DAY – 44 (InstaTest-44): Insta 75 Days Revision Plan-2023: Topic – ECONOMY, Test – 30, June 2022 CA

Solution: A

Third Five Year Plan (1961 – 66)

Target Growth: 5.6%

Actual Growth: 2.8%

At its conception, it was felt that Indian economy has entered a “takeoff stage”. Therefore, its aim was to make India a ‘self-reliant’ and ‘self-generating’ economy. Based on the experience of first two plans (agricultural production was seen as limiting factor in India’s economic development) , agriculture was given top priority to support the exports and industry.

The Plan was thorough failure in reaching the targets due to unforeseen events – Chinese aggression (1962), Indo-Pak war (1965), severe drought 1965-66. Due to conflicts the approach during the later phase was shifted from development to defence & development.

Solution: C

Cash Management Bills (CMBs)

In 2010, Government of India, in consultation with RBI introduced a new short-term instrument, known as Cash Management Bills (CMBs), to meet the temporary mismatches in the cash flow of the Government of India. The CMBs have the generic character of T-bills but are issued for maturities less than 91 days.

Like T-bills, Cash Management Bills (CMBs) are also issued at a discount and redeemed at face value on maturity. The tenor, notified amount and date of issue of the CMBs depend upon the temporary cash requirement of the Government. The tenors of CMBs is generally less than 91 days.

Solution: A

What is Liquidity Adjustment Facility (LAF) and whether Re-repo in Government Securities Market is allowed?

LAF is a facility extended by RBI to the scheduled commercial banks and PDs to avail of liquidity in case of requirement or park excess funds with RBI in case of excess liquidity on an overnight basis against the collateral of G-Secs including SDLs. Basically, LAF enables liquidity management on a day to day basis. The operations of LAF are conducted by way of repurchase agreements with RBI being the counter-party to all the transactions. The interest rate in LAF is fixed by RBI from time to time. LAF is an important tool of monetary policy and liquidity management.

The Reserve Bank of India (RBI) allowed regional rural banks (RRBs) to access the liquidity adjustment facility (LAF), marginal standing facility (MSF) and call or notice money market, aimed at facilitating better liquidity management for these lenders.

https://www.livemint.com/industry/banking/rbi-allows-rrbs-to-access-laf-msf-windows/amp-11607070217776.html

Repo market

Repo or ready forward contact is an instrument for borrowing funds by selling securities with an agreement to repurchase the said securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.

The reverse of the repo transaction is called ‘reverse repo’ which is lending of funds against buying of securities with an agreement to resell the said securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.

Solution: A

Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly-owned subsidiary of the Reserve Bank of India (RBI). It provides deposit insurance that works as a protection cover for bank deposit holders when the bank fails to pay its depositors.

The agency insures all kinds of deposit accounts of a bank, such as savings, current, recurring, and fixed deposits up to a limit of Rs. 5 lakh per account holder per bank. In case an individual’s deposit amount exceeds Rs.5 lakh in a single bank, only Rs.5 lakh, including the principal and interest, will be paid by DICGC if the bank becomes bankrupt.

How DICGC Works?

DICGC protects depositors’ money kept in all commercial and foreign banks located in India; central, state, and urban co-operative banks; regional rural banks; and local banks, provided that the bank has opted for DICGC cover.

The agency’s operations are performed as per The Deposit Insurance and Credit Guarantee Corporation Act, 1961 and The Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961, framed by RBI under the provisions of sub-section (3) of Section 50 of the act. The act states that the establishment of this corporation is with the aim of insuring deposits, guaranteeing credit facilities, and other related matters.

Solution: A

Regional Rural Banks were established under the provisions of an Ordinance passed on 26 September 1975 and the RRB Act 1987 to provide sufficient banking and credit facility for agriculture and other rural sectors. Regional Rural Banks (RRB) are Indian Scheduled Commercial Banks (Government Banks) operating at regional level in different states of India. They have been created with a view of serving primarily the rural areas of India with basic banking and financial services. However, RRBs may have branches set up for urban operations and their area of operation may include urban area too.

