Economy MCQ for UPSC

Statement 1 is correct. The Ministry of Statistics and Programme Implementation has two wings, one relating to Statistics and the other Programme Implementation.
The Statistics Wing called the National Statistical Office (NSO) consists of the Central Statistical Office (CSO), the Computer center and the National Sample Survey Office (NSSO).
NSO, among other its functions, prepares national accounts as well as publishes annual estimates of national product, government and private consumption expenditure, capital formation, savings, estimates of capital stock and consumption of fixed capital, as also the state level gross capital formation of supra-regional sectors and prepares comparable estimates of State Domestic Product (SDP) at current prices.
Statement 2 is correct. India’s economy contracted by a historic 23.9% in the June quarter, marking the sharpest drop in the country’s growth numbers in more than 40 years. Data released by the National Statistical Office recently shows that manufacturing, construction and trade sectors experienced massive contraction at 39.3%, 50.3%, 47%, respectively.
The last contraction of the economy occurred in 1979-80, when GDP shrank 5.2%.

Reserve Bank of India in its monthly bulletin stated that India has entered a technical recession in the first half of 2020-21 for the first time in its history with Q2:2020- 21 likely to record the second successive quarter of GDP contraction.
A technical recession is a term used to describe two consecutive quarters of decline in output. In the case of a nation’s economy, the term usually refers to back-to-back contractions in real GDP.
The difference between a ‘technical recession’ and a ‘recession’ is that while the former term is mainly used to capture the trend in GDP, the latter expression encompasses an appreciably more broad-based decline in economic activity.

Statement 1 is correct. Base effect is often a term used in relation to economic indicators such as inflation and GDP data which are primarily based on the base effect of last year.
For inflation, Base effect refers to the distortion in monthly inflation figures from a sudden spike or decline in them during a short period of time. They are caused by seasonal or monthly variations.
Statement 2 is incorrect. It is usually a result of volatility rather than consistency in an economy.

Explanation:

The traditional argument is that the lower the interest rate, the better for businesses as it brings down the cost of capital, making investments more attractive.
 Any government would love this as the country would then draw higher investments leading to higher growth and more job creation.
 Governments abhor higher interest rates as, theoretically, these push up project costs and keep investors away.
 Capital is one of the three main factors of production, which are critical to the growth of a commercial entity, the other two being land and labour.
 But capital is only a necessary, not sufficient, condition. Land, unless allocated by the local government, is too costly for investors seeking to set up shop.
 On labour, even if adequate hands are available for a job, the skill quotient is still low. Training graduates to be job-ready is a form of tax that companies pay.
 Also to be taken into account is the market environment and demand. If end users are seeing lesser money in hand than earlier, demand will certainly be impacted.
 Therefore, in an environment where the other factors of production are not favourable for an investor, low interest rates by themselves may not prove attractive enough.
 Any revival of economic activity will be contingent on joint efforts by the government on the fiscal front to stimulate demand, and the RBI, to keep interest rates low.

Statement 1 is correct. Real GDP measures an economy’s total goods and

services in a given year, taking into account changes in price levels. It allows GDP

comparison year by year because it takes into account inflation.

Statement 2 is incorrect. Nominal GDP is also referred to as the current prices GDP. Real

GDP takes into consideration adjustments for changes in inflation. This means that if

inflation is positive, real GDP will be lower than nominal, and vice versa.

# GDP deflator is a measure of the level of prices of all new, domestically produced, final

goods and services in an economy. It is calculated by computing the ratio of nominal GDP to

the real measure of GDP.

Statement 1 is correct. The Ministry of Statistics and Programme Implementation has two wings, one relating to Statistics and the other Programme Implementation.

The Statistics Wing called the National Statistical Office (NSO) consists of the Central Statistical Office (CSO), the Computer center and the National Sample Survey Office (NSSO).

NSO, among other its functions, prepares national accounts as well as publishes annual estimates of national product, government and private consumption expenditure, capital formation, savings, estimates of capital stock and consumption of fixed capital, as also the state level gross capital formation of supra-regional sectors and prepares comparable estimates of State Domestic Product (SDP) at current prices.

Statement 2 is correct. India’s economy contracted by a historic 23.9% in the June quarter, marking the sharpest drop in the country’s growth numbers in more than 40 years. Data released by the National Statistical Office recently shows that manufacturing, construction and trade sectors experienced massive contraction at 39.3%, 50.3%, 47%, respectively.

The last contraction of the economy occurred in 1979-80, when GDP shrank 5.2%.

Reserve Bank of India in its monthly bulletin stated that India has entered a technical recession in the first half of 2020-21 for the first time in its history with Q2:2020- 21 likely to record the second successive quarter of GDP contraction.

A technical recession is a term used to describe two consecutive quarters of decline in output. In the case of a nation’s economy, the term usually refers to back-to-back contractions in real GDP.

The difference between a ‘technical recession’ and a ‘recession’ is that while the former term is mainly used to capture the trend in GDP, the latter expression encompasses an appreciably more broad-based decline in economic activity.

The Quick Estimates of Index of Industrial Production (IIP) are released

on 12th of every month (or previous working day if 12th is a holiday) with a six weeks lag

and compiled with data received from source agencies, who in turn receive the data from

the producing factories/ establishments.

Statement 1 is correct. The weightage of Manufacturing, Mining and Electricity

production in overall Index of Industrial Production (IIP) is 77.63 per cent, 14.37 per cent

and 7.99 per cent respectively.

Statement 2 is correct. There have been nine revision of base year of all-India IIP since the

beginning of its dissemination with first being 1937. Currently base year for IIP calculations is 2011-12.

Fisheries and aquaculture are an important source of food, nutrition, employment and income in India. The sector provides livelihood to about 16 million fishers and fish farmers at the primary level and almost twice the number along the value chain.

Statement 1 is incorrect. The Gross Value Added (GVA) of fisheries sector in the national economy during 2018-19 stood at Rs 2,12,915 crores (current basic prices) which constituted 1.24% of the total National GVA and 7.28% share of Agricultural GVA.

Statement 2 is incorrect. The PMMSY is an umbrella scheme with two separate Components namely (a) Central Sector Scheme (CS) and (b) Centrally Sponsored Scheme (CSS). The Centrally Sponsored Scheme (CSS) Component is further segregated into Non- beneficiary oriented and beneficiary orientated sub-components/activities under the following three broad heads:

–Enhancement of Production and Productivity

–Infrastructure and Post-harvest Management

–Fisheries Management and Regulatory Framework

Statement 1 is correct. The Private final consumption expenditure (PFCE) is defined as the expenditure incurred by the resident households and non-profit institutions serving households (NPISH) on final consumption of goods and services, whether made within or outside the economic territory.

