INDIAN ECONOMY - upsc361.com · Champion Services Sectors refers to the 12 identified sectors where...

FINAL LAP REVISION FOR PRELIMS 2018- SET 3- INDIAN ECONOMY 2

Compiled by Arjun R Shaankar

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SET- 3 INDIAN ECONOMY




Q. 1. The Reserve Bank recently tightened reporting norms for the ‘Liberalised Remittance

Scheme (LRS)’. Which of the following statements regarding Liberalised Remittance Scheme

(LRS) are Correct?

1. Under the LRS, all resident individuals, excluding minors, are allowed to freely remit up to

USD 3,50,000 per financial year for any permissible current or capital account

transaction or a combination of both.

2. It allows remittances for trading on the foreign exchange markets, margin or margin

calls the purchase of Foreign Currency Convertible Bonds issued by Indian companies

abroad.

3. Under LRS, people can’t send money to countries identified as ‘non cooperative’ by the

Financial Action Task Force

Select the answers from the Codes

a. 1 and 2

b. 1 and 3

c. 3 only

d. All of the above

ANS: 3 only

● Under the LRS, all resident individuals, including minors, are allowed to freely remit up to

USD 2,50,000 per financial year for any permissible current or capital account

transaction or a combination of both.

● However, the rules do not allow remittances for trading on the foreign exchange markets,

margin or margin calls to overseas exchanges and counterparties and the purchase of

Foreign Currency Convertible Bonds issued by Indian companies abroad.

● Sending money to certain countries and entities is also barred. Under LRS, people can’t

send money to countries identified as ‘non cooperative’ by the Financial Action Task

Force.




● Remittances are also prohibited to entities identified as posing terrorist risks.

Remittances are permitted for overseas education, travel, medical treatment and

purchase of shares and property, apart from maintenance of relatives living abroad,

gifting and donations.

● Individuals can also open, maintain and hold foreign currency accounts with overseas

banks for carrying out transactions.

● Parents who have sent their wards abroad for studies are the largest users of the LRS,

using this window both to pay the fees and regularly meet the student’s living expenses.

● The LRS gives you the freedom to put your money to work anywhere in the world. Until

India is ready to free all capital controls (and that day may be a long way off), the LRS

remains the most viable way for individuals to legally remit money overseas.

Q. 2. Which of the following are included in the ‘Champion Services Sectors’?

1. Tourism and Hospitality Services

2. Legal Services

3. Environmental Services

4. Financial Services and Education Services

5. Sporting Services


a. 1, 4 and 5

b. 3 and 4

c. 1, 2, 3 and 4

d. All of the above

ANS: 1, 2, 3 and 4




● Champion Services Sectors refers to the 12 identified sectors where the Government

wants to give focused attention for promoting their development, and realizing their

potential.

● These include Information Technology & Information Technology enabled Services (IT&

ITeS), Tourism and Hospitality Services, Medical Value Travel, Transport and Logistics

Services, Accounting and Finance Services, Audio Visual Services, Legal Services,

Communication Services, Construction and Related Engineering Services, Environmental

Services, Financial Services and Education Services.

● A dedicated fund of Rs. 5000 crores has been proposed to be established to support

initiatives for sectoral Action Plans of the Champion Sectors.

● This initiative is expected to enhance the competitiveness of India's service sectors

thereby creating more jobs in India, contributing to a higher GDP and export of services

to global markets.

● The share of India's services sector in global services exports was 3.3% in 2015. Based

on this initiative, a goal of 4.2% has been envisaged for 2022.

● The share of services in Gross Value Added (GVA) was about 53% for India in 2015-16

(61% including construction services).

● This initiative is expected to raise the share of services in GVA to 60% (67% including

construction services) by the year 2022.

● Department of Industrial Policy and Promotion (DIPP), the nodal department for 'Make in

India', would spearhead the initiative for the Champion Sectors in manufacturing and

Department of Commerce would coordinate the proposed initiative for the Champion

Sectors in Services.

Q. 3. The term ‘CABOTAGE’ appears in the news frequently. What does it mean?

a. A third party account where the money parked will be released only under fulfilment of

certain conditions of a contract.

b. Reserving coastal trade for national flag vessels and imposing restrictions for

movement of domestic cargo by foreign flag vessels.




c. A financial mechanism which can raise funds from Indian citizens and domestic

companies which are registered in India.

d. A contractual arrangement entered between a public entity and a private entity.