RRBs are jointly owned by Government of India (GOI), Sponsor Bank and the concerned State Government and with share proportion 50%,35% & 15% respectively.

The area of operation of RRBs is limited to the area as notified by Government of India covering one or more districts in the State. RRBs perform various functions in following heads:

• Providing banking facilities to rural and semi –urban areas.
• Carrying out government operations like disbursement of wages of MGNREGA workers, distribution of pension etc.
• Providing Para-Banking facilities like locker facilities, debit and credit cards, mobile banking, internet banking, UPI etc.

Solution: B

Priority sector loans to the following borrowers will be considered as lending under Weaker Sections category:

(i)       Small and Marginal Farmers

(ii)      Artisans, village and cottage industries where individual credit limits do not exceed ₹1 lakh

(iii)     Beneficiaries under Government Sponsored Schemes such as National Rural Livelihood Mission (NRLM), National Urban Livelihood Mission (NULM) and Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)

(iv)     Scheduled Castes and Scheduled Tribes

(v)      Beneficiaries of Differential Rate of Interest (DRI) scheme

(vi)     Self Help Groups

(vii)    Distressed farmers indebted to non-institutional lenders

(viii)   Distressed persons other than farmers, with loan amount not exceeding ₹1 lakh per borrower to prepay their debt to non-institutional lenders

(ix)     Individual women beneficiaries up to ₹1 lakh per borrower (For UCBs, existing loans to women will continue to be classified under weaker sections till their maturity/repayment.)

(x)      Persons with disabilities

(xi)     Minority communities as may be notified by Government of India from time to time.

Solution: A

Non-performing assets

An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. A ‘non-performing asset’ (NPA) was defined as a credit facility in respect of which the interest and/ or instalment of principal has remained ‘past due’ for a specified period of time.

A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.

Description: Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.

1. Substandard assets: Assets which has remained NPA for a period less than or equal to 12 months.

2. Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.

3. Loss assets: As per RBI, “Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.”

Solution: A

What is Insolvency and Bankruptcy Code (IBC) 2016?
Insolvency and Bankruptcy Code 2016 was implemented through an act of Parliament.

What does the IBC aim to do?
IBC applies to companies, partnerships and individuals. It provides for a time-bound process to resolve insolvency. When a default in repayment occurs, creditors gain control over debtor’s assets and must take decisions to resolve insolvency. Under IBC debtor and creditor both can start ‘recovery’ proceedings against each other.

What is the timeframe for completion of the exercise under the Code?
Companies have to complete the entire insolvency exercise within 180 days under IBC. The deadline may be extended if the creditors do not raise objections on the extension. For smaller companies including startups with an annual turnover of Rs 1 crore, the whole exercise of insolvency must be completed in 90 days and the deadline can be extended by 45 days. If debt resolution doesn’t happen the company goes for liquidation.

Who regulates the IBC proceedings?
Insolvency and Bankruptcy Board of India has been appointed as a regulator and it can oversee these proceedings. IBBI has 10 members; from Finance Ministry and Law Ministry the Reserve Bank of India.

Who adjudicates over the proceedings?
The proceedings of the resolution process will be adjudicated by the National Companies Law Tribunal (NCLT), for companies and the Debt Recovery Tribunal (DRT) for individuals.

Solution: A

Index of Industrial Production data or IIP as it is commonly called is an index that tracks manufacturing activity in different sectors of an economy. The IIP number measures the industrial production for the period under review, usually a month, as against the reference period. IIP is a key economic indicator of the manufacturing sector of the economy. There is a lag of six weeks in the publication of the IIP index data after the reference month ends. IIP index is currently calculated using 2011-2012 as the base year.

IIP Index Components:

Electricity, crude oil, coal, cement, steel, refinery products, natural gas, and fertilisers are the eight core industries that comprise about 40 percent of the weight of items included in the Index of Industrial Production. Mining, manufacturing, and electricity are the three broad sectors in which IIP constituents fall.

Who releases Index of Industrial Production or IIP data?

