UPSC Prelims 2019 Analysis

Explanation

Money multiplier: It refers to the extent to which commercial banks can create new money based on deposits. It's calculated as the reciprocal of the reserve ratio (required reserves divided by total deposits).

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR): These are regulatory tools used by the central bank to control the money supply.

Higher CRR and SLR Banks are required to hold a larger portion of deposits as reserves with the central bank. This reduces the amount of money available for lending, thus decreasing the money multiplier.

Lower CRR and SLR: Banks can lend out a larger portion of deposits, increasing the money multiplier.

Banking habit: When people deposit more money in banks, it increases the pool of funds available for lending. This allows banks to create more new money through the lending process, leading to a higher money multiplier.

Population growth: While population growth can lead to higher demand for money, it doesn't directly affect the money multiplier mechanism itself.

Explanation

Derived from Russia, India used the concept of the �Five Year Plan� for economic planning.

With the first five-year plan launched in 1951, India now has a total of 12 such plans. However, the practice was called off in 2017 by the Narendra Modi-led NDA government.

The Second Plan focused on the industrial development of the country and stressed capital goods industries.

The Fourth Plan was focused on growth with stability and progressive achievement of self-reliance. The plan focussed on eliminating poverty with the slogan of Garibi Hatao given during the 1971 elections by Indira Gandhi.

The Fifth Plan gave top priority to agriculture, employment, and poverty alleviation.

Explanation

Land reform is a broad term:

• It refers to an institutional measure directed towards altering the existing pattern of ownership, tenancy, and management of land.
• It entails redistribution of the rights of ownership and/or use of land away from large landowners and in favour of cultivators with very limited or no landholdings.
• At the time of independence, ownership of land was concentrated in the hands of a few. This led to the exploitation of the farmers and was a major hindrance towards the socio-economic development of the rural population.
• Equal distribution of land was therefore an area of focus of Independent India's government. Laws for land ceilings were enacted in various states during the 50s & 60s, which were modified on the directives of the central government in 1972.

Explanation

The country�s vegetable oil imports for the first six months of the oil year during November 2018 to April 2019 stood at 75,41,689 tonne, up about 3% from 73,18,295 tonne reported in the same period last year.

Vegetable oils account for the highest import in terms of value in the last five years. India relies on imports for 70 percent of its edible oil consumption.

Explanation

Statement 1 is correct - Purchasing Power Parity (PPP) exchange rates are calculated by comparing the prices of the same basket of goods and services in different countries.

Statement 2 is incorrect - India is not the sixth-largest economy in the world in terms of PPP dollars. It is currently the third largest economy in terms of PPP dollars, after China and the United States.

Explanation

Statement 1 is Incorrect: The Petroleum and Natural Gas Regulatory Board (PNGRB) was constituted under the Petroleum and Natural Gas Regulatory Board Act, 2006. The independent regulator, Telecom Regulatory Authority of India (TRAI), set up under the TRAI Act of 1997, was the first independent regulator in India. Hence, statement 1 is not correct.

Statement 2 is correct: PNGRB is tasked to protect the interests of consumers and entities engaged in specified activities relating to petroleum, petroleum products and natural gas and to promote competitive markets and for matters connected therewith or incidental thereto.

Statement 3 is correct: The Appellate Tribunal established under Section 110 of the Electricity Act, 2003 (Central Act 36 of 2003) shall be the Appellate Tribunal to appeal against the decisions of the PNGRB.

Explanation

Service area approach (SAA) is an improved version of area approach of Lead Bank Scheme.

Under SAA plan, each commercial bank / RRB branch in the rural and semi-urban area is designated to serve 15 to 25 villages for the planned and orderly development of rural and semi-urban areas.

The designated branch of a bank has to meet the banking needs of its service area vis--vis forge effective linkages between bank credit, production, productivity, and increase in income levels of the villages.

Explanation

The Global Competitiveness Report is published by the World Economic Forum (WEF).