ANS: Reserving coastal trade for national flag vessels and imposing restrictions for movement

of domestic cargo by foreign flag vessels.

(Current Affairs, Business Line, Indian ship owners threaten to flag out if cabotage is eased and

RoFR removed)

● Cabotage means "trade or transport in coastal waters or airspace or between two points

within a country" or the "right to engage in cabotage".

● Cabotage restrictions are applicable in most countries to protect the domestic shipping

industry from foreign competition as well as for the purpose of national security.

● China and USA are known to impose absolute cabotage restrictions.

● However, the contrary view is that if coastal ships are less in number, cabotage

restrictions do not do any good for the nation.

● For instance, the growth of coastal fleet in India is not viewed as impressive.

● When there are not enough domestic coastal vessels, imposing cabotage, discourages

coastal transport due to the procedural lags.

● As far as India is concerned, with her long coastline, increasing the use of coastal

waterways can considerably reduce the pressure on roads / highways created by freight

movements.

Q. 4. The Capitalistic form of Economy has its origin in the famous work of Adam Smith’s

Wealth of Nations. It accepts which of the following concepts?

1. Non-Division of labour

2. Environment of ‘Laissez faire’

3. Price mechanism

4. Zero competition in the market





a. 1, 2 and 3

b. 2 and 3

c. 2, 3 and 4

d. All of the above

ANS: 2 and 3

They Stressed on ‘division of labour’ and an environment of ‘laissez faire’ (non-interference by

the government), he proposed that the ‘invisible hand’ of ‘market forces’ (price mechanism) will

bring a state of equilibrium in the economy and a general well-being for the countrymen. For

such an economy to function for public well-being, he acknowledged the need of competition in

the market.

Q. 5. Consider the following statements regarding ‘Shadow Banking.’

1. Shadow banks do not provide credit and liquidity and do not have access to central bank

funding or safety nets like deposit insurance.

2. Shadow banking includes money market funds, private equity funds, hedge funds,

securitisation, securities lenders, and structured investment vehicles.

3. They can increase the rewards they get from investments by leveraging up much more

than their mainstream counterparts and can lead to severe Financial risks

Which of the following statements are Correct?

a. 1 and 2

b. 1 and 3

c. 2 and 3

d. 3 only




ANS: 2 and 3

● The shadow banking system is made up of financial entities which have the same

functions as traditional banks but which are subject to little, if any, regulation.

● Like traditional banks, shadow banks provide credit and liquidity but, unlike their

traditional counterparts, they do not have access to central bank funding or safety nets

like deposit insurance.

● Shadow banks cannot create money unlike commercial banks, which by virtue of being

depository institutions can do so Banks are comprehensively and tightly regulated,

whereas shadow banks lacks regulatory oversight and transparency with respect to its

business operations Commercial banks raise funds through mobilization of public

deposits to a large extent.

● Shadow banks, on the other hand, raise funds mostly through market-based instruments

such as commercial paper, debentures, or other such structured credit instruments While

the liabilities of the shadow banks are uninsured, commercial banks’ deposits enjoy

Government guarantee to a limited extent generally During times of distress, banks have

access to multiple recourses set up by the body responsible for regulatory oversight

such as direct access to central bank liquidity etc. However, shadow banks have no such

options, and will have to fend for themselves

Q. 6. Consider the following statements regarding ‘Offshore wind energy’

1. India is the biggest emitter of greenhouse gases after the US, China and European Union.

2. The National Institute of Wind Energy (NIWE), is an autonomous body under the ministry

of new and renewable energy (MNRE).

3. Gujarat coastline has comparatively lesser potential to generate offshore wind energy

than Tamil Nadu.





a. 1 only

b. 2 only

c. 2 and 3

d. All of the above

ANS: 2 only

● India, the biggest emitter of greenhouse gases after the US and China, plans to reduce

its carbon footprint by 33-35% from its 2005 levels by 2030, as part of its commitments

to the United Nations Framework Convention on Climate Change adopted by 195

countries in Paris in 2015.

● The country plans to achieve 175 GW of renewable energy capacity by 2022. Of this, 60

GW is to come from wind power projects.

