The

Economics
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 CONTENTS
1. Structure of Economy and Human Resource in India E-1-E-18
Introduction; Salient Features; National Income Of India; Population

2. Planning, Unemployment and Poverty in India E-19-E-44

Introduction; Planning Commission; NITI Aayog; Five Year Plans; Unemployment; Poverty;
Millennium Development Goals; Sustainable Development Goals

3. Agriculture E-45-E-70
Introduction; Features of Indian Agriculture; Growth and Productivity; Agriculture in Five
Year Plans; National Agricultural Policy; Major Agriculture Programmes & Revolutions; Land
Reforms; Co-operative Farming; Rural Credit and Extension Services; Agricultural Insurance,
Marketing & Price Policy; Public Distribution System

4. Fiscal and Monetary Policy E-71-E-90

Introduction; Fiscal policy; Expenditure; Deficit & Taxes; Indian Tax Structure; Black Money;
Finance Commission; Monetary Policy

5. Money Supply and Indian Financial System E-91-E-120

Introduction; Money Market; Capital Market; Money Supply; Inflation; Indian Banking System;
Insurance Sector; Micro Finance

6. Foreign Trade and Investment in India E-121-E-140

Introduction; Foreign Exchange Reserves; India’s Foreign Trade; Balance Of Payments; India’s
Balance of Payment

7. Industry and Infrastructure E-141-E-164

Introduction; Status of Indian Industries; Acts and Regulations; Micro, Small and Medium
Enterprise; Major Industries; Public Sector Units
 ECONOMY

STRUCTURE OF ECONOMY AND

1
HUMAN RESOURCE IN INDIA

Introduction
The word ‘Economics’ originates from the Greek word ‘Oikonomikos’; Oikos (means ‘Home’) + Nomos (means ‘Management’)’
means ‘Home management. Economics is the study of how people and society end up choosing, with or without the use of
money, to employ scarce productive resources that could have alternative uses to produce various commodities over time and
distributing them for consumption, now or in the future, among various persons or groups in society. It analyses costs and
benefits of improving patterns of resource allocation. The term Economy means the state of country or region in terms of the
production and consumption of goods and services and the supply of money.

Types of Economy Indian Economy

Salient Features of Indian Economy
Socialist Mixed Capitalist The salient features of Indian Economy include the followings:

Social ownership (1) Mixed Economy

Private ownership
of means of means of production India is a mixed economy. In a mixed economy,
of Production public sector (government-owned) business enterprises
exist alongside the private sector to achieve a welfare
USSR, China USA, UK, France, etc
state with socialistic pattern of society. Ever since
independence, India’s economic development has been
Public- Private Market-based Free-markets guided by the twin objectives of developing:
ownership + allocation + with state (a) a rapidly and technologically progressive economy
of Industry with Economic interventionism by democratic means; and
Planning
(b) a social order based on justice, offering equal
India opportunity to every citizen of the country.
(2) Low per Capita Income
/Sells
Buys ebentures According to IMF GDP per capital of India in 2014 at
s d
, to
Share ds from / s current prices is $1,627. India is the 9th largest economy
n e Borrows
& bo n countri of the world. But, due to its huge population of more
fo r e i g & Lends
Free than 1.26 billion, India is at 145th position in term of
Closed Economy Open movement GDP Per capita. Per capita income of India is 6.69 times
of people lower than world’s average around of $10,880. This
figure is 68.66 times lower than richest country of world
ow
e fl
No economic Maint Fre oods & and 6.5 times greater than poorest country of the world.
relation with rest bilater ai
al/mul n of g rvices India is at 34th position in the list of Asian countries.
of the world relatio t i l ate se On the basis of PPP, GDP, per capita of India stands
nships ral
at 5,855 International Dollar in 2014. GDP (PPP) per
capita of world is 15,189 Int. $.
E-2 Structure of Economy and Human Resource in India

2014-15 India suffers from inadequacy of financial institutions

in rural areas. Similarly, India being a country of a
Per capita Net national Income at current prices - `88533 large number of small farmers, the development of
Per capita Income constant prices ( 2011-12 prices) - `74193 certain agencies of credit for granting loans to farmers
GDP Per Capita at current - `98,983 on easy terms is needed. Likewise, to provide medium
GDP Per Capita at 2011-12 price - `84, 009. and long-term loans to industries for the development of
(3) Dominance of Agriculture and Heavy Population industrial finance corporation is quite necessary. There
Pressure on Agriculture is a great scarcity of skilled and efficient administrators and
managers.
In India, almost 60-70% of the total population still
resides in rural areas and hence they depend on State of the Economy 2014-15
agriculture for their livelihood. An Overview
(4) Over-Population 1. GDP Growth Rate - 7.4 %
India is over populated. In every decade Indian 2. Export growth - 2.4 % (US$265 billion)
population gets increased by about 20%. During 2001- (April-Jan.)
11, population increased by 17.6%. With this high 3. Import growth - 2.2% (US$ 383.4 billion)
growth rate of population about 1.7 crore new persons (April-Jan.)
are added to Indian population every year. According 4. Fiscal Deficit - 4.0%
to 2011 census, the total Indian population stands at a
5. Inflation (WPI) - 3.4% (April-Dec.)
high level of 121.02 crore which is 17.5% of the world’s
total population which is second largest population of the 6. Foreign Exchange - US $ 330.2 billion
world. To maintain this 17.5% of world population India Reserves (6 Feb. 2015)
holds only 2.42% of total land area of the world. * New Base year of National Accounts is 2011-12
(5) Unbalanced Economic Development Structure Composition of Indian Economy
India has not yet achieved the goal of balanced economic There are 3 major sectors of Indian economy- the primary sector,
development. According to latest data available about the secondary and the tertiary sector.
64% of total labour force is dependent on agriculture, Manufactured goods used as Inputs
16% on industries and the rest about 20% on trade,
transport and other services.
Primary Provide Secondary Provide Tertiary
(6) Low rate of capital formation Sector Natural Products Sector Infrastructure Sector
Another basic characteristic of the Indian economy is the
existence of capital deficiency which is reflected in two Services that help in production
ways - firstly, the amount of capital per head available is
low; and secondly, the current rate of capital formation Sector Activity
is also low. Gross Fixed Capital Formation in India
increased to 4975.22 INR billion in the third quarter of Agriculture and Allied Sector
2014 from 4957.25 INR billion in the second quarter of Primary Forestry
2014. Gross Fixed Capital Formation in India averaged
Sector Fishing
3595.81 INR billion from 2001 until 2014, reaching an
all time high of 5356.22 INR billion in the first quarter Mining &Quarrying
of 2014 and a record low of 2021.90 INR billion in the Manufacturing
first quarter of 2002. Secondary
Sector Electricity, Gas
(7) Lack of Infrastructure Facility or and Water Supply
There is a lack of physical infrastructure (i.e. Industrial sector Construction
road,electricity, banking, transportation, insurance, energy)
and social infrastructure(i.e. education, health, housing, Trade, Hotels and Restaurants
drinking water, sanitation) that hinders the development Transport
process of a country.
Storage
(8) Poor Economic Organisation Tertiary
Communication
Another important feature of the Indian economy Sector or Service
is poor economic organisation. Certain institutions Sector Financing, (Banking Insurance)
necessary for economic development are not adequately Real Estate and Business Services
developed. For instance, to mobilise savings and more
Community, Social, Personal and
especially the savings of the rural sector, the creation
other Services
and development of financial institutions is essential.
Structure of Economy and Human Resource in India E-3

