UPSC PRE 2020 - Economy Answer Keys - Explanation

If another global financial crisis happens in the near future , which of the following actions/policies are most likely to give some immunity to India?

  1. Not depending on the short term foreign borrowing.

  2. Opening up to more foreign banks

  3. Maintaining full capital account convertibility

Select the correct answer using the given code below-

(a) 1 only

(b) 1 and 2 only

(c) 3 only

(d) 1, 2 and 3


This question is open to interpretation.

In any global financial crisis, the reduction in demands is always the crucial point because that reduces the flow of money in economy.

Looking from this perspective let us analyse the statements in given context in brief.


Short term foreign borrowing -> High interest rates -> this would be used not in capital expenditure so not useful in encouraging the economy growth -> hence not depending on the short term foreign borrowing can give immunity to India.


Opening up to more foreign banks -> one can expect foreign banks to increase the loan disbursal in India if they have sufficient deposits or influx from their countries in form of deposits as the demand for loan in their home countries will be less -> Loanees may bargain for long term loans at low interest rate -> long term loan would be help in boosting the economy. So this may help India to get immunity from Global crisis.


Maintaining full capital account convertibility is like double edged sword.

It has its own advantages and disadvantages.

"The Report of the Committee on Capital Account Convertibility (Chairman: S.S. Tarapore), submitted in May 1997, provided the framework for liberalisation of capital account transactions in India. The Committee recommended a phased implementation of Capital Account Convertibility (CAC) in India to be completed by the year 1999-2000 and prescribed the macroeconomic framework for implementing full convertibility in terms of the preconditions for greater liberalisation. The Committee had suggested that implementation of the measures in each of the three phases should be based on a continuous monitoring of certain preconditions and attendant variables identified from the lessons of the international experiences and related to the specifics of the Indian situation."

As India has not implemented the full account convertibility, the effects are still not clear.

This statement may be correct subjected to other conditions so it cannot be stated as true directly. Hence statements 1 and 2 can be correct from my perspective. Let us wait for UPSC answer key for more clarity.


https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/51019.pdf


If you withdraw 1,00,000 from your in cash from your Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will be

(a) To reduce it by 1,00,000

(b) To increase it by 1,00,000

(c) To increase it by more than 1,00,000

(d) To leave it unchanged


Refer chapter 3 - Money and Banking (Introductory to Macroeconomics - Class XII NCERT)


Gold tranche(Reserve tranche) refers to

(a) A loan system of World bank

(b) One of the operations of a central bank

(c) A credit system of WTO granted to its members

(d) A credit system granted by IMF to its members


Reserve tranche is the component of a member country’s quota with the IMF that is in the form of gold or foreign currency. For any member country, out of the total quota, 25% should be paid in the form of foreign currency or gold. Hence this is called as reserve tranche or gold tranche. The remaining 75% can be in domestic currencies and it is called credit tranche.


Consider the following statements

  1. Aadhar metadata can not be stored for more than three months

  2. State can not enter into any contract with private corporations for sharing of Aadhar data

  3. Aadhar is mandatory for obtaining insurance products

  4. Aadhar is mandatory for getting benefits funded out of the consolidated fund of India

Which of the above given statements is/are correct?

(a) 1 and 4 only

(b) 2 and 4 only

(c) 3 only

(d) 1, 2 and 3 only


Supreme Court says Aadhaar metadata can not be stored for more than six months.

(https://www.thehindu.com/news/national/aadhaar-verdict-live-updates-supreme-court-to-decide-the-validity-of-aadhaar-scheme/article25044764.ece#:~:text=Supreme%20Court%20says%20Aadhaar%20metadata,such%20data%20for%20five%20years.)



Consider the following minerals: 1. Bentonite 2. Chromite 3. Kyanite 4. Sillimanite In India,which of the above is/are officially designated as major minerals? (a) 1 and 2 only (b) 4 only (c) 1 and 3 only (d) 2, 3 and 4 only


http://www.mospi.gov.in/sites/default/files/reports_and_publication/statistical_manual/Chapter%2012.pdf


With reference to chemical fertilizers in India,consider the following statements:

1. At present,the retail price of chemical fertilizers is market-driven and not administered by the Government.


2. Ammonia,which is an input of urea,is produced from natural gas.


3. Sulphur,which is a raw material for phosphoric acid fertilizer,is a by-product of all oil refineries.


Which of the statements given above is/are correct?


