as „paper gold‟, in the
IMF with the intention of increasing the stock of international reserves. Originally it was defined in
terms of gold, with 35 SDRs being equal to one ounce of gold , it has been redefined several times . At
present, it is calculated daily as the weighted sum of the values in dollars of five currencies (euro,
dollar, Japanese yen, pound sterling and Chinese renminbi) of the six countries (France, Germany, Japan,
the UK, China and the US).The composition of this basket of currencies is reviewed every five years
wherein the weightage of currencies sometimes get altered. Hence, statement 3 is not correct.
Q 47.A
o Option (a) is correct- Skewflation is an episodic price rise pertaining to one or a small group of
commodities. It is an unusual inflation, with inflation in one particular sector for a particular period of
time, while the other sector is experiencing no changes at all or facing deflation.
o As food commodities are regularly affected by market forces (i.e. Demand-Supply), such commodities are
most vulnerable to skewflation
Q 48.C
o Statement 1 is not correct: All the public sector establishments and those private sector establishments
which employ 10 hired workers or more are called formal sector establishments and those who work in
such establishments are formal sector workers.Informal sector includes millions of farmers, agricultural
laborers, owners of small enterprises (less than 10 hired workers) and people working in those enterprises
and the self-employed who do not have any hired workers.
o Statement 2 is not correct: Those who are working in the formal sector mainly enjoy social security
benefits. As the economy grows normally there is an increase in the growth of manufacturing and
services than the growth in the agriculture. This transfers the surplus workers from agriculture to industry
with a better standard of living as in developed countries. However, India faces a paradox - with years of
planned development, more than half of the Indian workforce still depends on farming (Informal sector)
as the major source of livelihood.
Q 49.D
o Real exchange rate is the ratio of foreign to domestic prices, measured in the same currency. So the real
exchange rate measures prices abroad relative to those at home.
o The demand for imports depends on domestic income (Y) and the real exchange rate (R). Higher income
leads to higher imports. A higher R makes foreign goods relatively more expensive, thereby leading to a
decrease in the quantity of imports. Thus, imports depend positively on Y and negatively on R. The export
of one country is, by definition, the import of another. Thus, our exports would constitute foreign imports.
It would depend on foreign income, Yf , and on R. A rise in Yf will increase foreign demand for our
goods, thus leading to higher exports. An increase in R, which makes domestic goods cheaper, will
increase our exports. Exports depend positively on foreign income and the real exchange rate.
Thus, exports and imports depend on domestic income, foreign income and the real exchange
rate and the real exchange rate is taken as a measure of a country‘s international competitiveness.
Q 50.D
o All the given options are correct.
o When RBI increases Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR), banks are left with
low reserves hence liquidity in the market get reduced.
o RBI uses Cheap money policy to counter deflationary trends. To reduce inflation the RBI adopts Dear
money policy wherein it increases SLR, CRR, Repo rate and Bank rates.
o Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends
money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary
authorities to control inflation.
Q 51.C
o Final goods are those goods which have crossed the boundary line of production and are ready for use by
their final users. It can be distinguished between consumption goods (final consumer goods) and capital
goods (final producer goods). Goods which are purchased by their ultimate consumers are called
consumer goods. And, goods that are of durable character which are used in the production process are
known as capital goods.
o Tea leaves used in restaurant is counted as input to which economic value addition can take place. Using
tea leaves in a restaurant, can turn it into a tea - which can be served to their customers for earning profits
over the value of tea leaves. Hence, tea leave used in a restaurant are not final good but consider as
intermediate good
o Steel sheets used for making automobiles and copper used for making utensils are intermediate goods,
mostly used as raw material or inputs for production of other commodities.
o A farmer producing cotton sells it to a spinning mill where the raw cotton undergoes transformation to
yarn; the yarn is, in turn, sold to a textile mill where, through the productive process, it is transformed into
cloth; the cloth is, in turn, transformed through another productive process into an article of clothing
which is then ready to be sold finally to the consumers for final use. Hence, yarn is an intermediate
good.
Q 52.A
o Earlier 'GDP at factor cost' was known as simply the 'GDP' in India. It is nothing but sum of the factor
costs incurred during the process of turning out economy's output for the concerned year. Thus, it is a
compilation of wages, interests salaries, profits etc. This concept - GDP at factor cost - used to be
expressed both in constant prices (with 2004-05 prices as the base year prices) and current prices. For
most purposes, including academic works, GDP at factor cost in constant prices was used as 'GDP'.
Further by adding net indirect taxes (ie. product taxes - product subsidies), GDP at market prices were
also reported in the National Account Statistics.
o In the revised series with base year 2011-2012, as is the practice internationally, industry-wise estimates
are presented as Gross Value Added (GVA) at basic prices, while 'GDP at market prices' will be
referred to as 'GDP'.