Option A is incorrect. The International Monetary Fund (IMF) primarily focuses on macroeconomic policies, financial stability, and global monetary cooperation, but it does not publish the Global Competitiveness Report.

Option B is incorrect. The United Nations Conference on Trade and Development (UNCTAD) deals with trade, investment, and development issues but is not responsible for this report.

Option C is correct. The World Economic Forum (WEF) releases the Global Competitiveness Report (GCR), which assesses the competitiveness of countries based on various economic indicators such as infrastructure, macroeconomic stability, health, education, market efficiency, and innovation.

Option D is incorrect. The World Bank publishes reports related to economic development, poverty reduction, and business environments, such as the Ease of Doing Business Report, but it does not release the Global Competitiveness Report.

Explanation

The external debt of India is the total debt the country owes to foreign creditors. The debtors can be the Union government, state governments, corporations, or citizens of India. The debt includes money owed to private commercial banks, foreign governments, or international financial institutions such as the International Monetary Fund (IMF) and World Bank.

• Commercial borrowings continued to be the largest component of external debt with a share of 37.4 per cent, followed by NRI deposits (24.1 per cent) and short-term trade credit (19.9 per cent).

• Non-Government Debt - 416.7 (US$ billion), Government Debt 104.5 (US$ billion) Hence, statement 1 is incorrect.

• US dollar-denominated debt continued to be the largest component of India�s external debt with a share of 45.9 per cent at the end of December 2018, followed by the Indian rupee (24.8 per cent), SDR (5.1 per cent), yen (4.9 per cent) and euro (3.1 per cent). Hence, statement 2 is also incorrect.

Explanation

Out of the listed measures, the one least likely used to stop the rupee's slide is D. Following an expansionary monetary policy

Option A is incorrect. Curbing non-essential imports and promoting exports: This reduces the demand for foreign currency and increases its supply through exports, potentially strengthening the rupee.

Option B is incorrect. Encouraging Masala Bonds: These are rupee-denominated bonds issued by Indian entities in foreign markets. They attract foreign investment without increasing external debt in dollars, potentially supporting the rupee.

Option C is incorrect. Easing external commercial borrowing (ECB) conditions: This allows companies to borrow foreign currency more easily, potentially increasing the supply of foreign currency in the short term. However, it can also increase external debt in the long run.

Option D is correct. Why is expansionary monetary policy less likely? An expansionary policy typically involves lowering interest rates. This can make borrowing cheaper and encourage spending, potentially leading to inflation. Inflation can further weaken the rupee if it's not matched by rising export earnings.

Explanation

Statement 1 is correct: Fixed-term employment and ease of layoff. The amendment introduces the concept of "fixed-term employment" for the first place. While it doesn't automatically make layoffs easier, it allows companies to hire for specific projects or periods without them becoming permanent employees. This can potentially make restructuring or downsizing during economic downturns easier for companies with fixed-term employees compared to permanent ones (who have greater job security).

Statement 2 is correct: Notice period for temporary workmen. The amendment clarifies that no notice period is required to terminate the employment of a "temporary workman," which is someone hired for a specific, non-continuous job or for a short period.

Explanation

India overtook Thailand as the world's largest riceexporter in 2015, since then India is held its position while China is the largest producer of rice.

Below are the few countries that exported the highest dollar value worth of rice in 2018.

1. India US$7.4 billion (30.1% of total rice exports)
2. Thailand $5.6 billion (22.7%)
3. Vietnam $2.2 billion (9%)

Explanation

The correct answer is (C) procurement incidentals and distribution cost.

Here's a breakdown of the economic cost of food grains to the Food Corporation of India (FCI)

Minimum Support Price (MSP) and bonus (if any) This is the price paid by the FCI to farmers to procure food grains at a pre-determined level. It serves as a safety net for farmers and ensures some income stability.

