Structure of the Indian Economy & Demographics (Part-II)

Total Questions: 62

21. In India, which of the following have the highest share in the disbursement of credit to agriculture and allied activities? [2011-1]

Correct Answer: (a) Commercial Banks
Solution:
  • Commercial Banks-60%
  • Co-operative Banks - 30%
  • RRB and others - 10%

A bank established to provide banking services to the individuals and businesses is called Commercial Bank. A cooperative bank is a bank that provides financing to agriculturists, rural industries and to trade and industry of urban areas (but up to a limited extent).

22. Which of the following are the methods of Parliamentary control over public finance in India? [2012-1]

1. Placing Annual Financial Statement before the Parliament

2. Withdrawal of moneys from Consolidated Fund of India only after passing the Appropriation Bill

3. Provisions of supplementary grants and vote-on-account

4. A periodic or at least a mid-year review of programme of the Government against macroeconomic forecasts and expenditure by a Parliamentary Budget Office

5. Introducing Finance Bill in the Parliament

Select the correct answer using the codes given below:

Correct Answer: (a) 1, 2, 3 & 5 only
Solution:1. Placing Annual Financial Statement before the Parliament

2. Withdrawal of moneys from Consolidated Fund of India only after passing the Appropriation Bill

3. Provisions of supplementary grants and vote-on-account

4. Introducing Finance Bill in the Parliament

23. The Reserve Bank of India (RBI) acts as a bankers' bank. This would imply which of the following? [2012-1]

1. Other banks retain their deposits with the RBI.

2. The RBI lends funds to the commercial banks in times of need.

3. The RBI advises the commercial banks on monetary matters.

Select the correct answer using the codes given below:

Correct Answer: (d) 1, 2 & 3
Solution:All the statements are correct.
  • Reserve Bank of India (RBI) aims to maintain monetary and financial stability, manage currency, and foster economic growth (GDP) while regulating financial institutions and promoting financial inclusion across the country.
  • Monetary Stability: To maintain price stability and ensure adequate flow of credit to productive sectors through various reserve measures.
  • Financial Stability: To regulate and supervise the financial system to enhance stability and protect the interests of depositors.
  • Currency Management: To manage the currency and ensure its smooth distribution across the country.
  • Economic Growth: To support the economic policies of the government aimed at fostering economic growth and development.
  • Regulation of Financial Institutions: To regulate and supervise the financial system to ensure its stability and soundness.
  • Developmental Role: To support national objectives by promoting financial inclusion and extending banking services to rural and semi-urban areas.

24. In India, deficit financing is used for raising resources for : [2013-1]

Correct Answer: (a) economic development
Solution:Deficit financing refers to the difference between expenditure and receipts. In public finance, it means the govt. is spending more than what it is earning. Deficit financing is a necessary evil in a welfare state as the states often fail to generate tax revenue which is sufficient enough to take care of the expenditure of the state. The basic intention behind deficit financing is to provide the necessary impetus to economic growth by artificial means.

25. Priority Sector Lending by banks in India constitutes the lending to : [2013-1]

Correct Answer: (d) All of the above
Solution:Priority sector lending constitutes the lending to-agriculture, micro and small enterprises, micro credit, education, housing and weaker sections.
  • PSL is a lending requirement administered by the RBI, requiring banks to give a minimum proportion of their loans to sectors of development importance or the sectors that have difficulty of getting loans.
  • The RBI is periodically updating the sectors that are eligible to get priority sector lending and the limits of loans.
  • Similarly, the regulations identify institutions that are obliged to provide these loans.
  • Banks can meet their PSL obligations by extending loans, providing credit facilities, and offering financial products and services to individuals, entities, and enterprises in the priority sectors.
  • They can also fulfil their targets through investments in eligible instruments, such as bonds issued by entities engaged in priority sector activities.
  • In case, banks fail to meet their PSL targets, they have to deposit the allocated amount to the Rural Infrastructure Development Fund (RIDF) established with NABARD and to other funds with NABARD, SIDBI, Mudra, National Housing Bank, etc., as decided by the RBI from time to time.

