SET- 1

SET- 1 ‌

1. Select the correct statements about the ‘hybrid annuity model’ (HAM) which the government has launched recently to promote the road projects in the country—use the codes given below:

1. It is an improvement over the existing ‘engineering-procurement- construction’ model of the PPP.

2. Investment participation in this model is between the GoI and the private firm in the ratio of 40:60.

3. Toll is to be collected by the government while the private participator gets a fixed amount of annuity for a defined period of time.

4. Risks related to clearance, compensation, commercial and traffic are to be borne by the government.

Code:

(a) 1 and 2

(b) 1, 2 and 4

(d) 1, 2, 3 and 4

2. Select the correct statements related to the new System of National Accounts to which India shifted recently—using the code given below:

1. Now, India accounts its national income at ‘market price’.

2. Growth rate of the economy is now measured by ‘GDP at constant market price’.

3. ‘Product taxes’ added to the ‘gross value added’ is the ‘market price’.

4. ‘Product taxes’ are ultimately paid by the consumers of goods and services.

Code:

(a) 1 and 2

(b) 1, 2 and 4

(d) 1, 2, 3 and 4

3. What is correct about the term ‘customs value’?

(a) The value of imported goods as appraised by the customs department and used as the basis for assessing the amount of import duty and other

taxes.

(b) A term to specify the real value of import by deducting any dumping duty imposed by the trading partner.

(d) None of the above.

4. Consider the following statements about ‘terms of trade’ of a country.

1. It is the contractual conditions of sale between a buyer and a seller.

2. It is the quantity of foreign goods and services that a country can purchase from the proceeds of the sale of its goods and services of a given quantity.

3. It is a measure of a country’s trading clout and is expressed as the ratio of an index of export prices to an index of import prices.

Select the correct statements using the code given below:

(a) Only 1

(b) 2 and 3

(d) 1, 2 and 3

5. Consider the following statement—

“Most of the world’s poor people earn their living from agriculture, so if we knew the economics of agriculture, we would know much of economics of being poor”.

Which of the following document has used the above-given saying of the Economics Nobel Laureate Theodore Schultz?

(a) Food and Agriculture Organisation Report- 2017 (UNO)

(b) Economic Survey 2015-16 (GoI)

(d) World Development Report-2016 (World Bank)

6. Consider the following statements regarding the ‘Taylor Rule’.

1. A rule that suggests appropriate adjustments to interest rates, based on various economic factors such as inflation and employment rate.

2. The rule indicates that if inflation or employment rates are higher than desired, interest rates should be increased in response to these conditions, and the opposite action should be taken under the opposite conditions.

Select the incorrect statement/statements using the code given below:

(a) Only 1

(b) Only 2

(d) None of the above

7. Consider the following statements about the ‘Laffer Curve’.

1. This is a curve which supposes that for a given economy there is an optimal income tax level to maximise tax revenues.

2. If the income tax level is set below this level, raising taxes will increase tax revenue.

3. If the income tax level is set above this level, then lowering taxes will increase tax revenue.

Select the incorrect statements using the code given below:

(a) 1 and 2

(b) 2 and 3

(d) 1, 2 and 3

8. Consider the following statements about the ‘insurance repository system’, recently introduced in India

1. Insurance policies will be held in electronic form.

2. This will provide speed as well as accuracy in revisions and changes in the policies.

3. IRDA has given licences to five firms to function as insurance

repositories.

4. Repositories are expected to cut down the management cost of each insurance policy to almost one-fifth of the present cost.

Select the correct statements using the code given below:

(a) 1, 2 and 3

(b) 2, 3 and 4

(d) 1, 2, 3 and 4

9. Consider the following statements about the idea of ‘inclusive growth’.

1. The idea of ‘inclusive growth’ entered into the domain of planning with the Eleventh Plan.

2. This is not only about economics but also about ‘social’ inclusion.

3. The main idea behind inclusive growth is to include SCs, STs, OBCs, minorities and women in the country’s development process.