Q 53.B
o When the economy has both trade deficit ( large current account deficit is part of trade deficit) and
budget deficit ( high fiscal deficit is part of budget deficit), it is said to be facing twin deficits.
o Budgetary deficit is the difference between total expenditure and total income. Fiscal deficit =
Budgetary deficit + market borrowings (through Government securities /Bond)
o Trade deficit is the difference between exports and imports ,Because the trade balance is the largest
section of the current account, a trade deficit (or surplus) usually translates to a current account
deficit(or surplus).
Q 54.B
o In India, headline inflation is measured through the WPI (latest base year 2011-12) – which consists of
697 commodities (services are not included in WPI in India).
o Weight of components in WPI – Primary Articles (weight: 22.62%), Fuel & Power (weight: 13.15%) and
Manufactured Products (weight: 64.23). Hence, the correct answer is 3>1>2.
Q 55.A
o The Monetary Policy Committee (MPC) is a committee of the Central Bank in India (Reserve Bank of
India), headed by its Governor, which is entrusted with the task of fixing the benchmark policy interest
rate (repo rate) to contain inflation within the specified target level.
o The Reserve Bank of India Act, 1934 (RBI Act) has been amended by the Finance Act, 2016, to provide
for a statutory and institutionalised framework for a Monetary Policy Committee, for maintaining price
stability, while keeping in mind the objective of growth. The Monetary Policy Committee would be
entrusted with the task of fixing the benchmark policy rate (repo rate) required to contain inflation within
the specified target level. A Committee-based approach for determining the Monetary Policy will add lot
of value and transparency to monetary policy decisions.
Q 56.A
o Organic farming is a type of farming without using chemical fertilizers and pesticides. It uses only organic
manure and compost which easily available. Therefore reduce the input cost to agriculture. Hence, option
1 is correct.
o As it does not use chemicals or other additives the chances of contamination is very less. Hence
nutritional value increases. Hence, option 2 is correct.
o As no chemical pesticides and insecticides used, the standing crop more prone to pest attack and organic
pesticides are less effective to counter it. So yield is low. Hence, option 3 is not correct.
Organic farming required large farms therefore not suitable to Small and marginal farmers.
Some other benefits of Organic farming-
 It helps to maintain environment health by reducing the level of pollution.
 It reduces human and animal health hazards by reducing the level of residues in the product.
 It helps in keeping agricultural production at a sustainable level.
 It reduces the cost of agricultural production and also improves the soil health.
 It ensures optimum utilization of natural resources for short-term benefit and helps in conserving them
for future generation.
 It not only saves energy for both animal and machine, but also reduces risk of crop failure.
 It improves the soil physical properties such as granulation, good tilth, good aeration, easy root
penetration and improves water-holding capacity and reduces erosion.
 It improves the soil‘s chemical properties such as supply and retention of soil nutrients, reduces
nutrient loss into water bodies and environment and promotes favorable chemical reactions.
Q 57.A
o Revenue Expenditure: Revenue Expenditure is expenditure incurred for purposes other than the creation
of physical or financial assets of the central government. It relates to those expenses incurred for the
normal functioning of the government departments and various services, interest payments on debt
incurred by the government, and grants given to state governments and other parties (even though some of
the grants may be meant for creation of assets). Interest payments on market loans, external loans and
from various reserve funds constitute the single largest component of non-plan revenue expenditure.
o Capital Expenditure: There are expenditures of the government which result in creation of physical or
financial assets or reduction in financial liabilities. This includes expenditure on the acquisition of land,
building, machinery, equipment, investment in shares, and loans and advances by the central
government to state and union territory governments, PSUs and other parties.
Q 58.D
o The major objectives of setting up a SEZ are
 to attract Foreign Direct Investment (FDI),
 earn foreign exchange and contribute to exchange rate stability,
 boost the export sector especially non traditional exports,
 to create employment opportunities,
 introduce new technology,
 develop backward regions etc. by stimulating sectors as electronics, information technology, R & D,
tourism, infrastructure and human resource development that are regarded as strategically important to
the economy.
Q 59.A
o Minimum wage corresponds to the minimum cash payment to be paid to an individual working in certain
notified jobs (mostly in the informal / unorganised sector), at a rate fixed by the central or state
Governments. The minimum wage is generally exclusive of other allowances in kind, accommodation
facilities, perks etc. However, the Minimum Wages Act provides that if it has been the custom to pay
wages wholly or partly in kind, the appropriate government may authorize the payment of minimum
wages either wholly or partly in kind and the provision of supply of essential commodities at concessional
rates. In such cases, the appropriate Government may prescribe the manner of determining the cash value
of wages in kind and of concessions for supplies of essential commodities at concessional rates. Hence,
statement 1 is correct.
