Daily Quiz: UPSC Prelims Marathon (Economy) –October 13th,2020

constraint/constraints for development of integrated value chain system of Agriculture sector.
•Public and private investments in agriculture have remained low since the early 90s. Bottlenecks in implementation and a high degree of uncertainty have further reduced investor appetite for agricultural investments.
•Inability to acquire land for setting up of market yards, resulting from the restrictions on land leasing and land acquisition, is another major constraint.
•Even the existing marketing infrastructure suffers because of a lack of finances, manpower and proper facilities.
•Sub-market yards largely function as a location for government procurement and do not provide opportunities for open auction. Further, they are irregular in their operations and handle less than five per cent of the volume handled in principal yards.
•Poor maintenance of rural roads is a major constraint as well. Linkages with local and feeder roads remain sub-optimal.
•In the electricity sector, separate feeders for supply of power to agriculture and domestic electrification have not been carried out in many states.
Source: Ramesh Singh

The RBI has made it compulsory for banks to link their new floating rate home, auto and MSME loans to an external benchmark so that the borrowers can enjoy lower rate of interest. All new floating rate personal or retail loans (housing, auto, etc.) and floating rate loans to Micro and Small Enterprises extended by banks from October 01, 2019 shall be benchmarked to one of the following:
•Reserve Bank of India policy repo rate
•Government of India 3-Months Treasury Bill yield published by the Financial Benchmarks India Private Ltd (FBIL)
•Government of India 6-Months Treasury Bill yield published by the FBIL
•Any other benchmark market interest rate published by the FBIL.
Source: RBI

There are several direct and indirect instruments that are used for implementing monetary policy.
•Repo Rate: The (fixed) interest rate at which the Reserve Bank provides overnight liquidity to banks against the collateral of government and other approved securities under the liquidity adjustment facility (LAF).
•Reverse Repo Rate: The (fixed) interest rate at which the Reserve Bank absorbs liquidity, on an overnight basis, from banks against the collateral of eligible government securities under the LAF.
•Marginal Standing Facility (MSF): A facility under which scheduled commercial banks can borrow additional amount of overnight money from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit at a penal rate of interest. This provides a safety valve against unanticipated liquidity shocks to the banking system.
•Corridor: The MSF rate and reverse repo rate determine the corridor for the daily movement in the weighted average call money rate.
•Bank Rate: It is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers. The Bank Rate is published under Section 49 of the Reserve Bank of India Act, 1934. This rate has been aligned to the MSF rate and, therefore, changes automatically as and when the MSF rate changes alongside policy repo rate changes.
•Cash Reserve Ratio (CRR): The average daily balance that a bank is required to maintain with the Reserve Bank as a share of such per cent of its Net demand and time liabilities (NDTL) that the Reserve Bank may notify from time to time in the Gazette of India.
•Statutory Liquidity Ratio (SLR): The share of NDTL that a bank is required to maintain in safe and liquid assets, such as, unencumbered government securities, cash and gold. Changes in SLR often influence the availability of resources in the banking system for lending to the private sector.
•Open Market Operations (OMOs): These include both, outright purchase and sale of government securities, for injection and absorption of durable liquidity, respectively.
•Market Stabilization Scheme (MSS): This instrument for monetary management was introduced in 2004. Surplus liquidity of a more enduring nature arising from large capital inflows is absorbed through sale of short-dated government securities and treasury bills. The cash so mobilized is held in a separate government account with the Reserve Bank.
Source: RBI

Negative rate policy.
•Under a negative rate policy, financial institutions are required to pay interest for parking excess reserves with the central bank.
•That way, central banks penalize financial institutions for holding on to cash in hope of prompting them to boost lending.
•The euro area, Switzerland, Denmark, Sweden and Japan have allowed rates to fall slightly below zero.
Source: Indian Express

When a country joins the IMF, it is assigned an initial quota in the same range as the quotas of existing members of broadly comparable economic size and characteristics. The IMF uses a quota formula to help assess a member’s relative position.
•The current quota formula is a weighted average of GDP (weight of 50 percent), openness (30 percent), economic variability (15 percent), and international reserves (5 percent).
•For this purpose, GDP is measured through a blend of GDP—based on market exchange rates (weight of 60 percent) and on PPP exchange rates (40 percent).
•The formula also includes a “compression factor” that reduces the dispersion in calculated quota shares across members.
Source: IMF

In India, the first official attempt to compute the Index of Industrial Production (IIP) was made much earlier than the first recommendation on the subject came at the international level.
•The Office of the Economic Advisor, Ministry of Commerce and Industry made the first attempt of compilation and release of IIP with base year 1937, covering 15 important industries, accounting for more than 90% of the total production of the selected industries.
•The all-India IIP is being released as a monthly series since 1950. With the inception of the Central Statistical Organization in 1951, the responsibility for compilation and publication of IIP was vested with the same.
•When the index was commenced in India, the base year adopted was 1937 and this was revised successively to 1946, 1951, 1956, 1960, 1970, 1980-81, 1993-94, 2004-05 and recently to 2011-12.
•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.
Source: MoSPI

Milk production in India.
• India continues to be the largest producer of milk in the world.
• Milk production in the country was 187.7 million tonnes in 2018-19 and registered a growth rate of 6.5 per cent over the previous year.
• The per capita availability of milk has reached a level of 394 grams per day during 2018-19.

Source: Economic Survey 2019-20

The Economic Cost of food-grains consists of three components, namely, pooled cost of grains, procurement incidentals and the cost of distribution. The pooled cost of food grains is the weighted MSP of the stock of food-grains available with FCI at the time of calculating the economic cost.
Source: Economic Survey 2019 – 20

Private Entrepreneurs Guarantee Scheme was formulated in 2008, for construction of storage godowns in Public Private Partnership (PPP) mode through private entrepreneurs, Central Warehousing Corporation (CWC) and State Warehousing Corporations (SWCs) to overcome storage constraints and ensure safe stocking of food-grains across the country.
•Assessment of additional storage capacities required under the scheme is based on the overall procurement/ consumption pattern and storage space already available.
•To augment the existing storage capacity, construction of godowns has been undertaken in PPP mode in 22 States under Private Entrepreneurs Guarantee (PEG) Scheme through private sector as well as CWC and SWCs.
Source: Ramesh Singh

Smurfing (also called structuring) is a method in which small sizes of money is kept in several number of bank accounts to hide the real identity of the real owner.
•This has been a very commonly used method of money-laundering.
•During the reform period, as more prudential norms of banking regulation evolved, such acts declined in India.
•‘Smurfer’ (or ‘money mule’) is a person who does this.
Source: Ramesh Singh