4. The 3rd Generation of Economic Reforms runs parallel to the idea of inclusive growth.

Select the correct statements using the code given below:

(a) 1, 2 and 3

(b) 2, 3 and 4

(d) 1, 2 , 3 and 4

10. ‘Bad bank’ was recently in news—select the statements correct about it, using the code given below:

1. It is a bank which buys the bad loans of the banks

2. Government of India is presently consider to set up such a bank.

3. It will help India come out of the twin balance sheet problem.

Code:

(a) 1 and 2

(b) 2 and 3

(d) 1, 2 and 3

11. Consider the following statements about the Results-Framework Document (RFD).

1. ‘RFD’ provides a summary of the most important results that an organisation expects to achieve during the financial year.

2. It moves the focus of the organisation ‘from process-orientation’ to ‘result-orientation’.

3. It provides an ‘objective’ and fair basis to ‘evaluate’ organisation’s overall performance at the year end.

Select the correct statement/statements using the code given below:

(a) 1 and 2

(b) 2 and 3

(d) None of the above

12. Consider the following statements about ‘effective revenue deficit’:

1. “Effective revenue deficit is a Western idea of public finance management, which India used it for the first time in the Union Budget 2011–12.

2. It is a modified kind of revenue deficit which excludes that part of revenue deficit by which assets have been created.

Select the correct statements using the code given below:

(a) Only 1

(b) Only 2

(d) Neither 1 nor 2

13. Consider the following statements about ‘farm subsidies’ in India.

1. The input subsidies in India such as on fertilizers fall under indirect

farm subsidies.

2. Reduction in power and irrigation bills offered to farmers fall under direct farm subsidies.

3. The agricultural provisions of the WTO though allow direct farm subsidies, prohibits indirect subsidies.

4. All subsidies forwarded by the governments in India fall under the indirect category.

Select the correct statements using the code given below:

(a) 1 and 2

(b) 2 and 3

(d) 1 and 4

14. Consider the following statements related to the Bilateral Investment Promotion and Protection Agreement (BIPA).

1. The agreement is part of the World Bank’s International Centre for Settlement of Investment Disputes (ICSID).

2. This promotes and protects the Indian investors investing abroad.

3. Promoting and protecting foreign investment in India is one of its objectives.

4. The Agreement functions in collaboration with the International Monetary Fund.

Select the correct statements using the code given below:

(a) 1 and 2

(b) 2 and 3

(d) 1 and 4

15. Consider the following statements about NSEL which was recently in news.

1. This is an NSE (National Stock Exchange) promoted commodity ‘spot

trading’ platform.

2. ‘NCDEX Spot’ and ‘R-Next’ are the other such platforms.

3. Commodity exchanges in India are regulated by the Ministry of Consumer Affairs under the Forward Contract Regulation Act, 1989.

4. ‘Spot contracts’ has to be completed within 11 days, as per the Act. Select the incorrect statements using the code given below:

(a) 1 and 2

(b) 2 and 3

(d) 1 and 3

16. Participatory Notes (P-Notes) were in news recently. Consider the following statements about P-Notes:

1. SEBI has classified three possible Categories of P-Notes issuing FIIs in the country.

2. Category-I are the offshore government entities/institutions investing solely on behalf of a country’s central bank.

3. Category-II are regulated entities as Mutual Funds, supervised by their regulatory bodies in their countries of origin.

4. Category-III entities neither fall in Category-I or Category-II, which have been recently asked by the SEBI not to issue P-Notes.

Select the correct statements using the code given below:

(a) 1, 2 and 3

(b) 2, 3 and 4

(d) 1, 2 , 3 and 4

17. Consider the statements about tenets of the ‘three arrows’ of the

Abenomics which was recently in news.

1. A massive fiscal stimulus activated by quantitative easing targeted at increasing the rate of inflation.

2. Boost to investment in public works and infrastructure to promote jobs and R&D.

3. Structural reforms to boost country’s global competitiveness.

4. It follows ideas started by J. M. Keynes, whose most famous contemporary admirer is the Nobel Economist Paul Krugman.

Select the correct statements using the code below.

(a) 1, 2 and 3

(b) 2, 3 and 4

(d) 1, 2 , 3 and 4

18. Which of the following statements are correct about the Planning Commission members Som Pal, B. K. Chaturvedi and Abhijit Sen?

(a) They headed the Infrastructure Co-ordinating Monitoring Committees of the PC.

(b) They held the charge of being additional members to different Finance Commissions.