o The Act contain a list of all these employments for which minimum wages are to be fixed by the
appropriate Governments. This Schedule has both agricultural and non-agricultural employments. The
jobs are mostly in the mining, sanitation, agriculture, construction and infrastructure sectors. Hence,
Q 60.D
o Invest India operationalized in early 2010, is set up as a joint venture company between the Department of
Industrial Policy & Promotion (DIPP), Ministry of Commerce & Industry (35% equity), Federation of
Indian Chambers of Commerce and Industry (FICCI) (51% equity), and State Governments of India
(0.5% each) in 2010.Thus, essentially, Invest India is a private company set up by the Ministry of
Commerce & Industry. Hence, statement 1 is correct.
o The core mandate of Invest India is investment promotion and facilitation. It provides sector-specific and
state-specific information to a foreign investor, assists in expediting regulatory approvals, and offers
hand-holding services. Its mandate also includes assisting Indian investors to make informed choices
about investment opportunities overseas. Hence, statement 2 is correct.
o Invest India is intended to become the first reference point for the global investment community – both
domestic and foreign. Make In India campaign is managed by Invest India. Hence, statement 3 is
correct.
Q 61.D
o In pursuance of the announcement made in the Union Budget 2010-11 and with a view to strengthen and
institutionalize the mechanism for maintaining financial stability and enhancing inter-regulatory
coordination, Indian Government has setup an apex-level Financial Stability and Development Council
(FSDC). Hence, statement 1 is correct.
o It will focus on financial literacy and financial inclusion. Hence, statement 2 is correct.
o The Chairman of the FSDC is the Finance Minister of India and its members include the heads of the
financial sector regulatory authorities (i.e, SEBI, IRDA, RBI, PFRDA and FMC) , Finance Secretary
and/or Secretary, Department of Economic Affairs (Ministry of Finance), Secretary, (Department of
Financial Services, Ministry of Finance) and the Chief Economic Adviser. Hence, statement 3 is correct.
Q 62.C
o Statement 1 is correct. The all India index of Industrial Production (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.
o Statement 2 is correct. It is compiled and published monthly by the Central Statistical Organization
(CSO), Ministry of Statistics and Programme Implementation six weeks after the reference month ends.
o Statement 3 is not correct. The Central Statistics Office (CSO) revised the base year of the all-India
Index of Industrial Production (IIP) from 2004-05 to 2011-12 on 12 May 2017. Revisions in the IIP are
necessitated to maintain representativeness of the items and producing entities and also address issues
relating to continuous flow of production data.
Q 63.C
o It is an annual allowance for wear and tear of a capital good and not based on demand and supply of
consumer goods in market. Constant rate of depreciation based on the original value of the asset is a
simple assumption, whereas, there can be other methods to calculate. Hence, options (a) and (b) are not
correct.
o Depreciation is also defined as, the cost of good divided by number of years of its useful life. Hence,
option (c) is correct.
o It does not take in account unexpected and sudden destruction caused due to natural calamities. Hence,
option (d) is not correct.
Q 64.A
o The Gross Domestic Product (GDP) deflator is a measure of general price inflation. It is calculated by
dividing nominal GDP by real GDP and then multiplying by 100. Nominal GDP is the market value of
goods and services produced in an economy, unadjusted for inflation (It is the GDP measured at current
prices). Real GDP is nominal GDP, adjusted for inflation to reflect changes in real output (It is the GDP
measured at constant prices).
o GDP Deflator = (Nominal GDP/Real GDP) x 100
Q 65.D
o ‗Make in India‘ is a program or more rightly a campaign launched by the Government on 25 September
2014 to project India as an investment destination and develop, promote and market India as a leading
manufacturing destination and as a hub for design and information.
o The program aims to radically improve the Ease of Doing Business, open the foreign FDI regime,
improve the quality of infrastructure and make India a globally competitive manufacturing
destination. Hence, all the statements are correct.
o Make in India is essentially an invite to the foreign companies to come and invest in India on the back of
the Government promise to create an environment easy for doing business. But contrary to public
perception, no specific concessions have been offered to foreign investors under this scheme till date.
Rather it looks at general policy changes which hinges on new processes (say bettering ease of doing
indicators), creation of new infrastructures (eg. industrial corridors), opening of new sectors (to FDI) and
a new mindset (Government as a facilitator and not as a regulator). Twenty-five sectors have been
identified for implementing 'Make in India'. The program is managed and facilitated by Invest India who
runs a dedicated portal makeinindia.com for handling business queries on Indian Government's regulatory
policies.