In the case of Index of Industrial Production India, IIP data is compiled and published by CSO every month. CSO or Central Statistical Organisation operates under the Ministry of Statistics and Programme Implementation (MoSPI).

Solution: C

• Gross value added (GVA) is an economic productivity metric that measures the contribution of a corporate subsidiary, company, or municipality to an economy, producer, sector, or region.
• GVA is the output of the country less the intermediate consumption, which is the difference between gross output and net output.
• GVA is important because it is used to adjust GDP, which is a key indicator of the state of a nation’s total economy.
• It can also be used to measure how much money a product or service has contributed toward meeting a company’s fixed costs.

GVA provides a dollar value for the amount of goods and services that have been produced in a country, minus the cost of all inputs and raw materials that are directly attributable to that production. GVA thus adjusts gross domestic product (GDP) by the impact of subsidies and taxes (tariffs) on products.

Solution: C

Marginal Cost of Funds based Lending Rate (MCLR) is the minimum lending rate below which a bank is not permitted to lend. MCLR replaced the earlier base rate system to determine the lending rates for commercial banks.

RBI implemented MCLR on 1 April 2016 to determine rates of interests for loans. It is an internal reference rate for banks to determine the interest they can levy on loans. For this, they take into account the additional or incremental cost of arranging an additional rupee for a prospective buyer.

The Outcome of MCLR implementation

After the implementation of MCLR, the interest rates are determined as per the relative risk factor of individual customers. Previously, when RBI reduced the repo rate, banks took a long time to reflect it in the lending rates for the borrowers.

Under the MCLR regime, banks must adjust their interest rates as soon as the repo rate changes. It is the respective banks and not RBI which sets the MCLR. The implementation aims at improving the openness in the structure followed by the banks to calculate the interest rate on advances.

It also ensures the prospect of bank credits at the interest that is true to the consumers as well as the banks.

MCLR is calculated based on the loan tenor, i.e., the amount of time a borrower has to repay the loan. This tenor-linked benchmark is internal in nature. The bank determines the actual lending rates by adding the elements spread to this tool.

Solution: B

The Basel Committee – initially named the Committee on Banking Regulations and Supervisory Practices – was established by the central bank Governors of the Group of Ten countries at the end of 1974 in the aftermath of serious disturbances in international currency and banking markets (notably the failure of Bankhaus Herstatt in West Germany).

The Committee, headquartered at the Bank for International Settlements in Basel, was established to enhance financial stability by improving the quality of banking supervision worldwide, and to serve as a forum for regular cooperation between its member countries on banking supervisory matters. The Committee’s first meeting took place in February 1975, and meetings have been held regularly three or four times a year since.

Basel Norms are the norms issued by the Basel Committee on Banking Supervision (BCBS) for the international banking regulations.

Basel III

The introduction of Basel III guidelines happened because of the 2008 financial crisis that highlighted some serious flaws in the regulation and compliance mechanisms that were put in a place for the banks. It was introduced in 2010. Its objective was to make a resilient and transparent banking system, improve banking sector shock-absorbing capacity and more focus on Capital Adequacy Ratio.

Solution: B

Federation of Indian Export Organisations popularly known as ‘FIEO’ is the apex body of the Government recognised Export Promotion Councils, Commodity Boards and Development Authorities in India. Set up in 1965 by Ministry of Commerce, Govt. of India to focus the efforts of all stakeholders engaged in promotion of trade from the country, FIEO is partner of Govt. of India to boost International Trade from India. FIEO provides the crucial interface between International Trading community of India with the Central and State Governments, Financial Institutions, Ports, Railways, Surface Transport and all engaged in Export Trade Facilitation. The Federation directly and indirectly serves the interests of over 200,000 exporters from every Industry and Services sector in the country.

Solution: D

Board For Reconstruction of Public Sector Enterprises
(Brpse)

1. Background

Board for Reconstruction of Public Sector Enterprises (BRPSE) was established in December 2004 as an advisory body to advise the Government on the strategies, measures and schemes related to strengthening, modernizing, reviving and restructuring of public sector enterprises.