(d) None of the above.

19. Consider the following statements about the Fourteenth Finance Commission.

1. The need for insulating the pricing of public utility services like drinking water, irrigation, power and public transport from policy fluctuations through statutory provisions.

2. The need for making the public sector enterprises competitive and market oriented; listing and disinvestment; and relinquishing of non- priority enterprises.

3. The need to balance management of ecology, environment and climate change consistent with sustainable economic development.

4. The impact of the proposed Goods and Services Tax on the finances of Centre and states and the mechanism for compensation in case of any

revenue loss.

Which of the following does not belong to the ‘terms of reference’ given to the Fourteenth Finance Commission?

(a) 1, 2 and 3

(b) 2, 3 and 4

(d) 1, 2 , 3 and 4

20. Consider the following statements about the recently set up Bharatiya Mahila Bank (BMB).

1. The bank will focus on lending predominantly to women and companies that focus on women’s activities/products but there will be no restriction on deposits by men.

2. The bank is looking at providing assistance through credit to set up day-care centres and start organised catering services.

3. BNB will also tie up with NGOs, and train women in various vocations in order to penetrate deeper into rural areas.

4. Chhavi Rajawat, a Sarpanch from Rajasthan is one among the six Board members of the bank.

Select the correct statements using the code given below:

(a) 1, 2 and 3

(b) 2, 3 and 4

(d) 1, 2 , 3 and 4

21. Swiss Challenge was recently in news. Select the correct statements related to it, using the code given below:

1. It is a method of public procurement through awarding contracts.

2. Bidders face challenge of improving upon the first bidder.

3. The new method of awarding contacts is being first time used in India.

4. This can be used for PPP and non-PPP projects.

Code:

(a) 1 and 2

(b) 1, 3 and 4

(d) 1, 2, 3 and 4

22. Select the correct statements from the list given below, using the code:

1. Infrastructure sector has the highest share in the non-performing assets of the public sector banks in the country, at the start of the year 2017- 18.

2. From 2001 till 2016-17, banks’ lending to the infrastructure sector has grown annually around 40 per cent.

Code:

(a) Only 1

(b) Only 2

(d) Neither 1 nor 2

23. Consider the following statements related to the current provision of using the disinvestment proceeds.

1. The allocations out of the NIF will be decided by the Union Budget.

2. Only the profits accruing out of the NIF can be used that too only on the social sector.

3. During 2013–14, the government approved allocations from the NIF towards spending on recapitalisation of public sector banks.

4. Fund of the NIF can be used for equity infusion in the Metro projects.

Select the correct statements using the code given below:

(a) 1, 2 and 3

(b) 2, 3 and 4

(d) 1, 2 , 3 and 4

24. Consider the following statements related to the State Food Commissions provisioned in the National Food Security Act, 2013.

1. The five-member commission must have two women and one member each from the SCs and STs.

2. It may enquire into violations of entitlements either suo moto or on receipt of complaints and will hold powers of a civil court.

3. It will prepare an annual report of the Act to be laid before the legislature.

4. The commission will function as one of bodies of the two-tier grievance redressal structure as per the Act.

Select the correct statements using the code given below:

(a) 1, 2 and 3

(b) 2, 3 and 4

(d) 1, 2 , 3 and 4

25. Consider the following statements related to the recommendations of the RBI-appointed committee to examine the current ‘monetary policy framework’, which has handed over its report recently.

1. The apex bank should adopt the new CPI (consumer price index) as the measure of nominal anchor for policy communication.

2. Food and fuel account for more than 57 per cent of the CPI on which the direct influence of monetary policy is limited.

3. The panel suggests to adopt a longer-term target of 4 per cent for CPI inflation with a band of +/- 2 per cent.

4. The committee asked the central government to ensure that the fiscal deficit as a ratio of the GDP is brought down to 3.0 per cent by 2016– 17.

Select the correct statements using the code given below:

Code:

(a) 1, 2 and 3

(b) 2, 3 and 4

(d) 1, 2 ,3 and 4

Answer Key with Explanations

1. (c) Hybrid Annuity Model (HAM) is a PPP model to develop road projects while the ‘engineering, procurement, construction’ (EPC) was fully funded by the GoI. Private sector, in this model, has the responsibility to build the road and hand it over to the government. The selection takes place on the basis of bidding—the bidder which asks for lowest annuity gets the project. The new PPP model was announced by the GoI by late January 2016.