Q 66.A
o Government receipts are divided into two groups—Revenue Receipts and Capital Receipts.
o Revenue receipts are those receipts which neither create any liability for the government nor cause
reduction in the assets of the government. It includes – Tax receipts and non tax receipts such as fees,
fines, income from sale of spectrum and public enterprises, escheat and Grants-in-aid from foreign
Governments. These are current income receipts of the government from all sources.
o Government receipts which either (i) create liabilities (e.g. borrowing) or (ii) reduce assets (e.g.
disinvestment) are called capital receipts. Thus when govt. raises funds either by incurring a liability or by
disposing off its assets, it is called a capital receipt. Hence, disinvestment of PSUs is part of Capital
receipts.
Q 67.A
o High powered money is the total liability of the monetary authority of the country, i.e. the RBI. It is called
the monetary base or high powered money. It consists only of currency notes and coins (in circulation
with the public and vault cash of commercial banks) and deposits held by the Government of India and
commercial banks with RBI.
o Cheques are considered as narrow money.
Q 68.B
o Consumer Price Index (CPI) does not account for all goods and services produced in an economy because
goods purchased by consumers does not represent all the goods which are produced in a country. Hence,
o CPI includes prices of goods consumed by the representative consumer; hence it includes prices of
imported goods. Hence, statement 2 is correct.
o The weights are constant in CPI and does not differ according to production level of each good. Hence,
Q 69.C
o The Essential Commodities Act, 1955 was enacted to ensure the easy availability of essential
commodities to consumers and to protect them from exploitation by unscrupulous traders. The Act
provides for the regulation and control of production, distribution and pricing of commodities which are
declared as essential. The Act aims at maintaining/increasing supplies/securing equitable distribution and
availability of these commodities at fair prices.
o The State Governments are fully empowered under the Act to regulate production, distribution, supply
and prices of the food items which are declared as essential commodities in the respective States.
o The list of essential commodities is reviewed from time to time with reference to their production and
supply and in the light of economic liberalization in consultation with the concerned
Ministries/Departments administering these commodities.
Q 70.D
o India Brand Equity Foundation (IBEF) is a Trust established by the Department of Commerce, Ministry of
Commerce and Industry, Government of India. Hence, statement 1 is not correct.
o It is established as an Investment Promotion Agency for creating the ―brand India‖. Hence, statement 2 is
correct.
Structure and Mandate:
o Set up in 1996, IBEF is fully funded, owned and controlled by Union Government. Hence, statement 3 is
correct.
o IBEF's primary objective is to promote and create international awareness about the Made in India label in
overseas markets and to facilitate dissemination of knowledge of Indian products and services.
Functioning:
o Towards the objective of building a brand name for India in the global markets, IBEF collects, collates
and disseminates comprehensive information on India. It has been developed as a single-window resource
for in-depth information and insight on India. It also produces a wide range of well researched
publications focused on India's economic and business advantages.
Q 71.B
o Seasonal unemployment- It occurs when people are unemployed at particular times of the year. For
example-many people migrate to an urban area, for a temporary job, but come back to their villages as
soon as the rainy season begins. This is because work in agriculture is seasonal; there are no employment
opportunities in the village for all months in the year.
o Disguised Unemployment- It is when a part of the labor force is either left without work or is working in
a redundant manner where marginal productivity of labor is essentially zero. It is unemployment that does
not affect aggregate output. An economy demonstrates disguised unemployment when productivity is low
and too many workers are filling too few jobs.
o Frictional unemployment- It is always present in the economy, resulting from temporary transitions made
by workers and employers. For example when a company abstains from hiring because it believes there
are not enough qualified individuals available for the job when in reality there are.
o Cyclical Unemployment- It is related to the cyclical trends in the industry or the business cycle. If an
economy is doing good, cyclical unemployment will be at its lowest and will be the highest if the
economy suffers recessionary trends. It is a direct result of fall in demand from consumers leading to a
slump in demand for labor. If cyclical unemployment is rising, it means that the economy is showing
signs of the slowdown. The lack of demand means that there is not enough consumption. The government
would then need to address the issue by various fiscal and monetary policies to support the economy.
Q 72.B
o Option (b) is the correct answer.
o The base effect refers to the impact of the rise in price level (i.e. last year‘s inflation) in the previous year
over the corresponding rise in price levels in the current year (i.e., current inflation): if the price index had
risen at a high rate in the corresponding period of the previous year leading to a high inflation rate, some
of the potential rise is already factored in, therefore a similar absolute increase in the Price index in the
current year will lead to a relatively lower inflation rates. On the other hand, if the inflation rate was too
low in the corresponding period of the previous year, even a relatively smaller rise in the Price Index will
arithmetically give a high rate of current inflation.