Statement 2 is correct. The Private Final Consumption Expenditure formed more than 57 percent of the Real Gross Domestic Product (At 2011-12 Prices) of India in 2019-20.

Fisheries and aquaculture continue to be an important source of food, nutrition, income and livelihood to millions of people. Export earnings from the Fisheries sector has been Rs.46,662.85 crores during 2019-20.

The sector provides livelihood support to about 280 lakh people at the primary level and almost twice the number along the value chain and the annual average growth rate in the Fisheries sector has been 7% over the last few years. Fish being an affordable and rich source of animal protein, is one of the healthiest options to mitigate hunger and nutrient deficiency.

Statement 1 is incorrect. India is the second largest fish producing country in the world accounting for 7.56% of global production after China.

Statement 2 is incorrect. Fisheries sector is contributing about 1.24% to the country’s Gross Value Added (GVA) and over 7.28% to the agricultural GVA.

In view of the unprecedented COVID-19 pandemic, the Central Government had in May, 2020 allowed additional borrowing limit of up to 2 percent of Gross State Domestic Product (GSDP) to the States for the year 2020-21.
One percent of this is subject to implementation of following four specific State level reforms, where weightage of each reform is 0.25 percent of GSDP:
– Implementation of One Nation One Ration Card System;
– Ease of doing business reform;
– Urban Local body/ utility reforms; and
– Power Sector reforms

Public Debt denotes liabilities payable by the Central Government, which are contracted against the Consolidated Fund of India, as provided under Article 292 of the Constitution of India. It has been further classified under two heads, i.e., Internal Debt and External Debt.
Internal debt of the Central Government consists of marketable securities and nonmarketable securities.
– Marketable securities include fixed tenor and fixed/ floating rate dated securities, and short-term borrowings through treasury bills.
– Nonmarketable securities in internal debt are the special Central Government securities issued to National Small Savings Fund (NSSF), securities issued to international financial institutions, special securities issued against securitisation of balances under postal insurance and annuity funds (POLIF and RPOLIF), compensation & other bonds, special securities issued to public sector banks/ EXIM Bank and 14-day Intermediate Treasury Bills.

Statement 1 is incorrect. The provisions relating to Service Tax were brought into force with effect from July 1, 1994 by chapter V of the Finance Act, 1994.
Goods and Services Tax was launched all over India with effect from 1 July 2017.
Statement 2 is correct. Destination based tax or consumption tax are levied where goods and services are consumed. GST is a destination-based tax, i.e., the goods/services will be taxed at the place where they are consumed and not at the origin.

Statement 1 is correct. Input Tax Credit (ITC) allows a person to avail credit of tax paid on the inward supply of goods or services or both which is used or intended to be used in the course or furtherance of business.
ITC is a mechanism to avoid cascading of taxes, i.e., ‘tax on tax.
Statement 2 is incorrect. Uninterrupted and seamless chain of input tax credit is one of the key features of Goods and Services Tax.
One of the most important features of the GST system is that the entire supply chain is subject to GST to be levied by Central and State Government concurrently. As the tax charged by the Central or the State Governments would be part of the same tax regime, credit of tax paid at every stage would be available as set-off for payment of tax at every subsequent stage.

Statement 1 is incorrect. The Goods and Services Tax (Compensation to States) Act is to provide for compensation to the States for the loss of revenue arising on account of implementation of the goods and services tax in pursuance of the provisions of the Constitution (One Hundred and First Amendment) Act, 2016.
Statement 2 is correct. As per the act the projected nominal growth rate of revenue subsumed for a State during the transition period shall be fourteen percent per annum.
The projected revenue for any year in a State is calculated by applying the projected growth rate over the base year revenue of that State.
For the purpose of calculating the compensation amount payable in any financial year during the transition period, the financial year ending 31st March, 2016, is taken as the base year.

Alcohol for human consumption has been kept outside the purview of GST in India at present. These goods are subject to existing State levies.
Petroleum Products such as petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel etc. are also kept outside the purview of GST in India.
At present, electricity is not subject to GST and power companies pay multiple taxes on capital goods and other inputs like excise duty, customs duty etc.

Statement 1 is correct. The GST e-invoice system was launched on 1st October, 2020 for the businesses with aggregate turnover of more than Rs. 500 Crores in the financial year.
Note: The Government is planning to reduce the aggregate turnover cut off to Rs 100 Crores for generation of IRN by the tax payers in coming days.
Statement 2 is correct. Each Invoice uploaded by the tax payer will get the unique number called as Invoice Reference Number (IRN). IRN is of 64 Characters length.
This IRN is unique number in the GST system, irrespective of tax payer, financial year and document type. It is hash of Supplier GSTIN + Fin. Year + Doc Type + Doc Number.

Both statements are incorrect.
Rs 1,05,155 crore of gross GST revenue have been collected in the month of October 2020. The revenues for the month are 10% higher than the GST revenues in the same month last year.

Statement 1 is correct. Input tax credit (ITC) is the tax paid by the buyer on purchase of goods or services. Such tax which is paid at the purchase when reduced from liability payable on outward supplies is known as input tax credit.
ITC is one of the key features of Goods and Services Tax. ITC is a mechanism to avoid cascading of taxes.
Statement 2 is incorrect. The mobility aids used by disabled citizens are not exempt from GST at present. It is subject to five percent GST.
# On October 27, the Supreme Court of India heard an appeal on the constitutional validity of the levy of Goods and Services Tax (GST) on mobility aids used by disabled citizens. But it said that the taxation was a matter of policy over which the judiciary ought not to ordinarily interfere and advised petitioner to appeal to the GST Council.

Statement 1 is correct. The Direct Tax Vivad se Vishwas Act, 2020 provides a mechanism for resolution of pending tax disputes related to income tax and corporation tax.

It proposed a resolution mechanism under which an appellant can file a declaration to the designated authority to initiate resolution of pending direct tax disputes. Based on the declaration, the designated authority will determine the amount payable by the appellant against the dispute and grant a certificate.

Once the designated authority issues the certificate, appeals pending before the Income Tax Appellate Tribunals and the Commissioner (Appeals) will be deemed to be withdrawn.  In case of appeals or petitions pending before the Supreme Court and High Courts, the appellant is required to withdraw the appeal or petition.

Statement 2 is correct. The proposed mechanism does not cover certain disputes: (i) where prosecution has been initiated before the declaration is filed, (ii) which involve persons who have been convicted or are being prosecuted for offences under certain laws (such as the Indian Penal Code), or for enforcement of civil liabilities, and (iii) involving undisclosed foreign income or assets.

Both statements are correct.

Along with the launch of ‘Transparent Taxation — Honoring the Honest’ platform, Government also unveiled faceless appeal and expanded the scope of faceless assessment, eliminating physical interface between taxpayers and tax authority.

