Daily Quiz: UPSC Prelims Marathon (Economy) – August 18, 2020

Monetary transmission is the pass-through of the RBI’s rate actions to the economy at large.

• As you know, the RBI’s most important task is to keep tabs on inflation by adjusting money supply.
• It also monitors the exchange rate. To control all this, the RBI uses many monetary tools.
• The repo rate, reverse repo rate and cash reserve requirement are being the key instruments.
• Let us take the repo rate, for instance. This is the rate at which the RBI lends short-term funds to banks to manage their day-to-day operations.
• When the RBI wants to stimulate growth, it cuts the repo rate to reduce the cost of borrowings.
• Banks get money at a cheaper rate. If this is passed on to borrowers, then monetary transmission is said to have happened smoothly.

Simply put, side pocketing is a framework that allows mutual funds to segregate the bad assets in a separate portfolio within their debt schemes.

• The Securities and Exchange Board of India (SEBI) introduced the framework in December — primarily triggered by the IL&FS fiasco — after it emerged that many fund houses have huge exposure to the beleaguered entity and could potentially take a huge hit on their net asset value thereby affecting investor returns.
• If a debt instrument is downgraded to default rating by credit rating agencies, then the fund house has the option to create a side pocket so that good assets can be ring-fenced.
• Side pocketing segregates the bad assets from the good ones.
• All existing investors in the scheme are allotted equal number of units in the segregated portfolio as held in the main portfolio and no redemption or subscription is allowed in the segregated portfolio.
• Thereafter, the units have to be listed on a stock exchange within 10 days to facilitate exit of the unit holders.

Effectively, this makes the price discovery of the bad assets a transparent procedure with investors having the freedom of either selling it at prevailing price or holding it if they expect the value to recover in future.

In CY 2019, the world crude steel production reached 1870 million tonnes (mt) and showed a growth of 3.4% over CY 2018.

• China remained world’s largest crude steel producer in same period (996 mt) followed by India (111mt), Japan (99mt) and the USA (88mt).
• Per capita finished steel consumption in 2018 was 224.5 kg for world and 590.1 kg for China (Source: World Steel Association).
• The same for India was 73.3 kg in 2018 (Source: JPC) and 75.7 kg (provisional) in 2019.The per capita consumption of India in 2018-19 was 74.1 kg and that in 2019-20 was 74.6 kg (prov.)

The Indian steel industry has entered into a new development stage, post de-regulation, riding high on the resurgent economy and rising demand for steel.

• Rapid rise in production has resulted in India becoming the 2^nd largest producer of crude steel during 2018 and 2019 (prov), from its 3rd largest status in 2017.
• The country was also the largest producer of Sponge Iron or DRI in the world and the 3rd largest finished steel consumer in the world after China & USA in 2019 (prov.)

The Harmonized System, or simply ‘HS’, is a six-digit identification code developed by the World Customs Organization (WCO).

• Called the “universal economic language” for goods, it is a multipurpose international product nomenclature.
• Over 200 countries use the system as a basis for their customs tariffs, gathering international trade statistics, making trade policies, and for monitoring goods.
• The system helps in harmonizing of customs and trade procedures, thus reducing costs in international trade.
• The Ministry of Commerce and Industry allocated a separate Harmonized System (HS) code for Khadi, India’s signature handspun and hand-woven cloth that was made iconic by Mahatma Gandhi during the freedom struggle.
• The Ministry of Micro, Small and Medium Enterprises (MSME) in its press release said, “Khadi has once again come out of its customary veil, marking its presence in the exclusive HS code bracket, issued by the central government on November 4, 2019, to categorize its products in export.”

PLFS is an initiative aimed at generating estimates of various labour force indicators.

• The National Sample Survey Office (NSSO) under the Ministry of Statistics and Programme Implementation conducts the survey.
• Quarterly survey (For urban areas only) – Captures only the current weekly status (CWS) data.

The government will kick off a massive exercise aimed to get a complete count of all economic units in the country-the Seventh Economic Census- from July 29 (2019) from the north eastern state of Tripura.