Q 73.C
o The concept of social banking was to provide banking for the poor population, working for their
developmental needs, providing them with easy formal credit, minimal requirements to open accounts,
ease of access and friendly staff etc. banking business which, due to its financial intermediation function,
has to necessarily be aligned to the developmental needs of the society that it operates in.
o At the time of independence, moneylenders and traders exploited small and marginal farmers and landless
labourers by lending to them on high interest rates and by manipulating the accounts to keep them in a
debt-trap. A major change occurred after 1969 when India adopted social banking and multi- agency
approach to adequately meet the needs of rural credit.
o Notwithstanding, banks being commercial organisations, must earn profit, else they would not remain
viable or be able to absorb shocks. At the same time, they must serve a social purpose; otherwise, they
will become irrelevant and unsustainable.Thus, broadly stating, banking system in which banks subsidise
the provision of banking services to poor and the orientation is towards serving the masses is known as
social banking.
Q 74.A
o District Mineral Foundation (DMF) is a trust set up under Mines and Minerals (Development &
Regulation) Amendment Act, (MMDRA) 2015 as a non-profit body in those districts affected by the
mining works to work for the interest and benefit of persons and areas affected by mining related
operations, in such manner as prescribed by the relevant State Government. Hence, statement 1 is
correct and statement 2 is not correct.
Q 75.D
o There are certain stock variables which have the flow variable aspect as well. Capital at a point of time is
a stock but addition to the stock of capital i.e., capital formation during a year is a flow. Hence, option (a)
is correct.
o Income and profits are flows because they occur in period of time. Flows are defined over a period;
therefore, we need to delineate a time period to get a quantitative measure of these. Hence, option (b)
and (c) are correct.
o Labour force is a stock variables because stock refers to quantities which can be measured at a
particular point of time. Hence, option (d) is not correct.
Q 76.A
Workforce casualisation is the process which employment shifts from a preponderance of full-time and
permanent positions to casual and contract positions.
Between 2004-05 and 2009-10, the number of casual workers grew by 21.9 million, while growth in the
number of regular workers nearly halved (compared with the period between 1999-2000 and 2004-05) to
5.8 million; the number of the self-employed, dominated by agricultural workers, declined by 25.1
million. Analysts say that this is being caused by the country‘s archaic labour laws and by the partly
exclusive nature of economic growth.
Q 77.C
o Statement 1 is correct: Capital receipts are those monetary receipts which create liability for the
government. and also cause reduction in assets of the government. For example, loans taken by the
government become a liability for the government as these are to be paid back. However,sale of shares in
PSUs reduces assets of government.
o Statement 2 is correct: Capital expenditures not only create asset for the Government but also reduce
liabilities of the government. For example,Money spent on infrastructure project would create an asset and
repayment of loans reduces liability of the goverment.
Q 78.A
o Macroprudential policy is a novel way of looking into financial regulation. As defined by European
Central Bank, macroprudential policies aims to:
o make the financial sector more resilient and limit contagion effects (cross-section dimension)
o prevent the excessive build-up of risk, resulting from external factors and market failures, to smoothen the
financial cycle (time dimension).
o encourage a system-wide perspective in financial regulation to create the right set of incentives for market
participants (structural dimension).
Q 79.B
o A PPP Project means a project based on a contract or concession agreement, between a Government or
statutory entity on the one side and a private sector company on the other side, for delivering a service on
payment of user charges. Unlike private projects where prices are generally determined competitively and
Government resources are not involved, PPP projects typically involve a transfer of public assets, a
delegation of governmental authority for recovery of user charges. Hence, statement 1 is not correct.
o The rationale for promoting PPP lies in its potential to improve the quality of service at lower costs,
besides attracting private capital to fund public projects. Hence, statement 2 is correct.
o At present, PPP is allowed in various sectors like a development of infrastructure projects, delivery of
public services like healthcare, municipal water supply etc. Hence, statement 3 is not correct.
Q 80.C
o The marginal cost of funds based lending rate (MCLR) refers to the minimum interest rate of a bank
below which it cannot lend, except in some cases allowed by the RBI. Hence statement 1 is correct. It is
an internal benchmark or reference rate for the bank. MCLR actually describes the method by which the
minimum interest rate for loans is determined by a bank - on the basis of marginal cost or the additional or
incremental cost of arranging one more rupee to the prospective borrower.
o Reasons for introducing MCLR
o RBI decided to shift from base rate to MCLR because the rates based on marginal cost of funds are more
sensitive to changes in the policy rates. This is very essential for the effective implementation of monetary
policy. Prior to MCLR system, different banks were following different methodology for calculation of
base rate /minimum rate – that is either on the basis of average cost of funds or marginal cost of funds or
blended cost of funds. Thus, MCLR aims
o To improve the transmission of policy rates into the lending rates of banks. Hence statement 2 is correct.
o To bring transparency in the methodology followed by banks for determining interest rates on advances.
o To ensure availability of bank credit at interest rates which are fair to borrowers as well as banks.
o To enable banks to become more competitive and enhance their long run value and contribution to
economic growth.