Percentage Share of Sectors in GVA at factor cost at current Prices -

Sector 2004-05 Series 2011-12 Series

2011-12 2012-13 2013-14 2011-12 2012-13 2013-14 2014-15
1. Agriculture & Allied Activities 17.9 17.5 18.2 18.9 18.7 18.6 17.6
2. Industry 27.2 26.2 24.8 32.9 31.7 30.5 29.7
3. Service 54.9 56.3 57.0 48.2 49.6 50.9 52.7
Source : CSO’s press Releases of 30 january 2015 & 9 February 2015 on New Series Estimates of National Income.

The Central Statistics Office (CSO), Ministry of Statistics In equation form:

and Programme Implementation have released the advance GNP = GDP + X – M,
estimates of GDP growth rates for 2015-16 and Q1, Q2, Q3 where,
of 2015-16 at constant (2011-12) and current prices are given X = Income earned and received by nationals within
below: the boundaries of foreign countries.
Growth Rates of GDP M = Income received by foreign nationals within the
country.
Constant Current
If X = M, then GNP = GDP.
Prices (2011-12) Prices Similarly, in a closed economy
Annual 2015-16 (Advance) 7.6 8.6 X=M=0
Q1 2015-16 (April-June) 7.6 8.7 then also GNP = GDP
In equation form :
Q2 2015-16 (July-Sep) 7.7 6.4
GNP = GDP + NFIA
Q3 2015-16 (Oct-Dec) 7.3 9.2
Where NFIA = Net Factor Income from abroad
also NFIA = Factor incomes received from abroad —
National Income Of India Factor income paid to abroad.
National income measures the net value of goods and services It is to be noted here that in a closed economy which
does not deal with outside world, has no NFIA, i.e. its
produced in a country during a year and it also includes net NFIA is equal to Zero. Hence, for such countries, GDP
earned foreign income. In other words, a total of national = GNP
income measures the flow of goods and services in an Gross Domestic Product (GDP)
economy. National income is a flow not a stock. As contrasted It is the total money value of all final goods and services
with national wealth which measures the stock of commodities produced within the geographical boundaries of the
held by the nationals of a country at a point of time, national country during a given period of time. So, domestic
income measures the productive power of an economy in a given product emphasis the total output which is raised within
period to turn out goods and services for final consumption. the geographical boundaries of the country, national
product focuses not only on the domestic product but also
Concepts of National Income on goods and services produced outside the boundaries of
a nation.
The various concepts of national income are as follows: 3. Net National Product (NNP)
1. Per Capita Income NNP is obtained by subtracting depreciation value (i.e.
It is a measure of the amount of money that is being capital stock consumption) from GNP.
earned per person in a certain area. In equation form :

National Income NNP = GNP – Depreciation.

PCI =
Population
2. Gross National Product (GNP)
Gross National Product refers to the money value of total
output or production of final goods and services produced
by the nationals of a country during a given period of
time, generally a year.
In the calculation of GNP, we include the money value
of goods and services produced by nationals outside
the country. Hence, income produced and received by
nationals of a country within the boundaries of foreign
countries should be added in Gross Domestic Product
(GDP) of the country. Similarly, income received by
foreign nationals within the boundary of the country
should be excluded from GDP.
4. National Income
GNP is based on market prices of produced goods
which includes indirect taxes and subsidies. NNP can be
calculated in two ways-
(i) at market prices of goods and services
(ii) at factor cost
When NNP is obtained at factor cost, it is known
as National Income. National Income is calculated by
subtracting net indirect taxes (i.e. total indirect tax-
subsidy) from NNP at market prices. The obtained value
is known as NNP at factor cost or National income. So,
NNP at factor cost or National Income
= NNP at market price – (Indirect Taxes – Subsidy)
= NNP(mp) – Indirect Tax + Subsidy.
E-4 Structure of Economy and Human Resource in India