● As per official estimates, the Gujarat coastline has the potential to generate around

106,000MW of offshore wind energy and Tamil Nadu about 60,000MW.India plans to set

up at least 5 gigawatts (GW) of offshore wind capacity by 2022.

● The National Institute of Wind Energy (NIWE), is an autonomous body under the ministry

of new and renewable energy (MNRE).

● In September 2015, the Union cabinet had cleared the National Offshore Wind Energy

Policy, which involves wind energy mapping of the country to identify high-potential

locations to be offered to firms for development through a bidding process.

Q. 7. Which of the following Central Public Sector Enterprises (CPSEs) have Maharatna status?

1. Bharat Petroleum Corporation Limited

2. Hindustan Aeronautics Limited

3. Shipping Corporation of India Limited

4. National Thermal Power Corporation Limited (NTPC Limited)

5. Bharat Electronics Limited (BEL)





a. 1, 2, 4 and 5

b. 1, 2 and 4

c. 1 and 4

d. 2, 4 and 5

ANS: 1 and 4

Maharatna CPSEs

● Bharat Heavy Electricals Limited (BHEL)

● Coal India Limited

● Gas authority of India limited (GAIL (India) Limited)

● Indian Oil Corporation Limited (IOCL)

● National Thermal Power Corporation Limited (NTPC Limited)

● Oil & Natural Gas Corporation Limited (ONGC)

● Steel Authority of India Limited (SAIL)

● Bharat Petroleum Corporation Limited

Navratna CPSEs

● Bharat Electronics Limited (BEL)

● Container Corporation of India Limited

● Engineers India Limited

● Hindustan Aeronautics Limited

● Hindustan Petroleum Corporation Limited

● Mahanagar Telephone Nigam Limited

● National Aluminium Company Limited

● National Buildings Construction Corporation Limited

● NMDC Limited

● Neyveli Lignite Corporation Limited

● Oil India Limited




● Power Finance Corporation Limited

● Power Grid Corporation of India Limited

● Rashtriya Ispat Nigam Limited

● Rural Electrification Corporation Limited

● Shipping Corporation of India Limited

Q. 8. Consider the following statements regarding ‘Current Account Deficit’.

1. Current Account Deficit (CAD) indicates that a country’s spending is higher than what it

earns from the rest of the world.

2. When a country runs a CAD for years at a time, it contributes to a steady outflow of

foreign exchange and strengthens its Exchange rate.

3. Increasing trade deficit on account of higher imports is the major component leading to

increase of current account deficit.


a. 1 and 2

b. 1 and 3

c. 2 and 3

d. All of the above

ANS: 1 and 3

CAD indicates that a country’s spending is higher than what it earns from the rest of the world.

When a country runs a CAD for years at a time, it contributes to a steady outflow of foreign

exchange and weakens its exchange rate. A current account deficit is when a country's

government, businesses and individuals import more goods, services and capital than it exports.

That's because the current account measures trade, as well as international income, direct

transfers of capital, and investment income made on assets. A current account reflects the net

results of a country’s recurring financial transactions with the rest of the world. Trade in goods

and services, net income from foreign investments and direct money transfers are the usual




components of CAD. Trade includes both export and import of physical goods and services.

Income from foreign investments includes dividends and interest.

Q. 9. Consider the following statements regarding ‘Banks Board Bureau’

1. Banks Board Bureau is a Semi-autonomous body of Union Government of India tasked to

improve the governance of Public Sector Banks.

2. BBB have three ex-officio members (government) and three expert members, two of

which are from the private sector, in addition to Chairman.

3. BBB is funded from the Consolidated Fund of India.


a. 1 only

b. 2 only

c. 1 and 3

d. All of the above

ANS: 2 only

● Banks Board Bureau is the first ingenuity towards a holding company structure for public

sector banks (PSBs).

● BBB is an autonomous body of Union Government of India tasked to improve the

governance of Public Sector Banks, recommend selection of chiefs of government-

owned banks and financial institutions and to help banks in developing strategies and

capital raising plans.

● It is situated at RBI’s Central Office in Mumbai.

● BBB have three ex-officio members (government) and three expert members, two of

which are from the private sector, in addition to Chairman.

● BBB is not funded from the Consolidated Fund of India.




