QUIZ – 2020: INSIGHTS STATIC QUIZ, 30 January 2020 – Economy

Solution: c)

Planning, in the real sense of the term, began with the Second Five Year Plan. The Second Plan, a landmark contribution to development planning in general, laid down the basic ideas regarding goals of Indian planning; this plan was based on the ideas of Mahalanobis. In that sense, he can be regarded as the architect of Indian planning.

Industrial Policy Resolution 1956 (IPR 1956): In accordance with the goal of the state controlling the

commanding heights of the economy, the Industrial Policy Resolution of 1956 was adopted. This resolution

formed the basis of the Second Five Year Plan, the plan which tried to build the basis for a socialist pattern

of society.

In the first seven plans, trade was characterised by what is commonly called an inward-looking trade strategy. Technically, this strategy is called import substitution. This policy aimed at replacing or substituting imports with domestic production.

Solution: c)

Stabilisation measures are short-term measures, intended to correct some of the weaknesses that have

developed in the balance of payments and to bring inflation under control. In simple words, this means that there was a need to maintain sufficient foreign exchange reserves and keep the rising prices under control.

On the other hand, structural reform policies are long-term measures, aimed at improving the efficiency of the economy and increasing its international competitiveness by removing the rigidities in various segments of the Indian economy.

Solution: d)

The RBI decides the amount of money that the banks can keep with themselves, fixes interest rates, nature of lending to various sectors, etc.

Main Functions

Monetary Authority:

Formulates, implements and monitors the monetary policy.

Objective: maintaining price stability while keeping in mind the objective of growth.

Regulator and supervisor of the financial system:

Prescribes broad parameters of banking operations within which the country’s banking and financial system functions.

Objective: maintain public confidence in the system, protect depositors’ interest and provide cost-effective banking services to the public.

Manager of Foreign Exchange

Manages the Foreign Exchange Management Act, 1999.

Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

Issuer of currency:

Issues and exchanges or destroys currency and coins not fit for circulation.

Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.

Developmental role

Performs a wide range of promotional functions to support national objectives.

Regulator and Supervisor of Payment and Settlement Systems:

Introduces and upgrades safe and efficient modes of payment systems in the country to meet the requirements of the public at large.

Objective: maintain public confidence in payment and settlement system

Related Functions

Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.

Banker to banks: maintains banking accounts of all scheduled banks.

Solution: c)

Statement 1: Unnecessary revenue expenditure bloats the fiscal deficit, and since it forms the majority of government spending, its reduction has a very large effect on the fiscal deficit.

Statement 2: It will further increase the fiscal deficit.

Statement 3: Subsidies are a major component of government spending, and its reduction will cut down fiscal deficit.

Statement 4: It reduces tax revenue and thus increases fiscal deficit.

Solution: c)

Transfer pricing is the setting of the price for goods and services sold between controlled (or related) legal entities within an enterprise. For example, if a subsidiary company sells goods to a parent company, the cost of those goods is the transfer price.