2. Functions of BRPSE
3. To advise the Government on ways and means for strengthening public sector enterprises in general and making them more autonomous and professional;
   2. To consider restructuring – financial, organizational and business (including diversification, joint ventures, seeking strategic partners, merger and acquisition) – of CPSEs and suggest ways and means for funding such schemes;
   3. To examine the proposals of the administrative Ministries for revival/ restructuring of sick/loss making CPSEs for their turnaround;
   4. To advise the Government on disinvestments/closure/sale in full or part, in respect of chronically sick/loss making companies which cannot be revived. In respect of such unviable companies the Board would also advise the Government about sources of fund including sale of surplus assets of the enterprise for the payment of all legitimate dues and compensation to workers and other costs of closure;
   5. To monitor incipient sickness in CPSEs; and
   6. To advise the Government on such other matters as may be assigned to it by the Government from time to time.

Solution: B

What is a Capital Gain Tax?

To simplify the Capital gain tax meaning, the tax that is levied on capital gains is termed as capital gain tax. Such taxes are levied when an asset is transferred between owners.

Types of Capital Gains Taxation

There are two types of capital gains –

1) Short-term Capital Gain Tax

Any asset that is held for less than 36 months is termed as a short-term asset. In the case of immovable properties, the duration is 24 months. The profits generated through the sale of such an asset would be treated as short-term capital gain and would be taxed accordingly.

2) Long-term Capital Gain Tax

Any asset that is held for over 36 months is termed as a long-term asset. The profits generated through the sale of such an asset would be treated as long-term capital gain and would attract tax accordingly.

Assets like preference shares, equities, UTI units, securities, equity-based Mutual Funds and zero-coupon bonds are also considered as long-term capital asset if they are held for over a year.

Solution: C

A cess is an additional tax levied by the government for a specific purpose. It is usually imposed over and above the existing tax rates. The revenue collected through cess is used for a specific purpose, such as the education cess and health cess. Cess is a tax on tax, which means that it is levied on the existing tax rate. For example, if the government imposes a 2% cess on income tax, a person with a taxable income of Rs. 10 lakhs and an income tax rate of 10% will have to pay a cess of Rs. 2,000 (2% of Rs. 1 lakh, which is the taxable income after deducting exemptions).

A surcharge is an additional charge imposed on any tax that has already been paid. It is usually imposed on high-income taxpayers or on corporate entities. The revenue collected through surcharge is used for various purposes, such as funding education, infrastructure development, or rural development. For example, if the government imposes a 10% surcharge on income tax for taxpayers with a taxable income of Rs. 50 lakhs and above, a person with a taxable income of Rs. 60 lakhs and an income tax rate of 30% will have to pay a surcharge of Rs. 18,000 (10% of Rs. 1.5 lakhs, which is the taxable income after deducting exemptions).

Solution: C

The Narasimham Working Group was constituted in 1975 to review the arrangements for institutional credit for agriculture and rural development. Based on the recommendations of this group, Regional Rural Banks (RRBs) were established in India in 1975. The main objective of setting up RRBs was to provide credit and other facilities to the rural areas for agricultural and rural development.

The first Regional Rural Bank (RRB) in India was Prathama Grameen Bank, established on 2nd October 1975. It was sponsored by the Syndicate Bank and was located in Moradabad district of Uttar Pradesh. Since then, several other RRBs have been established in different parts of the country to cater to the credit and other financial needs of the rural population.

Solution: B

What is the role of the Reserve Bank of India in currency management?

The Reserve Bank derives its role in currency management from the Reserve Bank of India Act, 1934. The Reserve Bank manages currency in India. The Government, on the advice of the Reserve Bank, decides on various denominations of banknotes to be issued. The Reserve Bank also co-ordinates with the Government in the designing of banknotes, including the security features. The Reserve Bank estimates the quantity of banknotes that are likely to be needed denomination-wise and accordingly, places indent with the various printing presses. The aim of the Reserve Bank is to provide good quality notes to members of public. Towards this aim, the banknotes received back from circulation are examined and those fit for circulation are reissued and the others (soiled and mutilated) are destroyed so as to maintain the quality of banknotes in circulation.