It does away with territorial jurisdiction and substitutes individual discretion with team-based assessment, thereby bringing in transparency.

The exceptions are: Serious Frauds, Major Tax Evasion, International Tax, Black Money and Benami Property.

Inverted duty structure (IDS) is a situation where the rate of tax on inputs used is higher than the rate of tax on the finished good.

It also refers to a situation where import duty on finished goods is low compared to the import duty on raw materials that are used in the production of such finished goods. When the import duty on raw materials is high, it will be more difficult to produce the concerned good domestically at a competitive price.

The term ‘Inverted Tax Structure’ under GST refers to a situation where the GST rate on inputs purchased (or inward supplies) is more than the GST rate on finished goods (or outward supplies).

Both statements are correct.

The Fiscal management principles under Section 4 of Fiscal Responsibility and Budget Management (FRBM) Act state that the Central Government shall:

-take appropriate measures to limit the fiscal deficit upto three per cent. of gross domestic product by the 31st March, 2021;

-endeavour to ensure that— (i) the general Government debt does not exceed sixty per cent.; (ii) the Central Government debt does not exceed forty per cent., of gross domestic product by the end of financial year 2024-2025;

-not give additional guarantees with respect to any loan on security of the Consolidated Fund of India in excess of one-half percent of gross domestic product, in any financial year.

# “General Government debt” means the sum total of the debt of the Central Government and the State Governments, excluding inter-Governmental liabilities.

Option 1 is correct. Consolidated Fund of India and for every state is established by virtue of article 266(1) of the Constitution for all revenues received by the Government, all loans raised by that Government by the issue of treasury bills, loans or ways and means advances and all moneys received by that Government in repayment of loans.

Option 2 is incorrect. The Contingency Fund is not established by the Constitution rather article 267 empowers the Parliament to establish such fund. Accordingly, Parliament enacted the Contingency fund of India Act 1950. The fund is held by the Finance Secretary (Department of Economic Affairs) on behalf of the President of India and it can be operated by executive action.

Option 3 is incorrect. National Small Savings Fund (NSSF) was established in 1999 within the Public Account of India for pooling the money from different small saving schemes (SSSs). Collections from all small savings schemes are credited to the NSSF.

Public Account of India is established by the Constitution under article 266(2).

Both statements are correct.

The direct tax collection of India, comprising mainly of corporate and personal income tax has been higher than indirect tax collection. It constitutes around 54 per cent of Gross Tax Revenue (GTR) of India (2019-20 BE).

Of the total Gross Tax Revenue (GTR) of India, Corporate Tax revenue accounts for 31%, while the GST accounts for 27% of GTR (2019-20 BE).

As per the RBI Act 1934 (amended 2016), the Central Government shall, in consultation with the Bank, determine the inflation target in terms of the Consumer Price Index, once in every five years.
Accordingly, the Central Government has notified 4 per cent Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016 to March 31, 2021 with the upper tolerance limit of 6 per cent and the lower tolerance limit of 2 per cent.
As per the Act, the CPI Combined published by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation is used as inflation targeting index.

Statement 1 is correct. In May 2016, the Reserve Bank of India (RBI) Act, 1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework.
The amended RBI Act also provides for the inflation target to be set by the Government of India, in consultation with the Reserve Bank, once in every five years. Accordingly, the Central Government has notified 4 per cent Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016 to March 31, 2021 with the upper tolerance limit of 6 per cent and the lower tolerance limit of 2 per cent.
Statement 2 is incorrect. Under the amended RBI Act: The Monetary Policy Committee consists of the following Members:
–the Governor of the Bank—Chairperson, ex officio;
–Deputy Governor of the Bank, in charge of Monetary Policy—Member, ex officio;
–One officer of the Bank to be nominated by the Central Board—Member, ex officio; and
–Three persons to be appointed by the Central Government—Members.
The Monetary Policy Committee (MPC) is required to meet at least four times in a year.
-The quorum for the meeting of the MPC is four members.
-Each member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second or casting vote.

Both statements are correct.
Open Market Operations (OMOs) are the market operations conducted by the RBI by way of sale/ purchase of G-Secs to/ from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis.
When the RBI feels that there is excess liquidity in the market, it resorts to sale of securities thereby sucking out the rupee liquidity. Similarly, when the liquidity conditions are tight, RBI may buy securities from the market, thereby releasing liquidity into the market.

Statement 1 is correct. As inflation increases, the prices of goods increase too. Due to this, the purchasing power of money falls. Cost Inflation Index (CII) is a tool used in the calculation of an estimated yearly increase in an asset’s price as a result of inflation.
Statement 2 is correct. The Central Government fixes this index and publishes it in its official gazette for measuring inflation. This index, notified each year by the CBDT is mandated under Section 48 of the Income Tax Act, 1961.
CII has a base year concept, currently the base year is 2001 having CII of 100. CII for 2020-21 has been notified at 301.

Both statements are correct.
The Labour Bureau, an attached office of the M/o Labour & Employment, has been compiling Consumer Price Index for Industrial Workers every month on the basis of the retail prices of selected. The index is compiled for 78 centres and All-India and is released on the last working day of succeeding month.
The Labour and Employment Ministry has recently revised the base year of the Consumer Price Index for Industrial Workers (CPI-IW) from 2001 to 2016.
The number of items directly retained in the index basket has increased to 463 items as against 392 items in the 2001 series. The weight to food and beverage was reduced from 46.2% to 39%, while spending on housing increased from 15.2% to 17%.

Statement 1 is correct. In May 2016, the Reserve Bank of India (RBI) Act, 1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework.

The amended RBI Act also provides for the inflation target to be set by the Government of India, in consultation with the Reserve Bank, once in every five years. Accordingly, the Central Government has notified 4 per cent Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016 to March 31, 2021 with the upper tolerance limit of 6 per cent and the lower tolerance limit of 2 per cent.

Statement 2 is incorrect. Under the amended RBI Act: The Monetary Policy Committee consists of the following Members:

–the Governor of the Bank—Chairperson, ex officio;

–Deputy Governor of the Bank, in charge of Monetary Policy—Member, ex officio;

–One officer of the Bank to be nominated by the Central Board—Member, ex officio; and

–Three persons to be appointed by the Central Government—Members.

The Monetary Policy Committee (MPC) is required to meet at least four times in a year.

-The quorum for the meeting of the MPC is four members.

-Each member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second or casting vote.

Statement 1 is correct. The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth. Price stability is a necessary precondition to sustainable growth.

In May 2016, the Reserve Bank of India (RBI) Act, 1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework.

The amended RBI Act also provides for the inflation target to be set by the Government of India, in consultation with the Reserve Bank, once in every five years.

Central Government has notified in the Official Gazette 4 per cent Consumer Price Index (CPI) inflation as the target for the period from 2016 to 2021 with the upper tolerance limit of 6 per cent and the lower tolerance limit of 2 per cent.