5. Personal Income In India a combination of production method and income

Personal income is that income which is actually obtained method is used for estimating national income.
by nationals. Symbolically : N.I = C + I + G + (X – M)
Personal income is obtained by subtracting corporate Where,
taxes and payments made for social securities provision C= Total consumption expenditure
from national income and adding to it government I = Total Investment Expenditure
transfer payments, business transfer payments and net G = Total Govt. Expentiture.
interest paid by the government. So, X = Export
Personal Income = National income – undistributed M = Import
profits of corporation – payments for social security
provisions – corporate tax + government transfer Estimates of National Income in India
payments + Business transfer payments + Net interest In 1868, the first attempt was made by Dada Bhai
paid by government. Naoroji. He, in his book ‘Poverty and Un-British Rule in
It should always be kept in mind that personal income India’. estimated Indian per capita annual income at a level
is a flow concept. of Rs. 20.
6. Personal Disposable Income Some Other economists followed it and gave various estimates
of Indian national income, some of these estimates are as
When personal direct taxes are subtracted from personal follows :
income, the obtained value is called disposable personal
Findlay Shirras ( 1911) -   `49
income (DPI). So,
Wadia & Joshi ( 1913-14) -  `44.30
Disposable personal income
Dr. V.K.R.V. Rao (1925-29) -  `76
DPI = [Personal income] – [Direct Taxes]
After independence, the Government of India appointed
A Graphical Representation of relationship between the National Income Committee in August 1949 under the
various measures. chairmanship of Prof. P.C. Mahalanobis, to compile
GNPMP authoritative estimates of national income. For further
estimation of national income, the government established
× × × × × ×
NNPMP = GNPMP – Depreciation Central Statistical Organisation (CSO) which now regularly
× ×× × × × × × ×
× ×
× × × × ×× × × ××× ××
× × × × ×× × × × NNPFC = NNPMP – Indirect taxes publishes national income data.
× × ×× × × × × ×× × ×
× × ××××× × × ××
CSO & NSSO to be Merged :
× ×
× ×
× ×× × × ×× × × ×××
× ×× ×
+ Subsidier
× × × × × ×× × × ×
×× ×
×
× ×
× × × × × × ×
××
×
× ×× × × × ×× × ×
× The government is planning to merge Central Statistical
Organisation (CSO) and National Sample Survey
× × × × × × ×
× × × × ×× × ×
× × × × × ×× ×
Personal Income = NNPFc
×× ×
× ×
× × ××××
× ×
+Net transfer payment Organisation (NSSO) for promoting statistical network
Disposable income in the country. The newly merged unit will be named as
= Personal Income – Direct Taxes National Statistical Organisation (NSO). The head of the
organisation will be designated as ‘Chief of Statistician of
Methods of Measuring National Income
India’ and will be having the rank of Chief Secretary.
National Income of a country is calculated by following three
methods :
Indicators of Economic Development
1. Product Method
In this method net value of final goods and services The major indicators to increase the levels of development are :
produced in a country during a year is obtained and the (i) Net National Product (NNP)
total obtained value is called total final product. This It is defined as the total output produced by a country
represents Gross Domestic Product (GDP). Net income in one financial year. It can be computed by subtracting
earned in foreign boundaries by nationals is added and depreciation from GNP. NNP is also called as National
depreciation is subtracted from GDP. Income.
2. Income Method (ii) Per Capita Income
In this method, a total of net incomes earned by working A high per capital income indicates a better standard of
people in different sectors and commercial enterprises is living and thus, economic development on the whole.
obtained.
Further, a rise in per capita income will always mean a
Symbolically : National Income = total Rent + Total rise in aggregate real output.
Wages + total Interest + Total Profit. (iii) Quality of Life Index (QLI) : The Index of Quality of
3. Consumption Method life depends upon mainly three factors, i.e. life expected,
It is also called expenditure method. Income is either Basic Literacy ad Infant Morality Rate. Most of the
spent on consumption or saved. Hence national income countries with low per capita GNP tends to have to QLI
is the addition of total consumption and total savings. and vice-a-versa.
Structure of Economy and Human Resource in India E-5

(iv) Human Development Index (HDI) : It is one of the actual decline in population in that Census, brought about by an
most recent and significant indicator of economic influenza epidemic. The most spectacular growth in population
development of a country. It is a composite of three was witnessed after Independence, as is clear from the table
indicators, i.e. Life Expectancy Index (LEI); Education below.
Attainment Index (EAI) and Standard of Living Index. Population Growth
(HDI) ranks countries in relations to each other. It can
be computed by using following formula : Year Population Growth Average
(in millions) rate during annual growth