Q. 10. Port Pipavav, India’s first port in the private sector, is a port on the West Coast of India

for containers, bulk and liquid cargo. Its lead promoter is APM Terminals, one of the largest

container terminal operators in the world. Where is it situated?

a. Kolkata

b. Gujarat

c. Mangalore

d. Maharashtra

ANS: Saurashtra, Gujarat

Q. 11. Consider the following statements.

1. A widening trade deficit also indicates that a country’s domestic producers are finding it

easy to compete effectively with their global counterparts, prompting consumers to

depend on imported products.

2. Precious metals, jewellery and pharma products together contribute over 30 per cent of

India’s exports to the US.


a. 1 only

b. 2 only

c. Both 1 and 2

d. Neither 1 nor 2

ANS: Both 1 and 2




Q. 12. Consider the following statements regarding ‘Socialistic Economy.’

1. Collective ownership of the means of production

2. Large role to the state in running the economy

3. The ‘invisible hand’ of ‘market forces’

4. No Competition


a. 1, 2 and 4

b. 1, 2 and 3

c. 1 and 2

d. 1, 3 and 4

ANS: 1, 2 and 4

Socialism refers to the government ownership of the means of production, planning by the

government and income distribution. Socialist means the system under which economic system

is controlled and regulated by the government so as to ensure the welfare and equal opportunity

to the people in a society. The idea of socialism is first introduced by Karl Marx and Friedrich

Engels in their book, ‘The Communist Manifesto’. The main features of socialist economy are

Collective Ownership, Economic, Social and Political Equality, Economic Planning, No

Competition, Positive Role of Government, Work and Wages According to Ability and Needs,

Maximum Social Welfare.

Q. 13.Under the New Economic Policy of 1991, which of the following measures were taken in

the Economy.

1. Interest rate of the banking system will not be determined by RBI.

2. Freedom for expansion and production to Industries

3. Inclusion of Restrictive Trade Practices

4. Decrease in the investment limit for the Small Scale Industries





a. 1, 2 and 3

b. 1 and 2

c. 2, 3 and 4

d. 2 and 3

ANS: 1 and 2

Under the policy of liberalisation interest rate of the banking system will not be determined by

RBI rather all commercial Banks are independent to determine the rate of interest. It had

policies for Abolition of Restrictive Trade Practices. There was an Increase in the investment

limit for the Small Scale Industries (SSIs). The year 1991 is an important landmark in the

economic history of post-Independent India. The country went through a severe economic crisis

triggered by a serious Balance of Payments situation. The crisis was converted into an

opportunity to introduce some fundamental changes in the content and approach to economic

policy.

Q. 14. Which of the following are some of the problems relating to Irrigation in India.

1. Waterlogging and salinity

2. Decreased siltation

3. Steady decline in water table

4. Tail-ender deprivation


a. 1 and 3

b. 1, 3 and 4

c. 2 and 3

d. All of the above




ANS: 1, 3 and 4

India has vastly increased its irrigation potential after Independence. These are some of the

problems of Irrigation.

● Delays in completion of Projects.

● Inter-State water disputes.

● Regional disparities in irrigation development.

● Waterlogging and salinity:

● Increasing costs of irrigation:

● Losses in operating irrigation projects

● Aging of infrastructure and increased siltation

● Tail-ender deprivation: Farmers who have land at the end of the canal system are called

tailenders. Many of them get neither enough nor timely water.

● The decline in water table

● Wastages and inefficiencies in water use.

Q. 15. This is a pejorative term describing an ‘allegedly capitalist economy in which success in

business depends on close relationships between businessmen and government officials’. It

may be exhibited by favoritism in the distribution of legal permits, government grants, special

tax breaks, and so forth. What is it called?

a. Crony Capitalism

b. Paradox of Thrift

c. Residual Shorting

d. Catch up capitalism

ANS: Crony capitalism

Crony capitalism is a pejorative term describing an allegedly capitalist economy in which

success in business depends on close relationships between businessmen and government

officials. It may be exhibited by favoritism in the distribution of legal permits, government




grants, special tax breaks, and so forth. Crony capitalism is believed to arise when political

cronyism spills over into the business world; self-serving friendships and family ties between

businessmen and the government influence the economy and society to the extent that it

corrupts public-serving economic and political ideals.In its lightest form, crony capitalism

consists of collusion among market players.

