The Tertiary Sector in the Indian Economy

Total Questions: 66

51. 'Global Financial Stability Report' is prepared by the : [2016-1]

Correct Answer: (b) International Monetary Fund
Solution:

About Global Financial Stability Report
• It is a semiannual report by the International Monetary Fund (IMF) that assesses the stability of global financial markets and emerging-market financing.
• It is released twice per year, in April and October.
• It focuses on current conditions, especially financial and structural imbalances, that could risk an upset in global financial stability and access to financing by emerging-market countries.
Highlights of the report
• It has warned about the risks to the global financial system from persistent high inflation, rising lending in the unregulated credit market, and increasing cyber-attacks on financial institutions.
• Geopolitical risks such as the ongoing war in West Asia and Ukraine could affect aggregate supply and lead to higher prices. This, it believes, might stop central banks from lowering rates anytime soon.
• In calendar year 2023, India was the second-largest recipient of foreign capital after the U.S. But things could change quickly if western central banks signal that they could keep interest rates high for a long time.
• In its report also noted that the growing unregulated private credit market, in which non-bank financial institutions lend to corporate borrowers, is a growing concern as troubles in the market might affect the broader financial system in the future.
• Credit borrowers in the private credit market may not be financially sound and noted that many of them do not have current earnings that exceed even their interest costs.

52. With reference to the governance of public sector banking in India, consider the following statements [2018-1]

1. Capital infusion into public sector banks by the Government of India has steadily increased in the last decade.

2. To put the public sector banks in order, the merger of associate banks with the parent State Bank of India has been affected.

Which of the statements given above is/are correct?

Correct Answer: (b) 2 only
Solution:From government reports, If we look at the data graph of capital infusion in last one decade, there have been ups and downs to #1 is wrong. And as per Economic Survey, #2 is correct.
Public Sector Banks in India perform multiple roles vital to the country’s economic development:
• Financial Intermediation: Mobilizing deposits and providing credit to various sectors, including agriculture, industry, and services.
• Government Schemes Implementation: Executing initiatives like Pradhan Mantri Jan Dhan Yojana (PMJDY), Mudra Yojana, and Atmanirbhar Bharat loans, aimed at financial inclusion and economic empowerment.
• Trade Finance: Supporting import-export businesses through letters of credit, foreign exchange services, and trade facilitation.
• Rural and Priority Sector Lending: Fulfilling 40% Priority Sector Lending (PSL) targets, as mandated by the Reserve Bank of India (RBI), with a focus on agriculture, micro, small, and medium enterprises (MSMEs), and housing.
• Digital Banking: Expanding mobile and internet banking services, enabling financial inclusion and convenience for customers.

53. Which one of the following statements correctly describes the meaning of legal tender money? [2018-1]

Correct Answer: (b) The money which a creditor is under compulsion to accept in settlement of his claims
Solution:

About Legal Tender:
• It is a type of currency or medium of exchange.
• It is money that is valid and acceptable for the settlement of debts which must be recognized when issued.
• Almost every country uses its national currency as legal tender.
• Creditors are lawfully responsible for accepting legal tender for the repayment of debt that they have availed.
• Legal tender is constituted by a law that specifies the object to be utilised as legal tender and the organisation that is commissioned to create and issue the same to the public such as the Reserve Bank of India.
• In India, the authentic legal tender of the Reserve Bank of India consists of coins and notes. The creditors are supposed to accept them as a payment towards the debt

54. The Service Area Approach was implemented under the purview of : [2019-1]

Correct Answer: (b) Lead Bank Scheme
Solution:Basic function of Lead Bank: Preparation of service area credit plan, Coordination with the efforts of Government, banks and credit agencies. Service Area approach is a modification of Lead Bank scheme.
The Lead Bank Scheme is a scheme which aims at providing adequate banking and credit in rural areas through an 'service area approach', with one bank assigned for one area. It was introduced in 1969.
On the recommendation of the Gadgil Study Group and Banker's Committee, the Scheme was introduced by RBI. The committees found that the rural areas were not able to enjoy the benefits of banking. Also, that the commercial banks did not have adequate presence in rural areas and also lacked the required rural orientation which was hindering the growth of rural areas.
To address this issue it was decided that some areas or sector will be given to the banks whether private or public in which that bank had to play a lead role in providing financial services to the people.
D.R. Gadgil study group recommended the adoption of an 'AREA APPROACH' to evolve plans and programs for the development of adequate banking and credit structure in rural areas.

Prof. D R Gadgil committee recommended the following points:
• Banks should provide integrated banking facilities in unbanked areas,
• Adoption of 'Area Approach' -- in unbanked areas -each bank should adopt an area.
• Help Agriculture & Supplemental Security Income (SSI),
• 'District' identified as the smallest geographical unit for the scheme.

55. Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly? [2019-1]

Correct Answer: (d) Participatory Note
Solution:Participatory Note (P-Notes): A foreigner wishes to invest in India but does not want to go through the hassles of registering with SEBI, getting PAN card number, opening a DEMAT account etc.

So, he will approach a SEBI registered foreign institutional investor (FII)/foreign portfolio investor (FPI) and invest via Participatory Notes.