2. (d) India shifted to the new system in the financial year 2015–16. It is the standard practice across the world and was suggested by the IMF in 2008. Some examples of ‘product taxes’ are—cenvat, excise, sales tax, vat, service tax, etc. Though the product taxes are imposed on the producers they are ultimately borne by the consumers (it is an indirect tax).

3. (a) Customs value (or ‘customs import value’) is the value of imported goods as appraised/decided/calculated by the customs department of a country. This value is used as the basis for assessing the amount of import duty and other taxes. It may be computed in several ways, but the most-preferred method is transaction-value, which includes other costs incurred by the buyer, such as packaging costs, license fee or royalty, and any other expenses that accrue to the seller (in addition to the price paid by a buyer to a seller). It is the customs officer (and not the importer, exporter, or customs broker) who has the final say in assigning this value.

4. (b) This is not the contractual conditions of sale between a buyer and a seller, but the quantity of foreign goods and services ( i.e., its total imports) that a country can purchase from the proceeds of the sale of its goods and services (i.e., its total exports) of a given quantity. It is a

measure of a country’s trading clout and is expressed as the ratio of an index of export prices to an index of import prices. Terms of trade of a country improves when the prices of its exports rise in comparison with the prices of its imports and vice versa.

5. (b) To highlight the importance of the agriculture sector in case of India, the Survey first quotes Mahatma Gandhi (India lives in villages) and then Theodore Schultz. In 2016–17, we see a major shift in the government’s budgetary allocation in favour of the agriculture sector.

6. (d) Both the statements are correct about the Rule. The US Federal Reserve Board seems to take this rule under consideration (as many other central banks of the world) but does not always follow its suggestions when adjusting the interest rate. This rule was developed by John Taylor, a 20th century economist.

7. (d) All of the statements are correct about the Curve. Although the theory claims that there is a single maximum point of tax rate and moves in either of the directions from this point makes revenues fall, in reality this is only an approximation. This is a ‘graphical representation’ of a conceptual relationship between marginal tax rates and total tax collections. Named after the US economics professor Arthur Laffer who proposed that lower tax rates encourage additional output (supply) and thus increase aggregate income. Laffer curve is used by the supporters of ‘supply side economics’ to back their claim that low income tax policies spur non-inflationary growth by encouraging new investment.

8. (d) The present management cost of each insurance policy is Rs. 120, which will come down to Rs. 25 once repositories start functioning. The IRDA has licensed five firms to function as repositories (Karvy Insurance Repositories, NSDL Database Management Ltd, Central Insurance Repositories Ltd., SHCIL Projects Ltd. and CAMS Repositories Services Ltd. Out of the total 52 insurance firms in the country only 20 per cent are ready with the sufficient infrastructure for repositories—GoI may make it mandatory by the 2014–15 fiscal.

9. (d) The 3rd generations of economic reforms articulated the idea of ‘decentralised’ development planning—parallel to the idea of inclusive growth. The concept got reference while the government decided to go

for the 2nd and 3rd generation of economic reforms (in the year 2000– 01)—the benefits of reforms were found to be non-inclusive in nature.

10. (d) The Economic Survey 2016–17 advised the government to set up such a body which it called ‘public sector asset reconstruction agency (PARA)’. It will serve twin purposes—on one hand it will buy the ‘non- performing assets’ (i.e., bad debts) of the government banks while on the other it will help the corporate sector of the country to come out of the ‘red’ (their balance sheet in unsustainable)—this way helping India to come out of the ‘twin balance sheet’ (TBS) problem.

11. (d) All of the statements are correct about RFD—adopted by about 84 ministries and departments by 2014–15 since 2009–10 as part of the GoI ‘Performance Monitoring and Evaluation System (PMES)’ under which each ministries/departments is required to prepare an RFD. This is a step in the direction of improving ‘performance’ and ‘efficiency’.

12. (b) The idea was for the first time used by the GoI in the Union Budget 2011–12, but it was not borrowed from the Western nations—this is an Indian idea.