HDI : 3
LEI× EAI×SLI decade (%) rate (%)
1921 251.3 – 0.31 – 0.03
Population 1931 278.9 11 1.04
Theory of Demographic Transitions 1941 318.6 14.22 1.33
Demography is the scientific study of human population. 1951 361 13.31 1.25
The relationship between population growth and economic 1961 439.2 21.51 1.96
development can be explained by the Theory of Demographic 1971 548.1 24.8 2.2
Transition for contemporary developed nations. There are 1981 683.3 24.66 2.22
three stages of population growth.
1991 846.3 23.85 2.14
(i) First stage of stable or slow population growth
2001 1027 21.34 1.9
Due to the high death rate which nullified the high birth
rate. In this stage, these economies were primitive 2011 1.21 –17.64 1.41
and primarily agrarian, with widespread illiteracy, Due to the high rate population growth, it has not been possible
poor sanitation and health care conditions, negligible to make a significant change in the poverty levels in India. The
knowledge of family planning and large family sizes higher population growth, the lower is the rate of growth of per
which contributed to factors such as high fertility rate capita income. The rapid growth in population, which is one
and high death rate. In the period between the first and of the highest in the world and making up one-fifth of the total
the second stages, the death rates start reducing and world population, is eroding India’s considerable development
birth rates remain stable which brings an imbalance in gains and steadily diminishing its ability to provide a decent
the economy. Measures like diseases control, improving quality of life for a large number of its people. However,
nutrition levels, and sanitation improvement are several economists and demographers are of the opinion that
implemented to reduce death rates, but the measures India’s growing population is not hindering rapid development.
for controlling birth rates are not implemented, which According to them a rise in income will automatically bring
results in population explosion. This required a period of down the rate of population growth as in developed nations.
transition for adjustment, thus bringing the second stage However, rapid population growth is a development problem.
of transition. Continuing rapid population growth in the long run is likely
(ii) Second stage of population explosions to mean a lower quality of life for millions of people. In the
In this stage rise in income levels contributed to developing countries the main economic class that suffers are
improvement in health-care, education, disease control the poor. It is also the poor, with little education, low and
and so on which in turn contributed to reducing the insecure income, poor health and large families, who lose
death rates. This accelerated the growth population. The out as rapid population growth hampers development. This
family size reduced and improved trade and economic points to the need for a comprehensive public policy aimed at
conditions resulted in more food and better food habits reducing population growth.
which further helped the population to grow at a much India : Demographics (2013 Estimates)
higher rate than in the first stage. The demographic
1. Population growth rate - 1.25%
changes brought imbalances in the economy, creating
conditions for further transition of society. 2. Birth rate - 20.22 (Per 1000)
3. Death Rate - 7.4 (Per 1000)
(iii) Third stage of low birth rates and low death rates
4. Infant Mortality rate - 40 ( Per 1000)
Modernization and industrilization changed the living
5. Total fertility rate - 2.3
pattern in such nations, the rural population shifted
to cities and family sizes reduced to become nuclear
Birth Rate and Death Rate in India
families. The standard of living increased which further
brought down mortality rates and birth rates. As a result, (Per Thousand Population)
the growth of population declined. Year Birth Rate Death Rate
1950-51 39.9 27.4
Population and development in Indian
1960-61 41.7 22.8
perspective
1970-71 36.9 14.9
India’s population grew slowly till the 1920s. The year 1921
is known as the year of the Great Divide, since there was an 1980-81 33.9 12.5
E-6 Structure of Economy and Human Resource in India
1990-91 29.5 9.8
2000-01 25.4 8.4
2007-08 23.5 7.4
2008-09 22.8 7.4
2009-10 22.5 7.3
2010-11 22.1 7.2
India is the first country in the world which has officially
sponsored family planning programmes to control population
in order to accelerate the overall development of the country.
The programme was officially launched in 1962. The first two
family planning clinics were opened in Karnataka in 1930
which were supposed to be the first such in the world.
National Commission on Population
The National Commission on Population was constituted on
May 11, 2000 under the Chairmanship of the Prime Minister
to provide overall guidance for population stabilisation by
promoting synergy between demographic, educational,
environmental and development programmes.
On May 19, 2005 the National Commission on Population
was reconstituted. This Commission has now been transferred
from Planning Commission to Ministry of Health. The Prime
Minister will remain the chairman of NCP while Deputy-
Chairman of Planning Commission and Union Minister of
Health and Family Welfare will work as Deputy Chairman of
NCP. The membership of NCP has also been reduced from
131 to 44.
The National Commission on Population has undertaken
various initiatives for implementing the National Population
Policy such as review of the implementation of National
Family Welfare Programme especially in the high fertility
States, identification of high fertility districts and preparation
of District Action Plans, selection of Social Economic and
Demographic Indicators for monitoring purpose, promotion of
policy-oriented relevant research for population stabilisation
and promotion of public private partnership in meeting the
unmet needs of family planning services.
National Population Policy 2000
The problem of over population can be solved by two ways
• An effective employment policy, which can absorb the
growing number of workers and promote economic
growth.
• An imaginative family planning programme to encourage
families to adopt the small family norm.
Unfortunately, the official policy has relied heavily on the latter
without any linkage with the employment policy. The official
family planning programme started in 1952 was the first by
any country. Initially, it was a purely birth control programme.
It became evident during the course of time that such a narrow
approach will not pay. False reporting of the achievements of
targets by the executing agency and wasteful expenditure were
some of the serious drawbacks of the target approach.
The Government in February 2000, announced the National
Population Policy (NPP) with the following objectives:
(i) The immediate objective is to address the unmet needs
for contraception, health care infrastructure and basic
reproductive and child health care.
(ii) The medium-term objective is to bring the Total Fertility
Rate (TFR) to replacement levels of 2.1 by 2010.
(iii) The long-term objective is to achieve a stable population
by 2045, at a level consistent with the requirement of
sustainable economic growth, social development and
environmental protection.
A National Commission on Population, with the Prime Minister
as the President and state chief ministers, Union ministers,
NGOs, demographers and public health professionals as
members has been set up. This Commission of more than 100
members will oversee and review the implementation of the
policy.
The policy emphasises the pivotal role of urban and rural
local bodies in implementing it. Promotional and motivational
measures in the policy include rewarding the local bodies
for exemplary performance, cash incentives to mothers and
couples who undergo sterilisation, etc.
The NPP has accepted the recommendation of the Swaminathan
Committee regarding extension of the freezing of seats in
legislatures and Parliament on the basis of 1971 Census. The
Parliament has passed the necessary legislation approving the
freezing of seats up to 2026, instead of 2011 as suggested by
the Committee.
The present approach National Commission on Population
is based on evolving appropriate strategies to improve the
performance of demographically weak states, drawing lessons
from the southern states. The weaker states are : Bihar,
Jharkhand, Madhya Pradesh, Chhattisgarh, Rajasthan, Uttar
Pradesh and Odisha.
Human Development Index (HDI)
HDI is a broad-based index that assesses the development of
an economy, on the basis of the performance of the economy
in various indicators. The need to create such an index was
felt as the concept of GDP and per capita income could not
demonstrate the various aspects of human development. The
concept of HDI was evolved by economist Mahbub-ul-Haq.
The HDI calcualtes the development of an economy in terms
of three major indicators.
Indicators of HDI
The HDI is an equi-weighted average of-
• Life Expectancy Index (LEI): Infant mortality is not
considered as a separate indicator in this index. Thus, life
expectancy refers to life expectancy at birth, not at age one.
• Educational Attainment Index (EAI) It is a combination
of adult literacy rate and combined enrolment ratio.
2
The weight assigned to Adult Literacy Rate (ALR) is
3
1
while that for combined Enrolment Ratio (CER) is .
3
Therefore,
Educational Attainment Index may be given as
2 1
EAI = ALR + CER
3 3
Structure of Economy and Human Resource in India E-7