Q 81.C
o Nidhi in the Indian context / language means ―treasure‖. However, in the Indian financial sector it refers
to any mutual benefit society notified by the Central / Union Government as a Nidhi Company.
o They are created mainly for cultivating the habit of thrift and savings amongst its members. Hence,
o The companies doing Nidhi business, viz. borrowing from members and lending to members only, are
known under different names such as Nidhi, Permanent Fund, Benefit Funds, Mutual Benefit Funds and
Mutual Benefit Company. Hence, statement 2 is not correct.
o Nidhi‘s are companies registered under section 620A of the Companies Act, 1956 (Section 406 of the
new Companies Bill 2012, as passed by Lok Sabha) and is regulated by Ministry of Corporate
Affairs (MCA). Hence, statement 3 is correct.
Q 82.A
o The National Skill Development Corporation ( NSDC ) is a one-of-its-kind, Public Private Partnership (
PPP ) model in India, under the Ministry of Skill Development & Entrepreneurship ( MSDE ). It
aims to promote skill development by catalyzing creation of large, quality and for-profit vocational
institutions. A not-for-profit company set up by the Ministry of Finance, under Section 25 of the
Companies Act, On which the Government of India holds for 49%, while the private sector has the
balance 51%. Hence, statement 1 is correct
o Formed in 2010, NSDC is a professionally run not-for-profit company that includes 22 Sector Skill
Councils and 87 training partners with over 2500 training centers spread across 352 districts in the
country. The Finance Minister announced the formation of the National Skill Development Corporation
(NSDC) in his Budget Speech (2008-09). It was not setup to implement Skill India mission which started
in 2015. Hence, statement 2 is not correct.
Q 83.A
o Fiscal Responsibility and Budget Management Act (FRBMA), 2003 concerns with both fiscal and
revenue deficit.
o Under this Act, the FRBM rule specifies reduction of fiscal deficit to 3% of the GDP by 2008-09 with
annual reduction target of 0.3% of GDP per year by the Central government. Similarly, revenue
deficit has to be reduced by 0.5% of the GDP per year with complete elimination to be achieved by
2008-09.
o Vide the Finance Act, 2015, there have been amendments in FRBM Act, 2003 - Concept of
“Effective Revenue Deficit” and “Medium Term Expenditure Framework” statement are the two
important features of amendment to FRBM Act in the direction of expenditure reforms.
o Effective Revenue Deficit is the difference between revenue deficit and grants for creation of capital
assets. This will help in reducing consumptive component of revenue deficit and create space for
increased capital spending. Effective revenue deficit has now become a new fiscal parameter. ―Medium-
term Expenditure Framework‖ statement will set forth a three-year rolling target for expenditure
indicators.
o Now, the target dates for achieving the prescribed rates of effective deficit and fiscal deficit were further
extended. The effective revenue deficit which had to be eliminated by March 2015 will now need to be
eliminated only after 3 years i.e., by March 2018. The 3% target of fiscal deficit to be achieved by 2016-
17 has now been shifted by one more year to the end of 2017-18.
Q 84.A
o In a jobless growth economy, unemployment remains stubbornly high even as the economy grows.
This tends to happen when a relatively large number of people have lost their jobs and the ensuing
recovery is insufficient to absorb the unemployed, under-employed and new members entering the work
force.
o There was a disheartening development in the laten1990s: employment growth started declining and
reached the level of growth that India had in the early stages of planning. During these years, we also find
a widening gap between the growth of GDP and employment. This means that in the Indian economy,
without generating employment, we have been able to produce more goods and services. Scholars refer to
this phenomenon as jobless growth.
Q 85.A
o Sterilization refers to the process by which the RBI takes away money from the banking system to
neutralise the fresh money that enters the system. By selling the government securities, RBI suck out the
liquidity from the market and hence sterilizes the economy against adverse external shocks.
Q 86. A
Why Green revolution?
o At independence, about 75 per cent of the country‘s population was dependent on agriculture. Hence,
statement 1 is correct.The agricultural land in India is largely fertile but productivity in the overall
agricultural sector was very low because of the use of old technology and the absence of required
infrastructure for the vast majority of farmers. Hence, statement 2 is not correct
o India‘s agriculture vitally depends on the monsoon and if the monsoon fell short the farmers were in
trouble unless they had access to irrigation facilities which very few had. The stagnation in agriculture
during the colonial rule was permanently broken by the green revolution. Hence, statement 3 is correct.
o Famines in India were very frequent during the period 1940s to 1970s. Due to faulty distribution of food,
and because farmers did not receive the true value for their labour, the majority of the population did not
get enough food.
o Marginal farmers found it very difficult to get finance and credit at economical rate from the government
and banks, hence, fell as easy prey to the money lenders.