(a) 1 only


(b) 2 and 3 only


(c)2 only


(d) 1,2 and 3


https://fert.nic.in/faq

https://pib.gov.in/Pressreleaseshare.aspx?PRID=1595327

Statement 3 is partially correct. Sulphuric acid is used as a raw material for phosphoric acid fertilizer and not Sulphur itself. Lets wait for UPSC answer key.

https://www.sciencedirect.com/topics/chemistry/phosphate-fertilizer


According to India’s National Policy on Biofuels,which of the following can be used as raw materials for the production of biofuels? 1. Cassava 2. Damaged wheat grains 3. Groundnut seeds 4. Horse gram 5. Rotten potatoes 6. Sugar beet Select the correct answer using the code given below: (a) 1,2,5 and 6 only (b) 1,3,4 and 6 only (c) 2,3,4 and 5 only (d) 1,2,3,4,5 and 6.


http://petroleum.nic.in/sites/default/files/biofuelpolicy2018_1.pdf


https://economictimes.indiatimes.com/small-biz/productline/power-generation/national-policy-on-biofuels-2018-here-are-key-things-you-should-know/articleshow/71922729.cms?from=mdr#:~:text=Introduced%20in%20the%20year%202009,fossil%2Dbased%20fuels%20by%202030.


With reference to pulse production in India,consider the following statements:


1. Black gram can be cultivated as both Kharif and rabi crop.


2. Green-gram alone accounts for nearly half of pulse production.


3. In the last three decades, while the production of kharif pulses has increased, the production of rabi pulses has decreased.


Which of the statements given above is/are correct ?


(a) 1 only


(b) 2 and 3 only


(c) 2 only


(d) 1, 2 and 3 only


With reference to the current trends in the cultivation of sugarcane in India,consider the following statements:


1. A substantial saving in seed material is made when ‘bud chip settings are raised in a nursery and transplanted in the main field.


2. When direct planting of setts is done,the germination percentage is better with single-budded setts as compared to setts with many buds.


3. If bad weather conditions prevail when setts are directly planted,single-budded setts have better survival as compared to large setts.


4. Sugarcane can be cultivated using settlings prepared from tissue culture.


Which of the statements given above is/are correct ?


(a) 1 and 2 only


(b) 3 only


(c)1 and 4 only


(d) 2,3 and 4 only


https://iisr.icar.gov.in/iisr/aicrp/download/Sugarcane_in_India.pdf


https://www.researchgate.net/publication/322976767_SUGARCANE_PLANTING_TECHNIQUES_A_REVIEW#:~:text=Large%20setts%20have%20better%20survival,if%20protected%20with%20chemical%20treatment.&text=The%20bud%20position%20while%20placement,germination%20in%20single%20budded%20setts.




In India, which of the following can be considered as public investment in agriculture?


1. Fixing Minimum Support Price for agricultural produce of all crops.


2. Computerization of Primary Agricultural Credit Societies.


3. Social Capital Development.


4. Free Electricity supply to farmers.


5. Waiver of agricultural loans by the banking system.


6. Setting up of cold storage facilities by the government.


Select the correct answer using the code given below:


(a) 1,2 and 5 only


(b) 1,3,4 and 5 only


(c)2,3 and 6 only


(d) 1,2,3,4,5 and 6


"Given fiscal constraints, there is always a trade-off between allocating money through subsidies and increasing investments."

Indian Economic Survey 2019-20 (Volume -I , Page 84)

Statements 1, 4 and 5 - are not creating any investments but increasing constraints


What is the importance of the term “Interest Coverage Ratio” of a firm in India?


1. It helps in understanding the present risk of a firm that a bank is going to give loan to.


2. It helps in evaluating the emerging risk of a firm that a bank is going to give loan to.


3. The higher a borrowing firm’s level of Interest Coverage Ratio,the worse is its ability to service its debt.


Select the correct answer using the code given below:


(a) 1 and 2 only


(b) 2 only


(c)1 and 3 only


(d) 1,2 and 3


The Interest Coverage Ratio (ICR) is a financial ratio that is used to determine how well a company can pay the interest on its outstanding debts. The ICR is commonly used by lenders, creditors, and investors to determine the riskiness of lending capital to a company. The interest coverage ratio is also called the “times interest earned” ratio.

A high ratio indicates that a company can pay for its interest expense several times over, while a low ratio is a strong indicator that a company may default on its loan payments. 


Which of the following factors/policies were affecting the price of rice in India in the recent past?


1. Minimum Support Price


2. Government’s trading


3. Government’s stockpiling


4. Consumer subsidies


Select the correct answer using the code given below:


(a) 1,2 and 4 only


(b) 1,3 and 4 only


(c)2 and 3 only


(d) 1,2,3 and 4


See para 5.27 and 5.28 page 156 of Economic Survey 2019-20


Consider the following statements:


1. The value of Indo-Srilanlanka has consistently increased in the last decade.


2. “Textile and Textile articles” constitute an important item of trade between India and Bangladesh.


3. In the last five years, Nepal has been the largest trading partner of India in South Asia.


Which of the statements given above is/are correct ?