• Standard of Living Index (SLI): It is represented here by Human Development Report 2015
the concept of Purchasing Power Parity (PPP). Per capita
The HDR is an annual milestone published by the United Nations
income is converted into Purchasing Power Parity in terms
Development Programme (UNDP). The title of 2015 edition of
of US dollar.
HDR is ‘ Rethinking work for Human Development’. The
Thus, HDI = 1 (FLET + EAI + SLI) top three nations in the 2015 HDI are Norway (1st) Australia
3 ( 2nd) & Suitzerland (3rd). In 2015, India has been placed
at 130th position with 0.609 score in the medium human
• Categories of Countries based on HDI development category.
HDI has categorised countries into Gender Inequality Index 2015
– very high human development (USA, UK, etc.) India’s rank – 130th (Out 155 countries)
– high human development
(Sri lanka, China and India) Global Hunger Index 2015
– low human development India’s Score – 29 (Serious hunger situation)
(Pakistan, Bangladesh and Nepal)
Occupational Distribution of Population
Meaning of HDI Value Occupational structure refers to distribution of work force in
Different levels of development in terms of HDI score the different occupations of the country. As economy grows,
• Very high human development = 0.791 and labour force shifts from primary sector to secondary and
                    above tertiary sector.
• High human development = 0.699 to Occupation 1951 1971 1991 2001
                  0.790 Primary sector 72.1 72.1 62.7 89.3
• Medium human development = 0.541 to
Secondary sector 10.6 11.2 14.9 18.2
                  0.698
• Low human development = 0.337 to Tertiary sector 17.3 16.7 22.14 22.5
                       0.540 Total 100 100 100 100

Growth of Population and Workforce – All India Category

Category Person Male Female
1981-91 1991-01 2001-11 1981-91 1991-01 2001-11 1981-91 1991-01 2001-11
Total Population 2.1 2.0 1.6 2.2 1.9 1.6 2.1 2.0 1.7
Total Workers 2.5 2.5 1.8 2.2 2.1 1.9 3.5 3.5 1.7
Main workers 2.5 0.9 1.5 2.2 0.8 1.3 3.6 1.2 2.1
Marginal workers 2.5 12.3 2.8 2.6 29.5 5.1 3.2 7.9 1.1
Sex Ratio in Population and Workforce – All India
Year Population Total Workers Main Workers Marginal Workers
1981 933 351 253 5245
1991 927 400 290 9425
2001 933 461 303 1520
2011 940 452 327 1032
Note: 1. Rural and urban combined.
Source: Census of India.

Work Participation Rate:

Percentage of workers (main + marginal) to total population.
Main Workers :
A person who has worked for major part of the reference period (i.e.6 months or more during the last one year preceding the
date of enumeration) in any economically productive activity is termed as ‘main Worker.’
Marginal Workers :
A person who has worked for 3 months or less but for less than 6 months of the reference period in any economic activity is
termed as marginal worker.
E-8 Structure of Economy and Human Resource in India

