UPSC Static Quiz – Economy : 29 November 2025

Solution: B

Ex-Gratia Payment is voluntary and discretionary, unlike court-ordered compensations or legally mandated schemes.

Option a is incorrect as court-ordered compensations are legally binding, unlike ex-gratia.

Option c is incorrect because ex-gratia is one-time relief, not a fixed payment scheme.

Option d is incorrect as ex-gratia is not legally mandated.

• What is Ex-Gratia?
  • Ex-gratiarefers to a payment made as a goodwill gesture, not a legal obligation.
  • The government provides ex-gratia reliefin cases like accidents, natural disasters, and tragedies.
• Legal Framework Governing Ex-Gratia:
  • No specific statutory lawgoverns ex-gratia payments.
  • The concerned ministry or departmentdetermines the amount and mode of disbursal.
  • Railway ex-gratia payments follow the RailwayAccidents and Untoward Incidents (Compensation) Rules, 1990.
• Procedure for Ex-Gratia Payments:
  • Verification of Identity:Aadhaar, legal heir certificate, and death certificate.
  • Approval by Authorities:Competent authority sanctions the amount.
  • Disbursal of Funds:Either cash (immediate relief) or bank transfer (final payment).
• Modes of Payment:
  • Cash:Immediate assistance for initial expenses (Railway guidelines permit up to Rs 50,000 in cash).
  • Bank Transfer:Aadhaar-linked Direct Benefit Transfer (DBT) for full compensation.
  • Cheque/NEFT:Preferred for large amounts, ensuring accountability and transparency.

Difference Between Ex-Gratia and Compensation:

Solution: B

Statements 1 and 2 are correct as swaps affect liquidity, stabilize exchange rates, and can increase forex reserves.

Statement 3 is incorrect because while swap auctions can influence liquidity and exchange rates, they are not a direct inflation control tool.

About Rupee & Dollar Swap Auctions:

• It is a tool used by RBI to manage liquidity in the economy and stabilize currency volatility.
• Banks sell US dollars to RBI in exchange for rupees in the first leg and agree to repurchase dollars at a future date.

• Who Conducts It?

• • The Reserve Bank of India (RBI), as part of its monetary policy interventions, executes the swap auctions.

• How It Works?

• • First Leg (Buy Phase): Banks sell USD to RBI and receive Indian Rupees (INR).
  • Reverse Leg (Sell Phase): Banks buy back USD from RBI at a pre-determined price at the end of the swap period.

• Key Features of the Swap:

• • Tenor: Can be short-term (6 months) or long-term (3 years or more).
  • Liquidity Management: Used to infuse or absorb rupee liquidity in the system.
  • Forex Reserve Utilization: RBI uses its forex reserves to regulate currency flows.
  • Impact on Exchange Rate: Helps stabilize rupee fluctuations against the dollar.

• Impact on the Indian Economy:
  • Improves Banking Liquidity: Injects Rs 86,000 crore into the banking system, addressing the current liquidity shortfall of Rs 1.7 lakh crore.
  • Enhances Monetary Policy Transmission: Ensures that interest rates in money markets align with RBI’s policy stance.
  • Strengthens the Rupee: Reduces depreciation pressure on INR due to forex market fluctuations.
  • Supports Economic Growth: Enables banks to lend more to businesses and industries, promoting investment and consumption.
  • Controls Inflation Risks: Provides liquidity without increasing inflationary pressures, as money is infused against future forex obligations.

Solution: C

Option a is incorrect – Reciprocal tariffs apply to all goods and services, not just agriculture.

Option b is incorrect – The WTO follows the Most-Favored-Nation (MFN) principle, which prevents discriminatory tariff rates.

Option c is correct – Reciprocal Tariffs are retaliatory trade measures where a country matches the tariffs imposed by its trading partners.

Option d is incorrect – Preferential Trade Agreements (PTAs) are negotiated tariff reductions, not retaliatory tariffs.

What is a Reciprocal Tariff?

• A reciprocal tariff is a trade policy where a country imposes import duties equal to the tariffs charged on its exports by other nations.
• It is designed to counter trade imbalances and discourage unfair tariff policies by foreign governments.

How Does It Work?

• If a country imposes higher tariffs on U.S. goods, the U.S. will match the rate on imports from that nation.
• The policy applies to goods, services, and non-tariff barriers restricting U.S. market access.
• It aims to reduce trade deficits and encourage countries to lower their tariffs to maintain access to the U.S. market.

Does It Violate WTO Rules?

• Yes, it may contradict WTO principles, which advocate non-discriminatory trade policies under the Most-Favored-Nation (MFN) rule.
• However, the U.S. can justify it under Article XXI (national security exception) or Article XX (general exceptions) of the WTO agreement.

Solution: B

Statement 1 is correct, as the Federal Reserve was indeed established in 1913 to serve as the central bank of the United States, with responsibilities for monetary policy, banking supervision, and providing financial services.

Statement 2 is incorrect because the Federal Reserve does not directly control consumer loan and mortgage rates; instead, it influences them through its control of the Federal Funds Rate and other monetary policy tools.

Statement 3 is correct, as the Federal Funds Rate is the interest rate at which banks lend money to one another overnight, and it serves as a benchmark for other interest rates in the economy.

Solution: D

Statement 1 is correct — the DGTR, under the Ministry of Commerce and Industry, is the nodal agency that conducts investigations and recommends ADD to the Ministry of Finance.

Statement 2 is correct — ADD is imposed when an imported product is sold at a price lower than its normal value (typically the domestic market price of the exporting country) and such imports cause injury to domestic producers.

About Anti-Dumping Duties:

• What it is

• • Anti-dumping duty is a protectionist tariff imposed on imports priced below their normal value in the exporting country.
  • It aims to protect domestic industries from injury caused by unfairly priced imports.

• Authority to impose in India

• • The Directorate General of Trade Remedies (DGTR) under the Ministry of Commerce and Industry recommends anti-dumping duties.
  • The Ministry of Finance notifies and levies these duties based on DGTR’s investigation and recommendation.

• When it is imposed:

• • Imposed after evidence of material injury to domestic industry from cheap imports sold at below market price.
  • Duties are typically levied for a period of up to five years and periodically reviewed.

• Does it violate WTO rules?

• • No, it is permitted under Article 6 of the General Agreement on Tariffs and Trade (GATT), 1994.

The WTO Anti-Dumping Agreement allows members to impose duties to ensure fair trade practices.