(a) 1 and 2 only


(b) 2 only


(c)3 only


(d) 1,2 and 3


Under the Kisan Credit Card Scheme, short-term credit support is given to farmers for which of the following purposes ? 1. Working capital for maintenance of farm assets 2. Purchase of combine harvesters, tractors and mini trucks 3. Consumption requirements of farm households

4. Post harvest expenses 5. Construction of family house and setting up of village cold storage facility Select the correct answer using the code given below: (a) 1,2 and 5 only (b) 1,3 and 4 only (c) 2,3,4 and 5 only (d) 1, 2, 3, 4 and 5


The scheme aims at providing adequate and timely credit for the comprehensive credit requirements of farmers under single window for their cultivation and other needs as indicated below:

  • To meet the short term credit requirements for cultivation of crops

  • Post harvest expenses

  • Produce Marketing loan

  • Consumption requirements of farmer household

  • Working capital for maintenance of farm assets, activities allied to agriculture, like dairy animals, inland fishery and also working capital required for floriculture, horticulture etc.

  • Investment credit requirement for agriculture and allied activities like pump sets, sprayers, dairy animals, floriculture, horticulture etc

  • Short term credit requirements of rearing of animals, birds, fish, shrimp, other aquatic organisms, capture of fish


Consider the following statements: 1. The weightage of food in Consumer Price Index(CPI) is higher than that in Wholesale Price Index(WPI). 2. The WPI does not capture changes in the prices of services,which CPI does. 3. Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates. Which of the statements given above is/are correct ? (a) 1 and 2 only (b) 2 only (c) 3 only (d) 1,2 and 3


https://www.thehindu.com/business/Economy/rbi-adopts-new-cpi-as-key-measure-of-inflation/article5859713.ece


https://www.livemint.com/money/personal-finance/all-you-need-to-know-about-cpi-wpi-inflation-and-how-they-are-measured-11597403365679.html


Consider the following statements: 1. In the case of all cereals, pulses and oil-seeds, the procurement at Minimum Support Prices(MSP) is unlimited in any State/UT of India. 2. In the case of cereals and pulses, the MSP is fixed in any State/UT at a level to which the market price will never rise. Which of the statements given above is/are correct ? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2


With reference to the Indian Economy,consider the following statements:


1.’Commercial Paper’ is a short term unsecured promissory note.


2. ‘Certificate of Deposit’ is a long-term instrument issued by the Reserve Bank of India to a corporation.


3. ‘Call Money’ is a short term finance used for interbank transactions.


4. ‘Zero-Coupon Bonds’ are the interest bearing short term bonds issued by the Scheduled Commercial Banks to corporations.


Which of the statements given above is/are correct ?


(a) 1 and 2 only


(b) 4 only


(c) 1 and 3 only


(d) 2,3 and 4 only


With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic ?


(a) It is the investment through capital instruments essentially in a listed company.


(b) It is largely non-debt creating capital flow.


(c) It is the investment which involves debt-servicing.


(d) It is the instrument made by foreign institutional investors in the Government securities.


With reference to the international trade of India at present, which of the following statements is/are correct ?


1. India’s merchandise exports are less than its merchandise imports.


2. India’s imports of iron and steel, chemicals, fertilizers and machinery have decreased in recent years.


3. India’s exports of services are more than its imports of services.


4. India suffers from an overall trade/current account deficit.


Which of the statements given above is/are correct ?


(a) 1 and 2 only


(b) 2 and 4 only


(c) 3 only


(d) 1,3 and 4


In the context of the Indian economy, non-financial debt includes which of the following?


1. Housing loans owned by household

2. Amounts outstanding on credit cards

3. Treasury Bills


Select the correct answer using the code given below:


(a) 1 only


(b) 1 and 2 only


(c) 3 only


(d) 1,2 and 3

The debt held by governments, households, and companies not in the financial sector.


With reference to Trade-Related Investment Measures(TRIMS), which of the following statements is/are correct ?


1. Quantitative restrictions on imports by foreign investors are prohibited.


2. They apply to investment measures related to trade in both goods and services.


3. They are not concerned with the regulation of foreign investment.


Select the correct answer using the code given below:


(a) 1and 2 only


(b) 2 only


(c) 1 and 3 only


(d) 1,2 and 3


Applicable to goods only.

https://www.wto.org/english/tratop_e/invest_e/invest_info_e.htm


If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do? 1. Cut and optimize the Statutory Liquidity Ratio. 2. Increase the Marginal Standing Facility Rate. 3. Cut the Bank Rate and Repo Rate. Select the correct answer using the code given below: (a) 1and 2 only (b) 2 only (c) 1 and 3 only (d) 1, 2 and 3


With reference to the Indian economy after the 1991 economic liberalization, consider the following statements:


1.Worker productivity (Rs per worker at 2004-05 prices) increased in urban areas while it decreased in rural areas.

2. The percentage share of rural areas in the workforce steadily increased.

3. In rural areas, the growth in non-farm economy increased.

4. The growth rate in rural employment decreased.


Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 3 and 4 only

(c) 3 only

(d) 1, 2, and 4 only


Page 285 of Indian Economic Survey Vol - II


Consider the following statements: 1. In terms of short term credit delivery to the agriculture sector, District Central Cooperative Banks(DCCBs) deliver more credit in comparison to Scheduled Commercial Banks and Regional Rural Banks. 2. One of the most important functions of DCCBs is to provide funds to the Primary Agricultural Credit Societies. Which of the statements is/are correct ? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2



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