Q 87.B
o Statement 1 is not correct. The population percentage engaged in employment activities is more in rural
areas than in urban areas. People in rural areas have limited resources to earn a higher income and
participate more in the employment market. Many do not go to schools, colleges and other training
institutions. Even if some go, they discontinue in the middle to join the workforce; whereas, in urban
areas, a considerable section is able to study in various educational institutions. Urban people have a
variety of employment opportunities. They look for the appropriate job to suit their qualifications and
skills. In rural areas, people cannot stay at home as their economic condition may not allow them to do so.
o Statement 2 is correct: Primary sector is the main source of employment for majority of workers in
India.
Q 88.D
o Minimum Support Price (MSP) is a form of market intervention by the Government of India to ensure
agricultural producers against any sharp fall in farm prices. Hence, statement 1 is not correct.
o The minimum support prices are announced by the Government of India at the beginning of the sowing
season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs
and Prices (CACP). MSP is price fixed by Government of India to protect the producer - farmers - against
excessive fall in price during bumper production years. Hence, statement 2 is not correct.
o Minimum support prices are currently announced for 24 commodities including seven cereals, five pulses,
eight oilseeds
o CACP takes into account a comprehensive view of the entire structure of the economy of a particular
commodity or group of commodities. Other Factors include cost of production, changes in input prices,
input-output price parity, trends in market prices, demand and supply, inter-crop price parity, effect on
industrial cost structure, effect on cost of living, effect on general price level, international price situation,
parity between prices paid and prices received by the farmers and effect on issue prices and implications
for subsidy. The Commission makes use of both micro-level data and aggregates at the level of district,
state and the country.
Q 89.B
o Fiscal Deficit is the difference between government‘s total expenditure and its total receipts excluding
borrowing whereas primary deficit is a difference between fiscal deficit and interest payment. Hence,
option (b) is correct.
Q 90.B
o Only options 1 and 2 are correct.
o Definition: GDP is the final value of the goods and services produced within the geographic boundaries
of a country during a specified period of time, normally a year. GDP growth rate is an important indicator
of the economic performance of a country. It does not account for intermediate goods and income
from abroad.
o Description: It can be measured by three methods, namely,
 Output Method: This measures the monetary or market value of all the goods and services produced
within the borders of the country. In order to avoid a distorted measure of GDP due to price level
changes, GDP at constant prices o real GDP is computed. GDP (as per output method) = Real GDP
(GDP at constant prices) - Taxes + Subsidies.
o Expenditure Method: This measures the total expenditure incurred by all entities on goods and services
within the domestic boundaries of a country. GDP (as per expenditure method) = C + I + G + (X-IM) C:
Consumption expenditure, I: Investment expenditure, G: Government spending and (X-IM): Exports
minus imports, that is, net exports.
o Income Method: It measures the total income earned by the factors of production, that is, labour and
capital within the domestic boundaries of a country. GDP (as per income method) = GDP at factor cost +
Taxes - Subsidies.
o In India, contributions to GDP are mainly divided into 3 broad sectors - agriculture and allied services,
industry and service sector. In India, GDP is measured as market prices and the base year for computation
is 2011-12. GDP at market prices = GDP at factor cost + Indirect Taxes - Subsidies
Q 91.C
o Statement 1 is correct. In case of a bank run, the RBI stands by the commercial banks as a guarantor,
assuring individual account-holders that their banks will be able to pay their money back, thus avoiding
bank runs. This role of the RBI is known as the lender of last resort. Bank run is a situation where
everybody wants to take money out of one‘s bank account before the bank runs out of reserves.
o Statement 2 is correct. Apart from the Government of India, The RBI also act as a banker to the State
Governments.
Q 92.B
o The capital account in Balance of Payment, records all international purchases and sales of assets such as
money, stocks, bonds, etc.
o The purchase and sale of capital goods such as ship is a current and not a capital account transaction, as it
simply relates to export and import of goods. Hence, statement 1 is not correct.
o Investments by Indian residents in shares of foreign companies, foreign sovereign bonds, etc.will form
part of capital account in Balance of Payment of India. Hence, statement 2 is correct.
o Foreign institutional investment (FII), Foreign Direct Investment (FDI), Transactions affecting assets and
liabilities by the govt. and its agencies are also forms of capital account transactions.
Q 93.A
o There are two types of taxes: direct and indirect.
 Direct taxes consist of taxes on incomes of individuals as well as profits of business enterprises. As
the name suggests, these taxes are paid directly by the taxpayer to the government. In also means that
direct taxes cannot be transferred or shifted to another person. Thus, unlike indirect taxes, the burden
of the direct taxes falls on the individual who earns a taxable income; it cannot be transferred to
others. Some of the examples of direct taxes are income tax, corporation tax, wealth tax etc.
 Since 1991, there has been a continuous reduction in the taxes on individual incomes as it was felt that
high rates of income tax were an important reason for tax evasion. It is now widely accepted that
moderate rates of income tax encourage savings and voluntary disclosure of income.