Q. 16. John Keynes introduced which of the following Measures to get the Economy out of the

‘Great Depression’?

1. Decrease in government expenditures

2. Discretionary fiscal policy

3. Lower interest rates

4. Cheap money supply


a. 1, 2 and 3

b. 2, 3 and 4

c. 1, 2 and 4

d. All of the above

ANS: 2, 3 and 4

According to John Keynes, to get the economy out of the depression, he suggested an Increase

in government expenditures, discretionary fiscal policy (fiscal deficit, lower interest rates, cheap

money supply, etc.) to boost the demand of goods and services as this was the reason behind

the depression. As Keynesian policies were followed, the concerned economies were

successfully pulled out of the Great Depression.




Q. 17. Consider the following statements.

1. An Economy Cut motion is moved so that the amount of the demand be rejected.

2. A Token Cut motion is moved so that that the amount of the demand be reduced by

Rs.100.

3. A Disapproval of Policy Cut motion is moved so that the amount of the demand be

reduced to Re.1.


a. 1 only

b. 1 and 3

c. 2 and 3

d. All of the above

ANS: 2 and 3

● An Economy Cut motion is moved so that the amount of the demand be reduced by a

specified amount. Such specified amount may be either a lump sum reduction in the

demand or omission or reduction of an item in the demand.

● A Disapproval of Policy Cut motion is moved so that the amount of the demand be

reduced to Re.1. It represents the disapproval of the policy underlying the demand.

● A Token Cut motion is moved so that that the amount of the demand is reduced by

Rs.100. This is to ventilate a specific grievance which is within the sphere of the

responsibility of the Government of India.




Q. 18. Gross Domestic Product (GDP) is the value of the all final goods and services produced

within the boundary of a nation during one year period. It is also calculated by adding which of

the following?

1. National private consumption

2. Gross investment

3. Government spending

4. Exports minus Imports


a. 1, 2 and 3

b. 1 and 3

c. 2 and 3

d. All of the above

ANS: All of the above

It is also calculated by adding national private consumption, gross investment, government

spending and trade balance (exports-minus-imports). The use of the exports-minus-imports

factor removes expenditures on imports not produced in the nation, and adds expenditures of

goods and service produced which are exported, but not sold within the country.




Q. 19. This is a G2C e-governance portal that caters to the needs of various stakeholders such

as farmers, industry, policy makers and academic institutions by providing agricultural

marketing related information from a single window. The portal has helped to reach farmers

who do not have sufficient resources to get adequate market information. Identify.

a. Swayam

b. AGMARKNET

c. e-Mandi

d. Kshema Nidhi

ANS: AGMARKNET

● Agricultural Marketing Information Network (AGMARKNET)was launched in March 2000

by the Union Ministry of Agriculture.

● This e-governance portal AGMARKNET, implemented by National Informatics Centre

(NIC), facilitates generation and transmission of prices, commodity arrival information

from agricultural produce markets, and web-based dissemination to producers,

consumers, traders, and policy makers transparently and quickly.

Q. 20. Consider the following statements ‘Agricultural Markets in India’.

1. The Directorate of Marketing and Inspection (DMI) links around 7,000 agricultural

wholesale markets in India with the State Agricultural Marketing Boards and Directorates

for effective information exchange.

2. Agricultural Produce Market Committee (APMC) displays the prices prevailing in the

market on the notice boards and broadcasts this information through All India Radio etc.


a. 1 only

b. 2 only

c. Both 1 and 2

d. Neither 1 nor 2




ANS: Both 1 and 2

● The Directorate of Marketing and Inspection (DMI), under the Ministry, links around

7,000 agricultural wholesale markets in India with the State Agricultural Marketing

Boards and Directorates for effective information exchange.

● Directorate of Marketing and Inspection (DMI) has liaison with the State Agricultural

Marketing Boards and Directorates for Agricultural Marketing Development in the

country.

● Agricultural Produce Market Committee (APMC) displays the prices prevailing in the

market on the notice boards and broadcasts this information through All India Radio etc.

● This information is also supplied to State & Central Government from important markets.

● The statistics of arrival, sales, prices etc. are generally maintained by APMCs.

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