Statement 2 is correct. Section 45ZB of the amended RBI Act, 1934 provides for an empowered six-member monetary policy committee (MPC).

The Monetary Policy Committee consists of the following Members:

-Governor of the Bank—Chairperson, ex officio;

-Deputy Governor of the Bank, in charge of Monetary Policy—Member, ex officio;

-One officer of the Bank to be nominated by the Central Board—Member, ex officio; and

-Three persons to be appointed by the Central Government—Members

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.

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.

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.

The Reserve Bank of India (RBI) will simultaneously buy and sale government securities worth ₹10,000crore each in December 2019 under its open market operations — a move aimed at managing the yields.

 The RBI will purchase the longer-term maturities, that are trading at a spread of 150 bps (basis points) over the repo rate, so that the yield of these papers will soften and sell the shorter duration ones.

 The central bank said it will buy ₹10,000 crore of 6.45% government bonds maturing in 2029 and simultaneously sell ₹10,000 crore of short-term bonds maturing in 2020.

 Operation Twist is a move taken by U.S. Federal Reserve in 2011-12 to make long-term borrowing cheaper.

The Reserve Bank of India (RBI) board finalized a three- year roadmap to improve regulation and supervision, among other functions of the central bank.

This medium term strategy — named Utkarsh 2022 — is in line with the global central banks’ plan to strengthen the regulatory and supervisory mechanism

Market Stabilisation Scheme or MSS is a tool used by the Reserve Bank of India to suck out excess liquidity from the market through issue of securities like Treasury Bills, Dated Securities etc. on behalf of the government.

 The money raised under MSS is kept in a separate account called MSS Account and not parked in the government account or utilized to fund its expenditures.

 The Reserve Bank under Governor YV Reddy initiated the MSS scheme in 2004, to control the surge of US dollars in the Indian market; RBI started buying US dollars while pumping in rupee.

 This eventually led to over-supply of the domestic currency raising inflationary expectations. MSS was introduced to mop up this excess liquidity.

LAF is a facility extended by the Reserve Bank of India to the scheduled commercial banks (excluding RRBs) and primary dealers to avail of liquidity in case of requirement or park excess funds with the RBI in case of excess liquidity on an overnight basis against the collateral of Government securities including State Government securities. Basically LAF enables liquidity management on a day to day basis

The Reserve Bank of India or RBI mandates that banks store a proportion of their deposits in the form of cash so that the same can be given to the bank’s customers if the need arises.

 The percentage of cash required to be kept in reserves, vis-a-vis a bank’s total deposits, is called the Cash Reserve Ratio.

 The cash reserve is either stored in the bank’s vault or is sent to the RBI.

 Banks do not get any interest on the money that is with the RBI under the CRR requirements.

 Unlike Statutory Liquidity Ratio or SLR, which can be maintained in either gold or cash, CRR needs to be maintained only in cash.

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.

Major policy objectives in regard to forex reserves:

-maintaining confidence in monetary and exchange rate policies,

-enhancing capacity to intervene in forex markets,

-limiting external vulnerability by maintaining foreign currency liquidity to absorb shocks

during times of crisis including national disasters or emergencies;

-providing confidence to the markets especially credit rating agencies that external

obligations can always be met, thus reducing the overall costs at which forex resources are

available to all the market participants, and

-incidentally adding to the comfort of the market participants, by demonstrating the

backing of domestic currency by external assets.

Statement 1 is correct. As per the Reserve Bank of India Act; the Central

Government shall, in consultation with the Bank, determine the inflation target in terms

of the Consumer Price Index, once in every five years. Further, the Monetary Policy

Committee shall determine the Policy Rate required to achieve the inflation target.

Statement 2 is correct. The Monetary Policy Committee consists of:

-the Governor of the Bank—Chairperson, ex officio;

-Deputy Governor of the Bank, in charge of Monetary Policy—Member, ex officio;

-One officer of the Bank to be nominated by the Central Board—Member, ex officio; and

-Three persons to be appointed by the Central Government—Members.

No person shall be appointed as a Member, in case such person:

-has completed the age of seventy years on the date of appointment as Member;

-is a Member of any Board or Committee of the Bank or is an employee of the Bank;

-is a public servant as defined under the Indian Penal Code;

-is a Member of Parliament or any State Legislature;

-has been at any time, adjudged as an insolvent;

-has been convicted of an offence which is punishable with an imprisonment for a term of

one hundred and eighty days or more;

-is physically or mentally incapable of discharging the duties of a Member of the Monetary

Policy Committee; or

-has a material conflict of interest with the Bank and is unable to resolve such conflict.

# ‘the Bank’ above means the Reserve Bank of India.

In 2016, the government provided statutory backing to the Monetary Policy

Committee (MPC) by notifying amendments to the RBI Act, 1934.

Statement 1 is correct. As per the act the Monetary Policy Committee determines the Policy

Rate required to achieve the inflation target. Further the decision of the Monetary Policy

Committee is binding on the Reserve Bank of India.

Statement 2 is correct. The Monetary Policy Committee consists of:

– Governor of the RBI—Chairperson, ex officio;

– Deputy Governor of the RBI, in charge of Monetary Policy—Member, ex officio;

– One officer of the RBI to be nominated by the Central Board—Member, ex officio; and

– Three persons to be appointed by the Central Government—Members.

The Members of the Monetary Policy Committee appointed by the Central Government hold

office for a period of four years and are not eligible for re-appointment.

Both statements are correct.

India formally adopted flexible inflation targeting (FIT) in June 2016 to place price stability, defined in terms of a target CPI inflation, as the primary objective of the monetary policy.

In May 2016, the Reserve Bank of India (RBI) Act, 1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework.

The amended RBI Act also provides for the inflation target to be set by the Government of India, in consultation with the Reserve Bank, once in every five years. Accordingly, the Central Government has notified in the Official Gazette 4 per cent Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016 to March 31, 2021 with the upper tolerance limit of 6 per cent and the lower tolerance limit of 2 per cent.

Statement 1 is correct. The Insolvency and Bankruptcy Code 2016 applies to companies and individuals. The proceedings of the resolution process are adjudicated by the National Companies Law Tribunal (NCLT), for companies; and the Debt Recovery Tribunal (DRT), for individuals.
Statement 2 is correct. Insolvency Professionals are a specialised cadre of licensed professionals. These professionals administer the resolution process, manage the assets of the debtor, and provide information for creditors to assist them in decision making.
Statement 3 is correct. The Insolvency and Bankruptcy Board of India was established under the Insolvency and Bankruptcy Code, 2016 (Code).
It has regulatory oversight over the Insolvency Professionals, Insolvency Professional Agencies, Insolvency Professional Entities and Information Utilities.