• The census, conducted by Ministry of Statistics and Programme Implementation (MoSPI), will be held this year after a gap of five years.
• The ministry partnered with CSC e-Governance services India Ltd (CSC SPV) to conduct the census.
• The  First  Economic  Census  was  conducted  throughout  the  country,  except  Lakshadweep,  during  1977  in  collaboration  with  the  States/  Union  Territories  (UTs). 
• The subsequent Censuses were conducted in the years 1980, 1990, 1998, 2005. The 6th and the latest census was conducted in 2013.

Delivering its poll promise, the Central Government on Saturday notified a decision to extend the benefit of ₹6,000 per year under the Pradhan Mantri Kisan Samman Nidhi scheme to all 14.5 crore farmers in the country, irrespective of the size of their landholding.

• Notifying the decision, the Union Agriculture Ministry has written to all State Governments, asking them to identify beneficiaries subject to the existing exclusion factors.
• “All the state/UT governments are, therefore, requested to expedite 100 per cent enlistment of eligible beneficiaries as per the revised scheme so that farmers are able to avail the benefit of the scheme,” the Ministry said.
• Those excluded from the PM-KISAN include institutional land holders, farmer families holding constitutional posts, serving or retired officers and employees of State or Central government as well as Public Sector Undetakings and Government Autonomous bodies.
• Professionals like doctors, engineers and lawyers as well as retired pensioners with a monthly pension of over ₹10,000 and those who paid income tax in the last assessment year are also not eligible for the benefits.

There is no official definition of black money in economic theory, with several different terms such as parallel economy, black money, black incomes, unaccounted economy, illegal economy and irregular economy all being used more or less synonymously.

• The simplest definition of black money could possibly be money that is hidden from tax authorities.
• That is, black money can come from two broad categories: illegal activity and legal but unreported activity.

Methods used to calculate black money:

One of the more popular methods is the monetary method.

• This method assumes that the existence of and changes in the share of unaccounted income is reflected in the stock or flow of money in the system.
• In other words, track the money in the economy and you’ll get an idea of how much has not been accounted for.

Another method is the global indicator or input-based method.

• In this method, unaccounted income is modelled using a single universal variable with which it is assumed to be highly correlated, therefore these estimates are also called input-based estimates.
• Basically, the estimated level of activity in these indicators is compared to the reported level of GDP to arrive at an estimate of under-reporting.
• One common input used in this method is the quantity of land freight transport.
• The idea is that matching the actual amount of freight transported in the country to the reported amount of economic activity in the related sectors could give an estimate of how much is not being reported.

A third method to measure black money is a straightforward survey.

This one, however, requires voluntary information from people and businesses concealing their incomes and so is prone to inaccuracies.

Popularly known as Package Programme, the Intensive Agricultural Development Programme (IADP) was taken up in 1961 and it paved the way to an Adoption Breakthrough for Green Revolution in India.

• It aimed at diffusing technical know-how, credit and agricultural technology to step up agricultural production in selected districts so that it may have demonstration effect.
• The relevance of IADP experiment (1961-64) arises from the fact that it provided a crucial and much needed ‘adoption breakthrough”-adoption of modem techniques of agricultural growth which, when coupled with the epochmaking ‘biological breakthrough, gave birth to the Green Revolution in India”.
• The pilot project was launched first in 7 districts of 7 different states. Out of these, four were rice producing, two wheat producing and one millets producing.
• The programme was a grand success and it created new dynamism in the stagnant countryside. It was extended to a total of 114 districts in 1964-65.

A stimulus package is a number of incentives and tax rebates offered by a government to boost spending in a bid to pull a country out of a recession or to prevent an economic slowdown.

• A stimulus package can either be in the form of a monetary stimulus or a fiscal stimulus.
• A monetary stimulus involves cutting interest rates to stimulate the economy.
• When interest rates are cut, there is more incentive for people to borrow as the cost of borrowing is reduced.
• An increase in borrowing means there’ll be more money in circulation, less incentive to save, and more incentive to spend.
• Lowering interest rates could also weaken the exchange rate of a country, thereby leading to a boost in exports.
• When exports are increased, more money enters the economy, encouraging spending and stirring up the economy.