56. In the context of any country which one of the following would be considered as part of its social capital? [2019-1]

Correct Answer: (d) The level of mutual trust and harmony in the society.
Solution:

• As defined by Robert Putnam, social capital refers to “features of social organisations such as networks, norms, and social trust that facilitate action and cooperation for mutual benefit”.
• It arises from everyday interactions between people through social networks and norms of reciprocity and trust. Higher social capital indicates greater connectedness.
Social Capital Enhances Good Governance in the Following Way
• Builds trust and cooperation:
○ Social capital promotes trust between citizens and government institutions, which enhances cooperation, compliance and policy implementation.
○ With high social capital, citizens are more likely to pay taxes, follow rules, and participate in governance. This reduces the costs of monitoring and enforcement for the state.
• Improves information flows:
○ The networks fostered by social capital facilitate flows of important market and social information that improves socio-economic outcomes.
○ For instance, professional and business associations can effectively communicate issues to policymakers.
• Increases Citizen Participation:
○ A civically engaged society with high levels of voluntarism and philanthropy leads to better articulation of public needs and demands.
○ More inclusive participation of citizens in public affairs also promotes responsive and accountable governance.
• Strengthens checks and balances:
○ Cross-cutting networks spanning different social cleavages promote pluralism and balance of power. This enables healthier democratic deliberation and constraints on state power.
○ The capacity of civil society groups and media to hold governments accountable is also strengthened.
• Promotes inclusive growth:
○ Bridging social capital that transcends group boundaries is crucial for equitable development. It enables broader access to essential services, opportunities and support networks.
○ For marginalised groups, it expands aspirations, capabilities and rights awareness.

57. If the RBI decides to adopt an expansionist monetary policy, [2021-1]

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:

Correct Answer: (b) 2 only
Solution:During the Expansionary Money/Cheap Money/Dovish Monetary Policy, RBI will try to increase the supply of money and/or reduce the loan interest rates.

So reducing the SLR, bank rate and repo rate will help. in that regard. So, RBI may do I and 3. So, here question is asking, "WHAT RBI WILL NOT DO?" So, Option a, c and d are eliminated. we are left with answer b: Only 2.

Increasing the MSF will raise the loan interest rates, so, if RBI pursues Expansionary policy, it'll not do it.

Some candidates engage in hairsplittery (बाल की खाल निकालना), that under the external benchmark system, loans are linked with repo rate so #2 unlikely to have any impact. But such hairsplittery is not required for the scope of exam

58. With reference to India, consider the following statements: [2021-1]

1. Retail investors through demat account can invest in Treasury Bills and Government of India Debt Bonds in primary market.

2. The Negotiated Dealing System-Ordering Matching" is a government securities trading platform of the Reserve Bank of India.

3. The "Central Depository Services Ltd" is jointly promoted by the Reserve Bank of India and the Bombay Stock Exchange.

Which of the statements given above is/are correct?

Correct Answer: (b) 1 & 2
Solution:RBI has an ownership with DICGC and some of the AIFIs. So, gut feeling says that statement #3 should be wrong. Upon going through the academic books, we find that CDSL, is a depository set up by the Bombay Stock Exchange (BSE) with 54% shareholding and remaining 46% is owned by various banks namely State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank, Union Bank of India, and Centurion Bank. So, Statement#3 is wrong. So, We are 50:50 between A or B.

In both A and B options, The first statement is common, so we have to accept is as correct.

In August, 2005, RBI introduced an anonymous screen-based order matching module on NDS, called NDS-OM. This is an order driven electronic system, where the participants can trade anonymously by placing their orders on the system or accepting the orders already placed by other participants. NDS-OM is operated by the Clearing Corporation of India Ltd. (CCIL) on behalf of the RBI. Direct access to the NDS-OM system is currently available only to select financial institutions like Commercial Banks, Primary Dealers, Insurance Companies, Mutual Funds, etc. Statement#2 is right.

Therefore, Correct answer "B",

59. With reference to the Indian economy, consider the following statements: [2022-1]

1. An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee.

2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness.

3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and REER.

Which of the above statements are correct?

Correct Answer: (c) 1 and 3 only
Solution:

• The indices of Nominal Effective Exchange Rate (NEER) and Real Effective Exchange Rate (REER) are used as indicators of external competitiveness.
• Statement 1 is correct: NEER is the weighted average of bilateral nominal exchange rates of the home currency in terms of foreign currencies. An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee.
• Statement 2 is incorrect: REER is the weighted average of nominal exchange rates adjusted for relative price differential between the domestic and foreign countries.
• An increase in a nation’s REER is an indication that its exports are becoming more expensive and its imports are becoming cheaper. Means, it is losing its trade competitiveness.
• Statement 3 is correct: A real effective exchange rate (REER) is the NEER adjusted by relative prices or costs, typically captured in inflation differentials between the home economy and trading partners. A nation’s nominal effective exchange rate (NEER) when adjusted for inflation in the home country, equals its real effective exchange rate (REER). Higher the inflation higher will be divergence (difference between) NEER and REER.

60. With reference to foreign-owned e-commerce firms operating in India, which of the following statements is/are correct? [2022-1]

1. They can sell their own goods in addition to offering their platforms as market places.

2. The degree to which they can own big sellers on their platforms is limited.

Select the correct answer using the code given below:

Correct Answer: (d) Neither 1 nor 2
Solution:

Statement 1 is wrong: As FDI in inventory model is prohibited. Statement 2 is correct: Any big sellers can not have more than the 25% of the total sales on e-commerce platform. But official answer key given answer (d).
• E-commerce (electronic commerce) is the buying and selling of goods and services, or the transmitting of funds or data, over an electronic network, primarily the internet.
Advantages:
• No geographical barrier: Delivery of products is taking place in the remotest part of the country, which has brought suppliers and customers closer together – boosting output and creating ideal competition.
• Lower cost: Due to decrease in miscellaneous expenses and increase in economy of scale, cost of the products also gets reduced.
• Personalization and product recommendation: Customers can learn more about the products thanks to the feedback and remarks system.
• For business: Advantages include an expanded customer base, increased sales, extended business reach, and the convenience of recurring payments and instant transactions