1. Population experts refer to the possible ‘demographic 8. If it will be true to classify India as
bonus’ that may accrue to India around 2016 A.D. They (a) a food-deficit economy
are referring to the phenomenon of (b) a labour-surplus economy
(a) a sharp drop in the total population (c) a trade-surplus economy
(b) a surge in the population in the productive age (d) a capital-surplus economy
group;
9. The Indian Economy is characterised by
(c) a decline in both birth and death rates;
(a) pre-dominance of agriculture
(d) a well-balanced sex ratio
(b) low per capita income
2. The most significant economic consequence of the
(c) massive unemployment
‘greying’ of the Indian population in the decades to
(d) all of the above
come, will be:
10. In India, planned economy is based on
(a) a fall in the growth of population
(a) Gandhian system (b) Socialist system
(b) a reverse flow of wealth from children to parents
(c) Capitalist system (d) Mixed economy system
(c) a decline in the demand for maternity facilities
11. Who coined the term ‘Hindu rate of growth’ for Indian
(d) the need for redesigning apartment buildings
Economy?
3. According to 2011 census urban-rural population ratio
(a) A.K. Sen
was about-
(b) Kirit S. Parich
(a) 35 : 65 (b) 32 : 68
(c) Raj Krishna
(c) 28 : 72 (d) 31 : 69
(d) Montek Singh Ahluwalia
4. One of the reasons for India’s occupational structure
12. Which one of the following is not a method of
remaining more or less the same over the years has been
measurement of National Income?
that
(a) investment pattern has been directed towards capital (a) Value Added Method
intensive industries (b) Income Method
(b) productivity in agriculture has been high enough to (c) Expenditure Method
induce people to stay with agriculture (d) Investment Method
(c) Ceiling on land holdings have enabled more people 13. Which of the following is definitely a major indication of
to own land and hence their preference to stay with the state of the economy of a country?
agriculture (a) Rate of GDP growth
(d) People are largely unaware of the significance of (b) Rate of inflation
transition from agriculture to industry for economic (c) Number of Banks in a country
development (d) None of these
5. Which indicators are used to calculate the Human 14. In terms of economics, the total value of the output
Development Index (HDI)? (goods and services) produced and income received in a
(a) Population growth, per capita GDP, life expectancy year by a domestic resident of a country put together is
(b) Population growth, infant rate, malnutrition called
(c) Life expectancy, educational attainment, per capita (a) Net National Product
GDP
(b) Gross National Product
(d) Current account balance, infant mortality rate,
(c) Gross National Income
educational attainment.
(d) National Income
6. Which of the following could assist economic growth in
15. Which sector of the Indian Economy contributes largest
developing countries?
to the GNP?
(a) An increase in the rate of taxation
(a) Primary sector (b) Secondary sector
(b) Decrease in foreign investment
(c) Tertiary sector (d) Public sector
(c) Decrease in the terms of trade
16. Per capita Income of a country derived from
(d) An increase in the level of education
7. Which sector of Indian Economy has shown remarkable (a) National Income
expansion during the last decade? (b) Population
(a) Primary sector (b) Secondary sector (c) National Income and Population both
(c) Tertiary sector (d) Mining sector (d) None of these
Structure of Economy and Human Resource in India E-9
17. Who wrote a book describing the theory of economic
drain of India during British rule?
(a) Lala Lajpat Rai (b) Mahatma Gandhi
(c) J.L. Nehru (d) Dadabhai Naoroji
18. The most appropriate measure of a country’s economic
growth is its
(a) Gross Domestic Product
(b) Net Domestic Product
(c) Net National Product
(d) Per capita Real Income
19. Which one among the following countries has the lowest
GDP per capita?
(a) China (b) India
(c) Indonesia (d) Sri Lanka
20. Which among the following sector of Indian Economy
is maximum dependent on economic developments in
advanced rations?
(a) Manufacturing sector
(b) Agricultural sector
(c) Mining sector
(d) Services sector
21. Which among the following is a most suitable example
of double counting in national income ?
(a) Wages of bus and train drivers.
(b) Cotton output and cotton cloth output.
(c) Electricity output and water output.
(d)  Tax receipts and earnings of inland revenue
officials.
22. Which among the following is considered to be the
best measure of an increase in a country’s economic
efficiency?
(a) Increase in annual private investment.
(b) Increase in real national income.
(c) Increase in real per capita income.
(d) Increase in net annual investment.
23. What does term ‘Green shoots’ represent in an Economy?
(a) signs of growth of agriculture sector in a growing
economy
(b) signs of economic recovery during an economy
downturn.
(c) signs of growth of agriculture sector in a declining
economy
(d) signs of economic decline in a developed economy.
24. GDP deflator is used to :
(a) measure the relative reduction in GDP growth rate
of a country.
(b) measure the inflation in a country.
(c) compare the GDP of a country vis a vis other
countries of the world.
(d) estimate the purchasing power of the citizen of a
country.
25. Human Development Index comprises literacy rates, life
expectancy at birth and
(a) GDP per head in the US dollars.
(b) GDP per head at real purchasing power.
(c) GNP in US dollars
(d) National Income per head in US dollars.
26. National income ignores
(a) sales of a firm
(b) salary of employees
(c) exports of the IT sector
(d) sale of land
27. The value of all final goods and services produced by
the normal residents of a country and their property,
whether operating within the domestic territory of the
country or outside in a year is termed as
(a) Gross National Income (b) Net National
Income
(c) Gross Domestic Product (d) Net Domestic
Product
28. National product at factor cost is equal to
(a) Domestic product + Net factor income from abroad
(b) National product at market prices - indirect taxes +
subsidies
(c) Gross domestic-product - depreciation
(d) National product at market prices + Indirect taxes
+ subsidies
E-10 Structure of Economy and Human Resource in India
Statement Based MCQ
1. Consider the following statements:
1. The Central Statistical Organisation (CSO) is
responsible for calculating the consumer price indices
for urban non-manual employees.
2. National Sample Survey Organisation (NSSO)
collects data for estimating national income.
3. NSSO collects rural retail price on monthly basis for
calculating Consumer Price Index.
4. CSO conducts periodic economic census to collect
data on unorganised enterprises.
Which of the following statement/s is/are correct?
(a) 1, 2, 3 and 4 (b) 2 and 4
(c) 1, 3 and 4 (d) 3 and 4
2. Among the socio-economic factors responsible for the high
birth rate in India we may include
1. large scale poverty
2. high mortality rate of children of poor parents
3. prevalence of child marriage
4. adverse sex ratio
Choose your answer from the following:
Codes:
(a) 1 and 2 (b) 1, 2 and 4
(c) 2, 3 and 4 (d) 1, 2 and 3
3. Which of the following are the main causes of slow rate
of growth of per capita income in India?
1. High capital output ratio
2. High rate of growth of population
3. High rate of capital formation
4. High level of fiscal, deficits
codes:
(a) 1, 2, 3 and 4 (b) 2, 3 and 4
(c) 1, 3 and 4 (d) 1 and 2
4. Consider the following statements:
1. Infant mortality rate takes into account the death of
infants within a month after birth.
2. Infant mortality rate is the number of infant deaths in