The RBI had formed a committee under the chairmanship of former ICICI Bank CEO KV Kamath to make recommendations on the financial parameters to be considered in the restructuring of loans impacted by the COVID-19 pandemic.
The committee has selected 26 sectors which will require restructuring based on its analyses of financial parameters hit due to the economic crash caused by the coronavirus pandemic. The financial parameters selected include total outside liability to adjusted tangible net worth, debt to EBIDTA, current ratio, debt service coverage ratio (DSCR) and average debt service coverage ratio (ADSCR).

Statement 1 is correct. National Payments Corporation of India (NPCI), an umbrella organisation for operating retail payments and settlement systems in India, is an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust Payment & Settlement Infrastructure in India.
The ten core promoter banks are State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank N. A. and HSBC. In 2016 the shareholding was broad-based to 56 member banks to include more banks representing all sectors.
Statement 2 is correct. RuPay, a new card payment scheme was launched by the National Payments Corporation of India (NPCI). It offers a domestic, open-loop, multilateral system which will allow all Indian banks and financial institutions in India to participate in electronic payments.

Statement 1 is correct. The small finance banks are required to extend 75 per cent of their Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL) by the Reserve Bank.
The target for Domestic scheduled commercial banks (excluding Regional Rural Banks and Small Finance Banks) and Foreign banks with 20 branches and above is 40 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher
Statement 2 is correct. The categories under priority sector are: Agriculture, Micro, Small and Medium Enterprises, Export Credit, Education, Housing,Social Infrastructure, Renewable Energy and Others.

Statement 1 is correct. A Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments. It acknowledges the Government’s debt obligation.
Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more).
In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs).
Statement 2 is correct. SDLs are eligible securities for Statutory Liquidity Ratio (SLR) and Liquidity adjustment facility (LAF) purposes, and are bought by banks, insurance companies, mutual funds, provident funds and other institutional investors.

Statement 1 is correct. EASE (Enhanced Access and Service Excellence) Reforms Index independently measures progress on the Public Sector Banks (PSB) Reforms Agenda.
Statement 2 is incorrect. EASE 2.0 Index Results has been released recently by the Indian Banking Association (IBA). Bank of Baroda, State Bank of India, and erstwhile Oriental Bank of Commerce were felicitated for being the top three (in that order) in the ‘Top Performing Banks’ category according to the EASE 2.0 Index Results.
# As part of the EASE Reforms, Doorstep Banking Services envisaged to provide convenience of banking services to the customers at their door step through the universal touch points of Call Centre, Web Portal or Mobile App, was inaugurated recently by the Finance Minister.

The government has recently set up an expert committee headed by former comptroller and auditor general (CAG) Rajiv Mehrishi to assess the impact of “waiving of interest and waiving of interest on interest on the Covid-19-related moratorium” on the economy and financial stability.
The Reserve Bank of India (RBI) had in March this year allowed banks to offer a three-month moratorium on principal and interest payments beginning March 1 to provide relief to borrowers hit by the Covid-19 pandemic. This was later extended by another three months to August 31.

The definitions of appreciation and revaluation have interchanged.
Currency appreciation refers to the increase in value of one currency relative to another in the forex markets. In a floating rate exchange system, the value of a currency constantly changes based on supply and demand in the forex market.
A revaluation is a calculated upward adjustment to a country’s official exchange rate relative to a chosen baseline, such as wage rates, the price of gold, or a foreign currency. In a fixed exchange rate regime, only a decision by a country’s government, such as its central bank, can alter the official value of the currency.

Option 1 is incorrect. When the RBI feels that there is excess liquidity in the market, it resorts to sale of securities thereby sucking out the rupee liquidity. Similarly, when the liquidity conditions are tight, RBI may buy securities from the market, thereby releasing liquidity into the market.
Option 2 is correct. When the RBI pursues a tight monetary policy, it takes money out of the system by selling government securities. This raises interest rates because the demand for credit is high that lenders price their loans higher to take advantage of the demand.
The purchase of securities by RBI on other hand has potential to lower the lending rates in economy s it increases the money supply.

Statement 1 is correct. Prompt Corrective Action or PCA is a framework under which banks with weak financial metrics are put under watch by the RBI.
The Reserve Bank has specified certain regulatory trigger points, as a part of prompt corrective action (PCA) Framework, in terms of three parameters, i.e. capital to risk weighted assets ratio (CRAR), net non-performing assets (NPA) and Return on Assets (RoA), for initiation of certain structured and discretionary actions in respect of banks hitting such trigger points.
Statement 2 is correct. The PCA framework is applicable only to commercial banks and not extended to co-operative banks, non-banking financial companies (NBFCs) and Financial Market Infrastructure (FMI).

Statement 1 is correct. Entry 32 in the Seventh Schedule’s State List mentions ‘Incorporation, regulation and winding up of corporations, other than those specified in List I, and universities; unincorporated trading, literary, scientific, religious and other societies and associations; cooperative societies.’
Statement 2 is incorrect. In 1965, certain provisions of the Banking Regulation Act, 1949 (BR Act) were made applicable to co-operative banks. This gave Reserve Bank of India (RBI) some powers to regulate co-operative banks.
RBI regulated state co-operative banks, district (central) co-operative banks and primary co-operative banks (also called urban co-operative banks).
The Banking Regulation (Amendment) Act, 2020 amended the Act to further expand RBI’s regulatory control over co-operative banks in terms of management, capital, audit and liquidation.

The Raghuram Rajan Committee on Financial Sector Reforms was a committee constituted by the Government of India in 2007 for proposing the next generation of financial sector reforms in India.
An Internal Working Group of the Reserve Bank of India (RBI) has recently recommended that corporate houses be given bank licenses. The Raghuram Rajan committee had said that it is premature to allow industrial houses to own banks.

India’s forex reserves comprise foreign currency assets (FCAs), gold reserves, special drawing rights (SDRs) and India’s reserve position with the International Monetary Fund (IMF).
# The country’s foreign exchange reserves rose to reach a lifetime high of $542.013 billion in the week ended September 4.

# Guidotti Rule suggests that the countries should hold external assets sufficient to ensure that they could live without access to new foreign borrowings for up to twelve months.

Major policy objectives in regard to forex reserves:
-maintaining confidence in monetary and exchange rate policies,
-enhancing capacity to intervene in forex markets,
-limiting external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis including national disasters or emergencies;
-providing confidence to the markets especially credit rating agencies that external obligations can always be met, thus reducing the overall costs at which forex resources are available to all the market participants, and
-incidentally adding to the comfort of the market participants, by demonstrating the backing of domestic currency by external assets.

Statement 1 is correct. The Insolvency and Bankruptcy Code 2016 applies to companies and individuals. The proceedings of the resolution process are adjudicated by the National Companies Law Tribunal (NCLT), for companies; and the Debt Recovery Tribunal (DRT), for individuals.