Procurement incidentals These are the additional costs incurred by the FCI during the procurement process. They include expenses like

• Commission to agents or societies involved in procurement
• Bagging materials
• Labor charges for procurement activities
• Transportation from collection centers to storage depots

Distribution cost This refers to the expenses incurred by the FCI to distribute the procured food grains. It includes

• Transportation costs from storage depots to fair price shops or other distribution channels
• Handling and storage charges at fair price shops
• Losses during storage and transportation

Explanation

The Inter-Creditor Agreement (ICA) signed by Indian banks and financial institutions is a mechanism to expedite the resolution of stressed assets, particularly in cases of consortium lending involving loans of Rs. 50 crore or more.

Explanation

Participatory Note (P-Note): This is a financial instrument issued by registered foreign portfolio investors (FPIs) to overseas investors. It allows overseas investors to participate in the Indian stock market indirectly without directly registering with the Securities and Exchange Board of India (SEBI). The FPI holds the underlying Indian securities, and the P-Note represents ownership for the overseas investor.

The other options are not used for this purpose:

Certificate of Deposit (CD): Issued by banks to raise short-term funds, not related to stock markets.

Commercial Paper (CP): Short-term debt instrument issued by companies, not related to foreign investment in stocks.

Promissory Note: A written promise to repay a debt, not used in this context of stock market participation.

Explanation

The Chairman of public sector banks in India are selected by the Banks Board Bureau (BBB).

The Banks Board Bureau is an autonomous body responsible for selecting and appointing the Boards of Directors in Public Sector Banks (PSBs) and Financial Institutions. It was established based on the recommendations of the Nayak Committee Report (2014).

Explanation

Nationalisation: Yes, the coal sector was nationalised by the Indira Gandhi government in phases during the 1970s. Hence, Statement 1 is Correct.

Coal block allocation: Coal blocks are not allocated through a lottery system. They are currently allocated through auctions, a shift from the previous system of administrative allocation. Hence, Statement 2 is Incorrect.

Coal self-sufficiency: India is not entirely self-sufficient in coal production. While domestic production has increased, there is still a gap that is met through imports. Hence , Statement 3 is Incorrect.

Explanation

Statement 1 is Correct (Data storage in India): This is the core requirement of the directive. It mandates that the entire payment system data be stored in systems located only in India. This aims to improve data security and regulatory oversight.

Statement 2 is Incorrect (Public sector ownership): The directive doesn't specify ownership requirements for the data storage systems. Private companies can also store data as long as the systems are located within India.

Statement 3 is Incorrect (Audit report submission): The directive des not have reporting requirements for system audits to the Comptroller and Auditor General of India (CAG) which typically audits government entities.

Explanation

Assets Assets represent the resources a bank owns. For a commercial bank, these resources include:

• Advances (loans) Money lent to businesses, individuals, and other borrowers.
• Investments Securities like government bonds, treasury bills, or shares in other companies.
• Money at call and short notice Funds are lent to other banks for a very short period, usually overnight.
• Deposits Deposits are liabilities for a bank. They represent the money that customers entrust to the bank, which the bank is obligated to repay.

Explanation

Foreign currency earnings The IT sector generates foreign exchange through exports of services. This increases the supply of foreign currency reserves, making it easier to defend the rupee's value in the foreign exchange market during times of stress.

Remittances from abroad When Indians working abroad send money back home, it adds to the inflow of foreign currency. This strengthens the country's foreign exchange reserves and provides a buffer against external shocks.

Why increasing government expenditure is not a contributor? While government spending can stimulate economic growth, it can also lead to a higher budget deficit. If the deficit is financed by excessive borrowing, it can put pressure on the currency if investors lose confidence in the government's ability to repay its debts.

Therefore, the correct code is 1 and 3 only

Explanation

The World Bank's Ease of Doing Business Index focuses on regulations that directly affect businesses.

While maintaining law and order is a crucial aspect of a functioning economy, it's not directly measured in the Ease of Doing Business Index.