26. Which one of the following groups of items is included in India's foreign-exchange reserves? [2013-1]

Correct Answer: (b) Foreign-currency assets, gold holdings of the RBI and SDR's
Solution:

Purpose:

  • They are used to back liabilities on their own issued currency, support the exchange rate and set monetary policy.
  • To ensure that RBI has backup funds if their national currency rapidly devalues or becomes altogether insolvent.
  • If the value of the Rupee decreases due to an increase in the demand of the foreign currency, then RBI sells the dollar in the Indian money market so that depreciation of the Indian currency can be checked.
  • A country with a good stock of forex has a good image at the international level because the trading countries can be sure about their payments.
  • A good forex reserve helps in attracting foreign trade and earns a good reputation with trading partners.

27. The national income of a country for a given period is equal to the [2013-1]

Correct Answer: (d) money value of final goods and services produced
Solution:
  • National Income denotes the total worth of all final goods and services generated within a country during a specific time frame, typically over the course of one financial year.
  • From a macroeconomic perspective, national income plays a central role in measuring the economic performance and prosperity of a nation.
  • It is utilised in evaluating per capita income, understanding inequality, and comparing growth across countries. It also forms the basis for fiscal policy formulation, taxation, and welfare schemes.
  • Globally, institutions like the World Bank, the IMF, and the United Nations rely on national income statistics to assess global economic trends and design development frameworks.
  • In India, agencies such as the National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation (MoSPI) handle national income estimation.

28. Which of the following constitute Capital Account? [2013-1]

1. Foreign Loans

2. Foreign Direct Investment

3. Private Remittances

4. Portfolio Investment

Select the correct answer using the codes given below.

Correct Answer: (b) 1, 2 & 4
Solution:Capital Account comprises of Foreign loans, Foreign Direct Investment and Portfolio Investment. Capital Account is the net result of public and private international investments flowing in and out of a country. Portfolio investment is the buying of shares and bonds. FDI is the investments by foreigners in a country or the citizens investing in foreign countries.

29. In the context of Indian economy, 'Open Market Operations' refers to [2013-1]

Correct Answer: (c) purchase and sale of government securities by the RBI
Solution:Itisanactivity by a central bank (RBI) to buy or sell government securities. The aim of open market operations is to manipulate the short term interest rate and the supply of base money in an economy, and indirectly control the total money supply.

OMO are one of the three major monetary tools (besides reserve ratio and policy rates) to influence money supply in the market and achieve the desired trend in interest rate. There is an inverse relationship between bond prices and interest rates. Thus, purchase of bonds via an OMO raises the price of bonds and reduces rates. Open market purchases increase money supply, thus making money less valuable resulting in reduction of rates in the money market and vice versa. Monetary tools such as repo rate, reverse repo, marginal standing facility rate and bank rate are policy rates while CRR and SLR are the reserve ratios.

30. The main objective of the 12th Five-Year Plan is: [2014-1]

Correct Answer: (d) faster, sustainable and more inclusive growth
Solution:12th Five Year Plan of the Government of India (2012-17) aims at faster, sustainable and more inclusive growth.
  • The Government of India's Twelfth Five-Year Plan was set to reach a growth rate of 9%, but the National Development Council (NDC) accepted an 8% growth rate for the Twelfth Plan on December 27, 2012.
  • During the 12th Five-Year Plan, the government aims to reduce poverty by 10%.
  • The plan intends to improve the nation’s infrastructure projects while preventing bottlenecks of any kind.
  • The paper provided by the planning commission aims to attract private investments of up to $1 trillion in infrastructure growth in the 12th five-year plan, as well as a reduction in the government’s subsidy burden to 1.5 percent of GDP from 2%. (gross domestic product).