UPSC Prelims 2011 Analysis

Explanation

Brent crude oil is indeed a major classification of crude oil, which makes statement 1 correct. It serves as a benchmark for global oil prices and is used to set prices for a significant portion of global crude oil.

Statement 2 is also correct. Brent crude oil is sourced from oil fields in the North Sea, between the Shetland Islands and Norway.

However, statement 3 is incorrect. Brent crude oil does contain sulphur. It has a sulphur content of 0.37%, which is why it is considered less "sweet" compared to West Texas Intermediate (WTI) oil, which has a lower sulphur content of 0.24%.

Explanation

A Value Added Tax (VAT) is indeed a multi-point destination-based system of taxation, which means it is levied at each stage of the production and distribution process, and the tax is ultimately borne by the final consumer.

The implementation of VAT is primarily the responsibility of the state governments in India. While the central government provides the legal and policy framework, the state governments are responsible for the actual implementation, administration, and collection of VAT within their respective states.

Therefore, it is not accurate to say that the State Governments are only facilitators for its successful implementation.

Explanation

Economic growth has inflation as a usual consequence as prices rise for goods with people having higher purchasing power and more money circulation in the system. But the contrary is not true i.e., inflation in the economy does not mean that growth is happening. It's a one-way causal relationship and not two-way.

Explanation

FDI involves direct investment in physical assets or a significant degree of control or influence in the management of a company in a foreign country. It often focuses on specific sectors, such as manufacturing or infrastructure.

On the other hand, FII refers to investments made by foreign institutions, such as mutual funds, hedge funds, and pension funds, into the financial markets of a country. FIIs usually invest in a broader range of securities, and their investments can help increase capital availability across various sectors of the economy.

Explanation

The growth rate in GDP had gone down and came up, several times in the five years preceding 2011. Same had been the case with the growth rate of per capita income.

Explanation

A closed economy is one that has no trade activity with outside economies. It is self-sufficient, which means no imports come into the country and no exports leave the country.

A closed economy's intent is to provide domestic consumers with everything they need from within the country's borders.

Explanation

Fiscal stimulus is essentially an increase in public spending or a reduction in the level of taxation that might be performed by a government to encourage and support economic growth.

• Fiscal stimulus may refer to either greater public spending or tax cuts. In both cases, the government aims to boost economic growth.

Explanation

The current account deficit is a measurement of a country's trade where the value of the goods and services it imports exceeds the value of the goods and services it exports.

Devaluation is a deliberate reduction in the value of a country's currency. Devaluing the domestic currency can help in reducing the current account deficit as it makes exports cheaper and imports more expensive, thereby reducing the deficit.

On the other hand, a reduction in export subsidy might not help in reducing the current account deficit. This is because export subsidies make exports cheaper, thereby promoting exports. If these subsidies are reduced, exports might become more expensive leading to a decrease in exports and potentially increasing the current account deficit.

Therefore, only action 1 can help in reducing the current account deficit.

Explanation

Teaser loans are loans with low, fixed interest rates offered by banks for a short period, which then switch to higher, floating rates. They are indeed a cause of economic concern. The first statement is correct because teaser loans are considered to be an aspect of subprime lending, which means they are given to borrowers who may have difficulty maintaining the repayment schedule. This exposes banks to the risk of defaulters in the future. However, the second statement is not entirely accurate. While it's true that some inexperienced entrepreneurs might receive teaser loans, they are not the primary recipients of such loans in India.

Explanation

The visit of foreign nationals to India for the XIX Commonwealth Games can be considered as an export in economic terms.

This is because when these foreign nationals come to India, they bring foreign currency with them and spend it in India on various goods and services. This spending is equivalent to them buying Indian goods and services, which is why it is considered an export.

This falls under the Mode 2 type of service under WTO norms, where consumption of a service happens in the territory of the service provider.

Explanation

In India, the sector of agriculture and its allied activities receive the highest amount of credit from Commercial Banks. This is due to the mandate by the Reserve Bank of India (RBI) for Priority Sector Lending (PSL), which includes domestic and foreign commercial banks.

Commercial banks disburse around 60% of the credit to agriculture and allied activities, which is the highest share compared to Cooperative Banks, Regional Rural Banks, and Microfinance Institutions.

Explanation

While a shift towards commercial crops impacts the production of food grains, causing a potential decrease in supply, 30% decrease seems exaggerated and not reflective of actual trends. Therefore, statement 1 is not correct.

With rising incomes, the demand for high-value food items like fruits, vegetables, dairy, and meat has increased, outpacing the supply growth and contributing to food inflation. Therefore, statement 2 is correct.

The food supply chain in India has structural constraints, which can lead to inefficiencies in the distribution of food products. These inefficiencies can cause an increase in food prices, thereby contributing to food inflation. Therefore, statement 3 is correct.

Therefore, only statements 2 and 3 are correct.

Explanation

Microfinance refers to the provision of financial services to low-income individuals or groups who typically don't have access to traditional banking services.

Microfinance institutions provide small loans or microcredit to the poor who do not have any collateral. This is one of the most common services provided under microfinance.

Many microfinance institutions also offer savings accounts.

Some microfinance institutions provide micro-insurance products to cover health, life, and other insurances for low-income individuals and families.

Microfinance services also include fund transfers. These institutions provide remittance services to help individuals send and receive money, especially in areas where banking services are scarce.

Therefore, all the services listed in the question are provided under microfinance.

Explanation

A bank rate is the interest rate at which a nation's central bank lends money to domestic banks. Managing the bank rate is a method by which central banks affect economic activity.

When the Reserve Bank of India (RBI) lowers the Bank Rate, it becomes cheaper for commercial banks to borrow from the RBI. This incentivizes commercial banks to borrow more funds from the RBI, leading to an increase in the liquidity available to them. With more liquidity available, commercial banks are likely to lend more to businesses and individuals, thereby increasing the overall liquidity in the market.

Explanation

While the revenue generated from disinvestment can contribute to reducing the fiscal deficit or financing government expenditure, it is not solely earmarked for paying back external debt. Disinvestment is more broadly aimed at improving efficiency, promoting wider share ownership, introducing competition, and reducing the fiscal burden on the government.

The government may choose to retain a certain level of ownership and control even after disinvestment. The extent to which management control is retained or transferred depends on various factors, including strategic considerations, sectoral policies, and specific objectives of the disinvestment process.

Therefore, neither statement accurately represents the primary reasons for the Government of India's disinvestment in CPSEs.

Explanation

The Government of India is promoting "Mega Food Parks" primarily to enhance the food processing industry's infrastructure, enabling direct farm to market linkages and reducing wastage. This initiative aims to boost the processing of perishable goods, decreasing loss, and to introduce sustainable, eco-friendly processing technologies to entrepreneurs. These objectives collectively strive to modernize the sector and make it more environmentally friendly and efficient.

Explanation

The base effect is the distortion in a monthly inflation figure that results from abnormally high or low levels of inflation in the year-ago month.

The inflation rate is calculated as the percentage change in prices compared to the previous year. If prices were unusually low or high in the previous year, it can significantly impact the calculated inflation rate, even if current price changes are moderate. This is known as the "base effect".

For example, if prices increased by 5% in the current year, but fell by 10% in the previous year, the base effect would result in a very high calculated inflation rate, even though the current year's price increase was modest.