a particular year per 100 live births during that year.
Which of the above statements is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
5. Consider the following statements about the megacities of
India:
1. Population of each megacity is more than 5 million.
2. All the megacities are important sea ports.
3. Megacities are either national or state capitals.
Which of these statements are correct ?
(a) 1, 2 and 3 (b) 1 and 2
(c) 2 and 3 (d) 1 and 3
6. Consider the following specific stages of demographic
transition associated with economic development :
1. Low birth rate with low death rate
2. High birth rate with high death rate
3. High birth rate with low death rate
Select the correct order of the above stages using the codes
given below :
(a) 1, 2, 3 (b) 2, 1, 3
(c) 2, 3, 1 (d) 3, 2, 1
7. Indian economy is a developing economy as there is?
1. Dominance of agriculture.
2. Huge unemployment
3. Low quality of human capital
4. Low per capita consumption.
(a) 1, 2 and 3 (b) 1 and 4
(c) 2 and 3 (d) 1, 2, 3 and 4
8. Estimation of national income in India are not accurate as
there is:
1. illiteracy
2. non-monetised consumption
3. inflation
4. people holding multiple jobs
(a) 1, 2, 3 and 4 (b) 2 and 3
(c) 1 and 4 (d) 1, 2 and 4
9. Which of the following gives a correct picture of the share
of various sectors in economic growth in India over the
years?
1. Primary sector-stagnant
2. Secondary sector-increasing
3. Tertiary sector-decreasing
(a) 1 and 2 (b) 2 and 3
(c) 2 only (d) 1 only
10. Consider the following statements:
1. Human Development Report is an authoritative
annual publication brought out by the World Bank.
2. It measures longevity by life expectancy at birth.
3. Knowledge is measured by adult literacy rate.
4. Standard of living is measured by GDP per capita
(US $ PPP)
Which of the following statements is not correct?
(a) 1 (b) 2
(c) 3 (d) 4
11. In the context of Indian economy, consider the following
statements
1. The growth rate of GDP has steadily increased in the
last five years.
2. The growth rate in per capita income has steadily
increased in the last five years.
3. The growth rate of GDP has steadily increased.
Which of the statements given above is/are correct ?
(a) 1 only (b) 2 only
(c) Both 1 and 3 (d) None of these
Structure of Economy and Human Resource in India E-11
12. Which is the correct definition of National Income ?
1. National Income means the total amount of money
Govt. earns through direct tax collection.
2. It is the total value of stocks held by a country at a
particular point of time.
3. This is the measure of goods and services produced
during an accounting year without double counting.
(a) 1 only (b) 2 only
(c) 3 only (d) All 1, 2 and 3
13. A dual economy means:
1. The existence of black money and white money
2. The existence of agriculture and industry
3. The existence of commercial agriculture with
subsistence farming
4. Modern industry and commercial agriculture co-
existing with subsistence farming and traditional
handicrafts
(a) 1 only (b) 1, 2 and 4
(c) 2, 3 and 4 (d) All of these
14. Consider the following statements :
(1) Higher growth in GDP and population can occur
together.
(2) Per capita income always decreases with high
population growth.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
15. In India, rural incomes are generally lower than the urban
incomes. Which of the following reasons account for this?
(1) A large number of farmers are illiterate and know
little about scientific-agriculture.
(2) Prices of primary products are lower than those of
manufactured products.
(3) Investment in agriculture has been lower when
compared to investment in industry :
(a) 1, 2 and 3 (b) 1 and 2
(c) 1 and 3 (d) 2 and 3
16. Consider the following statements (a) 1 only (b) 2 only
1. The current Economic Census is the seventh in the
series so far conducted in India.
2. The Economic Census in India is undertaken by the
Department of Economic Affairs (Union Ministry of
Finance).
Which of the statements given above is/are correct?
(a) Only 1 (b) Only 2
(c) Both l and 2 (d) Neither 1 nor 2
17. Which of the following occupations are included under
secondary sector as per the national income accounts ?
1. Manufacturing
2. Construction
3. Gas and water supply
4. Mining and quarrying
Select the correct answer using the codes given below
(a) 1, 2, 3 and 4 (b) 1, 2 and 4
(c) 1, 2 and 3 (d) 3 and 4
18. With reference to ‘Economics’ which statement is correct?
1. Economics is an area where people, society and
government prioritize their choices in the process of
using the infrequent reserves to satisfy the various
needs and wants of life.
2. Economics is considered an exercise in the space-
time continuum.
3. Economics is considered an exercise in the time
continuum.
(a) 1 only (b) 1 and 2
(c) 3 only (d) 1, 2 and 3
19. Which of the following is/are economic activity?
1. Profit and Loss 2. Salary
3. Employment 4. occupation
(a) 1 and 2 (b) 1, 2 and 3
(c) 1, 2, 3 and 4 (d) 4 only
20. Among the following, which is the reason for different
types of economic system?
1. Time requirement
2. Money requirement
(a) 1 Only (b) 2 Only
(c) 1 and 2 (d) None of the Above
21. National Income is defined as:
1. It is the total amount of money government earns
through direct tax collection.
2. It measures the flow of goods and services in an
economy
3. It is the total value of stocks held by a country at a
particular point of time
(a) 1 only (b) 2 only
(c) 1 and 2 (d) 3 only
22. Consider the following statements in regard to Gross
National product (GNP):
1. Gross National Product refers to the money value of
total output or production of final goods and services
produced by the nationals of a country during a given
period of time.
2. In the calculation of GNP, we include the money
value of goods and services produced by nationals
outside the country
(c) Neither 1 nor 2 (d) Both1 and 2
23. Which among the following is the full form of GDP?
1. Gross Data Product
2. Gross Domestic Product
3. Group Domestic Product
4. Group Data Product
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
24. Consider the following statements
1. National income measures the net value of goods and
services produced in a country during a year.
2. India is the first country in the world which has
officially sponsored family planning programmes
3. The National Commission on Population was
constituted on May 11, 2010
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) 3 only (d) 1 and 2
E-12 Structure of Economy and Human Resource in India
25. Consider the following statements about the population of
India:
1. Due to the high rate population growth, it has not
been possible to make a significant change in the
poverty levels in India.
2. The higher population growth, the higher is the rate
of growth of per capita income.
3. The rapid growth in population is eroding India’s
considerable development gains and steadily
diminishing its ability to provide a decent quality of
life for a large number of its people.
4. Continuing rapid population growth in the long run
is likely to mean a lower quality of life for millions
of people.
(a) 1 and 2 (b) 1 and 3
(c) 1 and 4 (d) 3 and 4
26. The problem of overpopulation can be solved by
1. An effective employment policy, which can absorb
the growing number of workers and promote
economic growth.
2. An imaginative family planning programme to
encourage families to adopt the small family norm.
(a) 1 only (b) 2 only
(c) 1 and 2 (d) Neither 1 nor 2
27. The objective of the National Population Policy (NPP) is
1. The immediate objective is to address the unmet
needs for contraception, health care infrastructure
and basic reproductive and child health care.