 Indirect taxes Here, the incidence and impact of taxation does not necessarily fall on the entity on
which it is imposed: the taxpayer can transfer the burden of this tax to someone else. These are levied
on commodities, in order to facilitate the establishment of a common national market for goods and
commodities. Indirect taxes have the effect of raising the price of the products on which they are
imposed. Some of the other indirect taxes are service tax, customs duty, central excise, sales tax and
entertainment tax.
Q 94.C
o The aggregate production of final goods and services within domestic territory in a financial year is
termed as GDP. Whereas, it is not exclusive of depreciation. Hence, option a is not correct.
o GNP is the value of final goods and services produced in the economy, adjusted for net factor income
from abroad inclusive of depreciation. Hence, option b is not correct.
o The aggregate production of final goods and services in an economy is termed as GDP. According to
question, GDP – depreciation = NDP.Hence, option c is correct.
o NNP is the value of final goods and services produced in the economy, exclusive of depreciation and
adjusted for net factor income from abroad. Statement is focused at domestic production whereas, NNP
includes income from abroad as well. Hence, option d is not correct.
Q 95.A
o Minimum Alternate Tax (MAT) is a tax levied on profit-making entities that donot pay corporate income-
tax because of exemptions and incentives. It facilitates the taxation of zero tax companies. A zero tax
company is a business that shows a book profit and pays dividends to investors but does not pay
taxes. Hence, statement 1 is correct
o The finance ministry had set up a committee led by justice A.P. Shah to study and clarify the issue. The
committee recommended that MAT cannot be levied on foreign portfolio investors as well as foreign
companies who have no permanent establishment in India.
o The government will now amend the respective section of the income tax Act to ensure that MAT
provisions are also not applicable to a foreign company that does not have a permanent establishment in
the country and is a resident of a nation having a double taxation avoidance agreement (DTAA) with
India. The act will be amended with retrospective effect from 1 April 2001. Hence, statement 3 is not
correct.
o MAT is applicable to all corporate entities, whether public or private. MAT is levied at the rate of 18.5%
of the book profits. Hence, statement 2 is not correct.
Q 96.C
o MSF is a penal rate. MSF would be the last resort for banks once they exhaust all borrowing
options including the liquidity adjustment facility by pledging government securities, where the
rates are lower in comparison with the MSF.
o Statement 1 is correct- MSF has been introduced by RBI with the main aim of reducing volatility in the
overnight lending rates in the inter-bank market and to enable smooth monetary transmission in the
financial system.
o Statement 2 is correct- MSF is always fixed above the repo rate. It represents the upper band of the
interest corridor with repo rate at the middle and reverse repo as the lower band.
Q 97.A
o Liquidity trap is a situation when expansionary monetary policy (increase in money supply) does not
increase the interest rate, income and hence does not stimulate economic growth.It is the situation in
which prevailing interest rates are low and savings rates are high, making monetary policy ineffective.In a
liquidity trap, consumers choose to avoid bonds and keep their funds in savings, because of the prevailing
belief that interest rates will soon rise. Because bonds have an inverse relationship to interest rates, many
consumers do not want to hold an asset with a price that is expected to decline.
Q 98.A
o Statement 1 is correct- Core Inflation, also known as underlying inflation, is a measure of inflation
which excludes items that face volatile price movement, notably food and energy. It is nothing but
Headline Inflation minus inflation that is contributed by food and energy commodities.
o Statement 2 is not correct- Unlike core inflation, headline inflation also takes into account changes in
the price of food and energy. Since food and energy prices are highly volatile, headline inflation fluctuates
more and may not give an accurate picture of how an economy is behaving.
o Whenever core inflation rises, RBI increases policy rates to suck excess liquidity from the market and
vice versa.
Q 99.C
o e-Biz is one of the integrated services projects and part of the 31 Mission Mode Projects (MMPs) under
the National E-Governance Plan (NEGP). It aims to create a business and investor friendly ecosystem in
India by making all business and investment related regulatory services across Central, State and local
governments available on a single portal. This project aims at creating an investor-friendly business
environment in India by encouraging ease of doing business. Hence, statement 1 is not correct and
o e-Biz is being implemented by Infosys Technologies Limited (Infosys) under the guidance and aegis of
Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government
of India. Hence, statement 3 is correct.
Q 100.B
o Statement 1 is not correct: Inflation targeting is a monetary tool used by central banks (not the central
government) to stabilize the economy. Doing this the RBI aims to bring in more predictability and
transparency in deciding monetary policy, ensure price stability and control inflation in a systematic and
planned approach.
o Statement 2 is correct: The RBI has been using headline Consumer Price Index (Combined) inflation as
the benchmark for all monetary policy stance from April 2014 onwards.
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