What is the role of Government of India?

In terms of Section 25 of RBI Act, 1934 the design of banknotes is required to be approved by the Central Government on the recommendations of the Central Board of the Reserve Bank of India.

The responsibility for coinage vests with the Government of India on the basis of the Coinage Act, 2011 as amended from time to time. The Government of India is also responsible for the designing and minting of coins in various denominations.

Who decides on the figure to be printed on a new note?

The Government of India in consultation with the Reserve Bank of India decides the design of banknotes.

Solution: D

Asian Development Bank (ADB):

About ADB:

• It is a regional development bank.
• established on 19 December 1966.
• headquartered — Manila, Philippines.
• United Nations is official Observer.

Who can be its members?

The bank admits the members of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP, formerly the Economic Commission for Asia and the Far East or ECAFE) and non-regional developed countries.

• ADB now has 68 members, 49 from within Asia.

Voting rights:

• It is modeled closely on the World Bank, and has a similar weighted voting system where votes are distributed in proportion with members’ capital subscriptions.
• As of 31 December 2019, ADB’s five largest shareholders are Japan and the United States (each with 15.6% of total shares), the People’s Republic of China (6.4%), India (6.3%), and Australia (5.8%).

India’s shareholding in the ADB was 6.385%, while the United Kingdom’s shareholding was 5.509%.

Solution: B

The Capital Budget of India includes the capital receipts and capital expenditure of the government. Capital receipts are the money that the government receives from the sale of assets or borrowings, while capital expenditure is the expenditure incurred in creating assets or repayment of loans.

1. The administrative expenses

Administrative expenses are a part of the Revenue Budget of the government and are incurred for the day-to-day functioning of the government. These expenses are not included in the Capital Budget of India.

2. Salaries of Armed forces personnel

Salaries of Armed forces personnel are also a part of the Revenue Budget of the government and are considered revenue expenditure. These expenses are not included in the Capital Budget of India.

3. Repayment of loans by states

Repayment of loans by states is a capital payment and is included in the Capital Budget of India.

4. Creating assets such as roads and hospitals

Creating assets such as roads and hospitals is a capital payment and is included in the Capital Budget of India.

Solution: B

STRUCTURE OF RBI

• Central Board of Directors is the top decision-making body in the RBI. It is made up of official and non-official directors.
• The Governor and Deputy Governors are the official directors.
• There is a Governor and maximum 4 Deputy Governors (According to Section-8 of RBI Act 1934); so maximum number of Official Directors in RBI’s Central Board of Directors is five.
• Governor and Deputy governors are appointed by Central Government. The tenure of service is maximum of 3 years and can be reappointed
• Further, there are 16 non-official directors in RBI.
• Out of them, four represent the local Boards located in Delhi, Chennai, Kolkata and Mumbai, thus representing 4 regions of India.

Solution: D

RBI role as Banker to bank

• It is the banker of all the banks.
• It keeps the reserve of the banks like cash reserve ratio (CRR) with it.
• It provides financial assistance to banks against mortgaged securities.
• It rediscounts bills of exchange.
• Usually, banks borrow and lend money among themselves via call money market, regulated by RBI.
• RBI provides enough money to banks and so called as lender of last resort.

Solution: B

ASSETS AND LIABILITIES OF RBI

Solution: B

PUBLICATIONS OF RBI

• Report on Trend and Progress of Banking in India-Annually
• Financial stability report- Half yearly
• Monetary policy report- Half yearly
• Report on foreign exchange reserves- Half yearly
• Bi-monthly Policy Statement
• Industrial Outlook Survey of the Manufacturing Sector (Quarterly)
• Consumer Confidence Survey (Quarterly)
• Report on Financial Review

Solution: C

OBJECTIVES OF MINIMUM RESERVE SYSTEM (MRS)

• To maintain the money supply in the economy without inflationary pressure and maintain the confidence of the general public in the currency.
• To ensure the confidence of the Indian currency holders that the currency held by them is a legal tender.
• RBI wants to ensure the appropriate supply of currency in the economy through MRS.
• Through the MRS, the RBI accelerate the economic growth of the country without increasing the rate of inflation in the economy.