Statement 2 is correct. Insolvency Professionals are a specialised cadre of licensed professionals. These professionals administer the resolution process, manage the assets of the debtor, and provide information for creditors to assist them in decision making.

Statement 3 is correct. The Insolvency and Bankruptcy Board of India was established under the Insolvency and Bankruptcy Code, 2016 (Code).

It has regulatory oversight over the Insolvency Professionals, Insolvency Professional Agencies, Insolvency Professional Entities and Information Utilities.

After nearly eight decades, the Reserve Bank of India (RBI) has decided to change its accounting year from July-June to April- May.

 Accordingly, the next accounting year will be a nine-month period, which starts from July 2020 and ends on March 31, 2021.

 Thereafter, all the financial years will start from April every year, the RBI.

 The Bimal Jalan Committee on Economic Capital Framework (ECF) of the RBI had proposed a more transparent presentation of the RBI‘s annual accounts and change in its accounting year from July to June to April to March from the financial year 2020-21.

The RBI had formed a committee under the chairmanship of former ICICI Bank CEO KV Kamath to make recommendations on the financial parameters to be considered in the restructuring of loans impacted by the COVID-19 pandemic.

The committee has selected 26 sectors which will require restructuring based on its analyses of financial parameters hit due to the economic crash caused by the coronavirus pandemic. The financial parameters selected include total outside liability to adjusted tangible net worth, debt to EBIDTA, current ratio, debt service coverage ratio (DSCR) and average debt service coverage ratio (ADSCR).

Statement 1 is correct. National Payments Corporation of India (NPCI), an umbrella organisation for operating retail payments and settlement systems in India, is an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust Payment & Settlement Infrastructure in India.

The ten core promoter banks are State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank N. A. and HSBC. In 2016 the shareholding was broad-based to 56 member banks to include more banks representing all sectors.

Statement 2 is correct. RuPay, a new card payment scheme was launched by the National Payments Corporation of India (NPCI). It offers a domestic, open-loop, multilateral system which will allow all Indian banks and financial institutions in India to participate in electronic payments.

National Payments Corporation of India (NPCI), an umbrella organisation for operating retail payments and settlement systems in India, is an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust Payment & Settlement Infrastructure in India.

 Considering the utility nature of the objects of NPCI, it has been incorporated as a “Not for Profit” Company under the provisions of Section 25 of Companies Act 1956 (now Section 8 of Companies Act 2013), with an intention to provide infrastructure to the entire Banking system in India for physical as well as electronic payment and settlement systems.

 The Company is focused on bringing innovations in the retail payment systems through the use of technology for achieving greater efficiency in operations and widening the reach of payment systems.

 The ten core promoter banks are State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, and Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank N. A. and HSBC.

 In 2016 the shareholding was broad-based to 56 member banks to include more banks representing all sectors.

Statement 1 is correct. The small finance banks are required to extend 75 per cent of their Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL) by the Reserve Bank.

The target for Domestic scheduled commercial banks (excluding Regional Rural Banks and Small Finance Banks) and Foreign banks with 20 branches and above is 40 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher

Statement 2 is correct. The categories under priority sector are: Agriculture, Micro, Small and Medium Enterprises, Export Credit, Education, Housing,Social Infrastructure, Renewable Energy and Others.

Both statements are correct.

Open Market Operations (OMOs) are the market operations conducted by the RBI by way of sale/ purchase of G-Secs to/ from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis.

When the RBI feels that there is excess liquidity in the market, it resorts to sale of securities thereby sucking out the rupee liquidity. Similarly, when the liquidity conditions are tight, RBI may buy securities from the market, thereby releasing liquidity into the market.

Statement 1 is correct. As inflation increases, the prices of goods increase too. Due to this, the purchasing power of money falls. Cost Inflation Index (CII) is a tool used in the calculation of an estimated yearly increase in an asset’s price as a result of inflation.

Statement 2 is correct. The Central Government fixes this index and publishes it in its official gazette for measuring inflation. This index, notified each year by the CBDT is mandated under Section 48 of the Income Tax Act, 1961.

CII has a base year concept, currently the base year is 2001 having CII of 100. CII for 2020-21 has been notified at 301.

Both statements are correct.

The Labour Bureau, an attached office of the M/o Labour & Employment, has been compiling Consumer Price Index for Industrial Workers every month on the basis of the retail prices of selected. The index is compiled for 78 centres and All-India and is released on the last working day of succeeding month.

The Labour and Employment Ministry has recently revised the base year of the Consumer Price Index for Industrial Workers (CPI-IW) from 2001 to 2016.

The number of items directly retained in the index basket has increased to 463 items as against 392 items in the 2001 series. The weight to food and beverage was reduced from 46.2% to 39%, while spending on housing increased from 15.2% to 17%.

Statement 1 is correct. A Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments. It acknowledges the Government’s debt obligation.

Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more).

In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs).

Statement 2 is correct. SDLs are eligible securities for Statutory Liquidity Ratio (SLR) and Liquidity adjustment facility (LAF) purposes, and are bought by banks, insurance companies, mutual funds, provident funds and other institutional investors.

Statement 1 is correct. EASE (Enhanced Access and Service Excellence) Reforms Index independently measures progress on the Public Sector Banks (PSB) Reforms Agenda.

Statement 2 is incorrect. EASE 2.0 Index Results has been released recently by the Indian Banking Association (IBA). Bank of Baroda, State Bank of India, and erstwhile Oriental Bank of Commerce were felicitated for being the top three (in that order) in the ‘Top Performing Banks’ category according to the EASE 2.0 Index Results.

# As part of the EASE Reforms, Doorstep Banking Services envisaged to provide convenience of banking services to the customers at their door step through the universal touch points of Call Centre, Web Portal or Mobile App, was inaugurated recently by the Finance Minister.

Both statements are correct.
Repurchase (buyback) of G-Secs is a process whereby the Government of India and State Governments buy back their existing securities, by redeeming them prematurely, from the holders.
The objectives of buyback can be reduction of cost (by buying back high coupon securities), reduction in the number of outstanding securities and improving liquidity in the G-Secs market (by buying back illiquid securities) and infusion of liquidity in the system.

Statement 1 is correct. International Financial Sevices Centres Authority (IFSCA) is a statutory unified regulatory body under the Department of Economic Affairs established by an Act of Parliament to develop and regulate the financial products, financial services and financial institutions located / performed in the International Financial Services Centres in India.
Statement 2 is correct. The Authority will function as a unified regulator and is empowered to exercise the powers of RBI, SEBI, IRDAI and PFRDA in respect of financial services, financial products and financial institutions performed/located in the international financial services centres in the country.
IFSCA has introduced a framework for “Regulatory Sandbox”. Under this, entities operating in the capital market, banking, insurance and financial services space shall be granted certain facilities and flexibilities to experiment with innovative FinTech solutions in a live environment with a limited set of real customers for a limited time frame.