13. (d) The agricultural provisions (i.e., the Agreement on Agriculture) of the WTO have put a ceiling on the amount of farm subsidies (both direct and indirect) of the member country—as they distort the free market prices of farm goods.

14. (b) The BIPA is a kind of India alternative of the ICSID (one of the World Bank group entity). But it has no links either with the ICISD or IMF. By now, India has signed such agreements with 82 countries.

15. (c) NSEL (National Spot Exchange Ltd.) is promoted by a private firm (which owns it by 99 per cent) Financial Technologies India Ltd. and NAFED (National Agricultural Cooperative Marketing Federation of India Ltd.) for ‘spot trading’ in commodities in India, operating since 2008. Other such bourses—the NCDEX Spot and R-Next, are promoted by the NSE and Reliance Capital, respectively. Since February 2012 ‘spot contracts’ are being looked after by the Forward Market Commission (FMC)—regulated under the Forward Contract (Regulation) Act, 1952.

16. (d) All of the statements are correct about the P-Notes.

17. (d) Abenomics is the name given to a suite of measures introduced by the Japanese Prime Minister Shinzo Abe after his December 2012 re- election to the post he has held since 2007. Such measures by a government to boost growth is not possible in the case of the recession- hit economies of the Western world—the Japanese economy has an edge over them due to its low levels of inflation and fiscal deficit.

18. (b) In 2002 the GoI decided that from now onwards the Planning Commission (PC) will function more or less as a collaborator to the Finance Commission (FC)—the existing PC member Som Pal was made an Additional Member of the Twelfth Finance Commission. B. K. Chaturvedi was the Additional Member to the Thirteenth Finance Commission, Prof. Abhijit Sen is the Additional Member to the Fourteenth Finance Commission (2015–20), headed by Y. V. Reddy, ex- RBI Governor. Such a suggestion was given by the Fourth Finance Commission headed by P. V. Rajamannar.

19. (d) All belong to the terms of reference given to the Fourteenth Finance Commission (2015–20).

20. (d) India’s first women’s bank, the Bharatiya Mahila Bank was inaugurated in Mumbai on November 19, 2013 at the iconic Air India building at Nariman Point in Mumbai.

21. (b) This method is being used by the GoI for the first time, though, it has been already used by the states (Andhra Pradesh, Bihar, Gujarat, MP, Punjab, etc.). By late January 2016, the Ministry of Railways used this method to award contracts for development of 400 railway stations in the country. Though, the government has been discouraged by the Vijay Kelkar Expert Committee (set up on ‘Revisiting and Revitalising the PPP Model of Infrastructure Development’). The committee submitted its report in January 2016 itself.

22. (c) Both of the statements are correct.

23. (c) In January 2013, the government restructured the National Investment Fund (NIF) and decided that the disinvestment proceeds with effect from the fiscal year 2013–14 will be credited to the existing ‘Public Account’ under the head NIF and they would remain there until withdrawn/invested for the approved purpose by an Union Budget. It

was decided that the NIF would be utilised for subscribing to the shares of the CPSE, including public sector banks (their recapitalisation, too) and insurance companies, to ensure 51 per cent government ownership in them; investment by the government in RRBs, IIFCL, NABARD, Exim Bank; equity infusion in various Metro projects; investment in Bhartiya Nabhikiya Vidyut Nigam Ltd. and Uranium Corporation of India Ltd.; investment in railways towards capital expenditure.

24. (d) The NFSA provisions for a two-tier grievance redressal structure—the State Food Commission (SFC) and District Grievance Redressal Officer (DGRO). The DGROs will be appointed by the state governments for each district to hear complaints and take necessary action according to norms to be prescribed by the state governments. If a complainant (or the officer or authority against whom an order has been passed by the DGRO) is not satisfied, he or she may file an appeal before the SFC. The SFCs have been given power to impose penalties—if an order of the DGRO is not complied with, the concerned authority/officer can impose a fine of up to Rs. 5,000.

25. (d) All the statements are correct regarding the Urjit Patel Committee which handed over its report by late January 2014 to the RBI. The inflation-related advices of the panel has been accepted and implemented by the RBI, commencing with its 1st Bi-monthly Credit and Monetary Policy for 2014–15, announced in April 2014.