Ans. B.

The passage talks about the human capital challenges in municipal corporation and the ways in which it is impeding their service delivery capabilities. The problem is due to the fact that such technical and managerial competencies are not factored in the requirements and neither are skilling efforts made. Statement ii captures this and hence B.

Ans. D.

All the three options are valid assumptions made in the passage. The passage does say that debate on UCC is related to personal customs. Every religion has a different form of such customs and hence they are an essential part of religion. Last statement is correct as there is a debate over UCC. The 2nd statement is correct as per the view of those who argue that if state introduces UCC, it abridges the freedom of religion.

Correct Option: C

Following common explanation, we get the code for ‘Zombie’ as ‘ 3D@’.

Option C is hence the correct answer.

Common Explanation:

In this question,

1. Each of the symbols of mathematical operations in the end of the code represents the number of letters its corresponding word does have.

No. of letters in the word        Symbol

3                                                       %

4                                                       $

5                                                       #

6                                                      @

7                                                       &

2. Now, the letters used in the middle of the codes represent two methods. Some words end with a consonant and the other end with a vowel. A consonant representing the word it belongs to, gets coded as the next letter in the alphabet and a vowel representing the word it belongs to, gets coded as the previous letter of this vowel in the alphabet.

For example,

The word ‘Worker’ ends with ‘R’ and the next letter to ‘R’ in the alphabet is ‘S’. So, the code of ‘Worker’ made applying the rules discussed so far would be ” _S@.

3. The number in each of the codes represents the number of consonants present in each of the words.

For instance,

The number of consonants in the word ‘Worker’ is 4. Hence, the complete code for ‘Worker’ will be 4S@.

Following the rules discussed so far, we can code the other words as well.

Correct Option: C

Following common explanation, we get the code for ‘Winners never quit’ as ‘ 3S# 2U$ 5T&’.

Option C is hence the correct answer.

Common Explanation:

In this question,

1. Each of the symbols of mathematical operations in the end of the code represents the number of letters its corresponding word does have.

No. of letters in the word        Symbol

3                                                       %

4                                                       $

5                                                       #

6                                                      @

7                                                       &

2. Now, the letters used in the middle of the codes represent two methods. Some words end with a consonant and the other end with a vowel. A consonant representing the word it belongs to, gets coded as the next letter in the alphabet and a vowel representing the word it belongs to, gets coded as the previous letter of this vowel in the alphabet.

For example,

The word ‘Worker’ ends with ‘R’ and the next letter to ‘R’ in the alphabet is ‘S’. So, the code of ‘Worker’ made applying the rules discussed so far would be ” _S@.

3. The number in each of the codes represents the number of consonants present in each of the words.

For instance,

The number of consonants in the word ‘Worker’ is 4. Hence, the complete code for ‘Worker’ will be 4S@.

Following the rules discussed so far, we can code the other words as well.

Correct Option: B

Following common explanation, we get the code for ‘Half girl friend’ as ‘ 3M$ 4E@ 3G$’.

Option B is hence the correct answer.

Common Explanation:

In this question,

1. Each of the symbols of mathematical operations in the end of the code represents the number of letters its corresponding word does have.

No. of letters in the word        Symbol

3                                                       %

4                                                       $

5                                                       #

6                                                      @

7                                                       &

2. Now, the letters used in the middle of the codes represent two methods. Some words end with a consonant and the other end with a vowel. A consonant representing the word it belongs to, gets coded as the next letter in the alphabet and a vowel representing the word it belongs to, gets coded as the previous letter of this vowel in the alphabet.

For example,

The word ‘Worker’ ends with ‘R’ and the next letter to ‘R’ in the alphabet is ‘S’. So, the code of ‘Worker’ made applying the rules discussed so far would be ” _S@.

3. The number in each of the codes represents the number of consonants present in each of the words.

For instance,

The number of consonants in the word ‘Worker’ is 4. Hence, the complete code for ‘Worker’ will be 4S@.

Following the rules discussed so far, we can code the other words as well.