Both statements are correct.
An IFSC caters to customers outside the jurisdiction of the domestic economy. Such centres deal with flows of finance, financial products and services across borders. London, New York and Singapore can be counted as global financial centres.
An expert panel headed by former World Bank economist Percy Mistry submitted a report on making Mumbai an international financial centre in 2007. However, the global financial crisis that unfolded in 2008 made countries including India cautious about rapidly opening up their financial sectors.
Finance Minister announced in the Union Budget 2015 that India’s first IFSC’s would be set up in GIFT City in Gujarat.
# The United Kingdom has entered into a strategic partnership to develop India’s fledgling international financial services centre GIFT City, and agreed to set up a new Fund of Funds to be managed by the State Bank of India group in order to route U.K.’s future capital investments into India.

Statement 1 is correct. The Indian Energy Exchange recently launched the GTAM on its power trading platform after receiving approval from the Central Electricity Regulatory Commission (CERC).
The market will offer trade in four types of green term-ahead contracts -Green Intra-day contracts, Day-ahead Contingency contracts, Daily Contracts and Weekly contracts. There will be separate contracts for Solar and Non-Solar energy to facilitate Solar and Non-Solar Renewable Purchase Obligations fulfillment.
Statement 2 is correct. The introduction of GTAM platform would lessen the burden on RE-rich States and incentivize them to develop RE capacity beyond their own renewable purchase obligations. This would promote RE merchant capacity addition and help in achieving RE capacity addition targets of the country.
The GTAM platform will lead to increase in number of participants in renewable energy sector. It will benefit buyers of RE through competitive prices and transparent and flexible procurement. It will also benefit RE sellers by providing access to pan- India market.

A negative bond yield is when an investor receives less money at the bond’s maturity than the original purchase price for the bond.
A negative bond yield is an unusual situation in which issuers of debt are paid to borrow. In other words, the depositors, or buyers of bonds, are effectively paying the bond issuer a net amount at maturity instead of earning a return through interest income.
Negative-yield bonds attract investments during times of stress and uncertainty as investors look to protect their capital from significant erosion.
These are generally issued by central banks or governments, and investors pay interest to the borrower to keep their money with them.

Market capitalization is the aggregate valuation of the company based on its
current share price and the total number of outstanding stocks. It is calculated by
multiplying the current market price of the company’s share with the total outstanding shares of the company.

Currency Swap Arrangement is an arrangement, between two friendly
countries, which have regular, substantial or increasing trade, to basically involve in
trading in their own local currencies, where both pay for import and export trade, at the
pre-determined rates of exchange, without bringing in third country currency like the
US Dollar.
•In such arrangements no third country currency is involved, thereby eliminating the
need to worry about exchange variations.
•The swap arrangement (in 2018) is an agreement between India and Japan to
essentially exchange and re-exchange a maximum amount of USD 75 Billion for
domestic currency, for the purpose of maintaining an appropriate level of balance of
payments for meeting short-term deficiency in foreign exchange.

Venture capital funds are investment funds that manage the money of investors who seek private equity stakes in startup and small- to medium-sized enterprises with strong growth potential.
• These investments are generally characterized as high-risk/high-return opportunities.
• In the past, venture capital investments were only accessible to professional venture capitalists, although now accredited investors have a greater ability to take part in venture capital investments.

In the stock markets, the circuit breaker halts trading in all equity and equity derivative markets nationwide for a specified time, when the index hits predefined levels.
• Circuit breakers are applicable for individual securities as well.
• The market regulator, Securities and Exchange Board of India (SEBI) has introduced circuit breakers to curb severe market selling/volatility in the stock markets, with effect from July 2, 2001.
• The market-wide circuit breakers would be triggered by the movement of either BSE Sensex or NSE S&P CNX Nifty, whichever is breached earlier.
• Circuit breakers are triggered when either of the indices moves either ways (upside/downside) by 10 per cent or 15 per cent and 20 per cent, compared to the previous day’s closing level of the index.

Created by the Chicago Board Options Exchange (CBOE), the Volatility Index, or VIX, is a real-time market index that represents the market’s expectation of 30-day forward-looking volatility.
• Derived from the price inputs of the S&P 500 index options, it provides a measure of market risk and investors’ sentiments.
• It is also known by other names like “Fear Gauge” or “Fear Index”.
• Investors, research analysts and portfolio managers look to VIX values as a way to measure market risk, fear and stress before they take investment decisions.

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

Statement 1 is incorrect. A municipal bond is a debt instrument issued by municipal corporations or associated bodies in India. These local governmental bodies utilize the funds raised through these bonds to finance projects for socio-economic development through building bridges, schools, hospitals, providing proper amenities to households, etc.
Statement 2 is incorrect. The INR 200 crore municipal bonds issue of the Lucknow Municipal Corporation (LMC) was listed at Bombay Stock Exchange recently.
With this, Lucknow has become the 9th city in the country to have raised municipal bonds, which has been incentivized by the Ministry of Housing and Urban Affairs, Government of India under the mission AMRUT (Atal Mission for Rejuvenation and Urban Transformation).
The Ahmedabad Municipal Corporation, in 1998, was the first to make a public offering. Since then, other local bodies in the cities of Nashik, Nagpur, Ludhiana, and Madurai, have also accessed the capital markets through municipal bonds.

Morgan Stanley Capital International (MSCI) has set up many global indices, one of which is a composite of Indian stocks-the MSCI India index.
The MSCI Indexes are a measurement of stock market performance in a particular area. Like other indexes, such as the Dow Jones Averages or the S&P 500, it tracks the performance of the stocks included in the index.
MSCI has indexes for a variety of geographic sub-areas, as well as global indexes for stock categories such as small-cap, large-cap, and mid-cap. The four most popular track emerging markets, frontier markets, developed markets excluding the United States and Canada, and the world market.
# MSCI Inc will cut seven Chinese firms from some of its global indexes, it said recently, the third major index publisher after S&P Dow Jones Indices and FTSE Russell to do so following U.S. restrictions on owning the companies.

The Board of Directors of the Reserve Bank of India formed a Sub-Committee of the Board to study matters and concerns in the microfinance sector insofar as they are related to the entities regulated by the Bank.

 The Sub-Committee was under the chairmanship of Y.H. Malegam.

 The terms of mention of the Sub-Committee included framing the description of ‘microfinance’ and ‘Micro Finance Institutions (MFIs)’ for the point of regulation of non-banking finance companies (NBFCs) undertaking microfinance by the Reserve Bank of India and giving proper recommendations.

 Also, the committee had to look at the widespread activities of MFIs in relation to interest rates, lending and recovery measures to identify trends that impose on borrowers’ interests.

Statement 1 is correct. The monthly Index of Eight Core Industries (ICI) is a production volume index, measuring monthly changes in the output of industry. ICI measures collective and individual performance of production in selected eight core industries viz. Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity.
Statement 2 is correct. It is compiled and released by Office of the Economic Adviser (OEA), Department of Industrial Policy & Promotion (DIPP), and Ministry of Commerce & Industry.
# The Eight Core Industries comprise 40.27 per cent of the weight of items included in the Index of Industrial Production (IIP).
# India’s eight core industrial sectors contracted by 8.5% in August compared to Au­gust 2019, marking the sixth month in a row of shrinking output.

Statement1 is incorrect. The purchasing managers’ index (PMI) is an economic indicator that surveys purchasing managers at businesses that make up a given sector. The most common PMI surveys are the manufacturing PMI and the services PMI.
It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
The most common elements include: New orders, Factory output, Employment, Suppliers’ delivery times and Stocks of purchases.
The most common answers include: Improvement, No change and Deterioration.
Statement 2 is correct. A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction. Higher the difference from this mid-point greater is the expansion or contraction.

Statement 1 is incorrect. The purchasing managers’ index (PMI) is an economic indicator that surveys purchasing managers at businesses that make up a given sector. The most common PMI surveys are the manufacturing PMI and the services PMI.
The purchasing managers’ index consists of several different surveys that are compiled into a single numerical result depending on one of several possible answers to each question.
The most common elements include: New orders, Factory output, Employment, Suppliers’ delivery times, Stocks of purchases.
The most common answers include: Improvement, No change, Deterioration.
Statement 2 is correct. The headline PMI is a number from 0 to 100. A PMI above 50 represents an expansion when compared with the previous month. A PMI reading under 50 represents a contraction, and a reading at 50 indicates no change. The further away from 50 the greater the level of change.

Statement 1 is correct. The Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing proposes a financial incentive to boost domestic manufacturing and attract large investments in the electronics value chain including electronic components and semiconductor packaging.
Incentive: The Scheme extends an incentive of 4% to 6% on incremental sales (over base year) of goods manufactured in India and covered under target segments, to eligible companies, for a period of five years subsequent to the base year 2019-20.
Statement 2 is incorrect. The Scheme is only applicable for target segments namely mobile phones and specified electronic components.
Specified Electronic Components: SMT components, Discrete semiconductor devices including transistors, diodes, thyristors, etc., Passive components including resistors, capacitors, etc. for electronic applications, Printed Circuit Boards (PCB), PCB laminates, prepregs, photopolymer films, PCB printing inks, Sensors, transducers, actuators, crystals for electronic applications, System in Package (SIP), Micro or Nano-electronic components such as Micro Electromechanical Systems (MEMS) and Nano Electromechanical Systems (NEMS), and Assembly, Testing, Marking and Packaging (ATMP) units.

The Quick Estimates of Index of Industrial Production (IIP) are released on 12th of every month (or previous working day if 12th is a holiday) with a six weeks lag and compiled with data received from source agencies, who in turn receive the data from the producing factories/ establishments.
Statement 1 is correct. The weightage of Manufacturing, Mining and Electricity production in overall Index of Industrial Production (IIP) is 77.63 per cent, 14.37 per cent and 7.99 per cent respectively.
Statement 2 is correct. There have been nine revision of base year of all-India IIP since the beginning of its dissemination with first being 1937. Currently base year for IIP calculations is 2011-12.

Option 1 is correct. Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing offers a production linked incentive to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components, including Assembly, Testing, Marking and Packaging (ATMP) units.
Option 2 is correct. The The Ministry of Electronics and Information Technology had notified ‘Phased Manufacturing Programme for cellular mobile handsets and sub-assemblies/ parts thereof’ with the objective of substantially increasing the domestic value addition for establishment of arobust Cellular mobile handsets manufacturing eco-system in India. It promotes domestic production of mobile phones by providing tax relief and other incentives on components and accessories used for the devices.

Annual Survey of Industries (ASI) is conducted by National Statistical Office (NSO), Ministry of Statistics & Programme Implementation. ASI is principal source of industrial statistics in India.
The Annual Survey of Industries (ASI) is the principal source of industrial statistics in India. It provides statistical information to assess and evaluate, objectively and realistically, the changes in the growth, composition and structure of organized manufacturing sector comprising activities related to manufacturing processes, repair services, gas and water supply and cold storage.
From ASI 2010-11 onwards, the survey is being conducted annually under the statutory provisions of the Collection of Statistics (COS) Act, 2008.

A regulatory sandbox (RS) usually refers to live testing of new products or services in a controlled/test regulatory environment for which regulators may (or may not) permit certain regulatory relaxations for the limited purpose of the testing.
It allows the regulator, the innovators, the financial service providers (as potential deployers of the technology) and the customers (as final users) to conduct field tests to collect evidence on the benefits and risks of new financial innovations, while carefully monitoring and containing their risks.

Both statements are correct.
The Emergency Credit Line Guarantee Scheme (ECLGS) has been formulated as a specific response to the unprecedented situation caused by COVID-19 and the consequent lockdown, which has severely impacted manufacturing and other activities in the MSME sector.
The Scheme aims at mitigating the economic distress being faced by MSMEs by providing them additional funding of up to Rs. 3 lakh crores in the form of a fully guaranteed emergency credit line.
Under the Scheme, 100% guarantee coverage is provided by National Credit Guarantee Trustee Company Limited (NCGTC) for additional funding of up to Rs. three lakh crores to eligible MSMEs and interested MUDRA borrowers, in the form of a Guaranteed Emergency Credit Line (GECL) facility.
The GECL is a loan for which 100% guarantee would be provided by National Credit Guarantee Trustee Company (NCGTC) to Member Lending Institutions (MLIs).

Statement 1 is incorrect. The 2019 rankings are the 4th edition of Business Reform Action Plan (BRAP) ranking of states.
Ranking of States based on the implementation of Business Reform Action Plan started in the year 2015. Till date, State Rankings have been released for the years 2015, 2016 and 2017-18.
The Business Reform Action Plan 2018-19 includes 180 reform points covering 12 business regulatory areas such as Access to Information, Single Window System, Labour, Environment, etc.
The larger objective of attracting investments and increasing Ease of Doing Business in each State was sought to be achieved by introducing an element of healthy competition through a system of ranking states based on their performance in the implementation of Business Reform Action Plan.
Statement 2 is correct. The top ten states under State Reform Action Plan 2019 are:
Andhra Pradesh, Uttar Pradesh, Telangana, Madhya Pradesh, Jharkhand, Chhattisgarh, Himachal Pradesh, Rajasthan, West Bengal and Gujarat.