2. The medium-term objective is to bring the Total
Fertility Rate (TFR) to replacement levels of 2.1 by
2010.
3. The short-term objective is to achieve a stable
population by 2045, at a level consistent with the
requirement of sustainable economic growth, social
development and environmental protection.
Which of the following statements is not correct?
(a) 1 (b) 2
(c) 3 (d) All are correct
28. The following objective helps in the development of India’s
economic development since independence.
1. A rapidly and technologically progressive economy
by democratic means
2. A social order based on justice, offering equal
opportunity to every citizen of the country.
3. Increasing population of the country
Which among the following is/are the objective?
(a) 1 only (b) 1 and 2
(c) 1 and 3 (d) 1, 2 and 3
29. Consider the following statement in regards to Low per
capita Income:
1. India is developing economy
2. India’s per capita income level is higher as compared
with other developed countries
3. According to World Development Report (2011)
India’s per capita income was US $ 1499 in 2014
4. India’s per capita income falls in category of Lower
Middle Income Countries(LMC)
Which of the statements given above is/are correct?
(a) 1 and 2 (b) 1, 2 and 3
(c) 1, 2 and 4 (d) 1, 3 and 4
30. Consider the following:
1. Mehbub ul Haq
2. Inge Kaul
3. David Hilton
The team which developed HDI was led which of the above
(a) 1 and 2 (b) 2 and 3
(c) 1 and 3 (d) 1, 2, 3
31. Match the following in regards to labour force vs sector
where
Column A Column B
I. Primary Sector 17.3
II. Secondary Sector 72.1
III. Tertiary Sector 10.6
(a) 2, 3, 1 (b) 1, 2, 3
(c) 3, 2, 1 (d) 3, 1, 2
32. Which among the following is the full form of CAGR.
1. Compound Annual Growth Rate
2. Country Annual Growth Rate
3. Country Annual Growth Region
4. Compound Annual Growth Region
Choose the correct answer using the codes given below:
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
33. Consider the following statements:
1. GDP is the total money value of all final goods and
services produced within the geographical boundaries
of the country during a given period of time.
2. GNP refers to the money value of total output or
production of final goods and services produced by
the nationals of a country during a given period of
time
Which among the above statements is / are correct?
(a) 1 only (b) 2 only
(c) 1 and 2 (d) Neither 1 nor 2
34. Arrange the following stages of population growth in
chronological order
1. population explosions
2. low birth rates and low death rates
3. stable or slow population growth
Select the correct answer using the codes given below.
(a) 1, 2, 3 (b) 3, 1, 2
(c) 3, 2, 1 (d) 1, 3, 2
35. Which among the following equation is correct
1. GDP=GNP+X-M
2. GNP = GDP + X – M
3. GNP = GDP + NFIA
4. NNP = GNP – Depreciation.
Select the correct answer using the codes given below.
(a) 1 and 2 (b) 1, 2 and 3
(c) 2, 3 and 4 (e) 1, 3 and 4
36. Consider the following statements about personal Income:
1. Personal income is that income which is actually
obtained by nationals.
2. Personal Income = National income – undistributed
profits of corporation – payments for social security
provisions – corporate tax + government transfer
payments + Business transfer payments + Net
interest paid by government.
Select the correct answer using the codes given below:
(a) 1 only (b) 2 only
(c) 1 and 2 (d) Neither 1 nor 2
Structure of Economy and Human Resource in India E-13
37. Which of the following are the roles of government in the
economy:
1. Provision of public goods
2. Provision of merit goods
3. Poverty reduction
Select the correct answer using the codes given below:
(a) 1 only (b) 2 only
(c) 3 only (d) 1, 2 and 3
38. Consider the following statement related to population
1. An effective employment policy, which can absorb
the growing number of workers and promote
economic growth.
2. An imaginative family planning programme to
encourage families to adopt the small family norm.
Which among the above statements is / are not correct?
(a) 1 only (b) 2 only
(c) 1 and 2 (d) Neither 1 nor 2
39. Which among the following statement characterize Indian
Economy:
1. pre-dominance of agriculture 2. These measures include an increase in tax
2. low per capita income
3. massive unemployment
Select the correct answer using the codes given below
(a) 1 only (b) 1, 2 and 3
(c) 2 only (d) 1 and 2
40. Which among the following states have the first family
planning clinic?
1. New Delhi 2. Uttar Pradesh
3. Karnataka 4. Maharashtra
Select the correct answer using the codes given below
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
41. Consider the following statement:
1. High degree of disparity in income/wealth distribution
is prevailed in India which is a characteristics feature
of developing economy.
2. In India, almost 60-70% of the total population still
resides in rural areas and hence they depend on
agriculture for their livelihood.
3. India’s per capita income level is much high as
compared with other developed countries
Which among the following statement is not correct:
(a) 3 only (b) 1 and 2
(c) 1 and 3 (d) 1 only
42. Consider the following statement in regards to Unbalanced
Economic Development
1. India has not yet achieved the goal of balanced
economic development.
2. Balanced Growth mentions to a definite type of
economic growth that is maintainable in the long
term.
3. Balanced growth is contrasting to the high and low
nature of economic cycles.
Which among the following statement is correct:
(a) 1 only (b) 2 only
(c) 3 only (d) 1, 2 and 3
43. Which of the following is/are the functions of the National
Development Council of India?
1. To prescribe guidelines for preparation of the national
economic plan.
2. To review the working of the national economic plan
from time to time.
3. To consider important questions of social and
economic policy affecting national development
Select the correct answer using the codes given below?
(a) 1 only (b) 2 only
(c) 3 only (d) 1, 2 and 3
44. Consider the following systems was/were provided by the
Government of India, Act 1935:
1. Separation of provincial budgets from the central
budget for the first time.
2. Introduction of portfolio system in the Executive.
3. Establishment of a Federal public service commission.
Which of the systems given above is correct:
(a) 3 only (b) 2 only
(c) 1 only (d) 1, 2 and 3
45. Which of the following are correct
1. These measures include a reduction in spending.
3. These measures include reduction in budget deficit.
Select the correct answer using the codes given below in
regards to the austerity measures taken by a country
going through adverse economy conditions:
(a) 1 only (b) 2 only
(c) 3 only (d) 1, 2 and 3
46. Consider the following statement
1. The immediate objective is to address the unmet
needs for contraception, health care infrastructure
and basic reproductive and child health care.
2. The medium-term objective is to bring the Total
Fertility Rate (TFR) to replacement levels of 2.1 by
2010.
3. The long-term objective is to achieve a stable
population by 2045, at a level consistent with the
requirement of sustainable economic growth, social
development and environmental protection.
Which of the following statement is true for NPP objective?
(a) 1 only (b) 2 only
(c) 3 only (d) 1, 2 and 3
47. Consider the following Statement
1. The relationship between population growth and
economic development can be explained by the
Theory of Demographic Transition for contemporary
developed nations.
2. The three stages of population growth are stable or
slow population growth, population explosions, low
birth rates and low death rates.
Select the correct statement using the code given below:
(a) 1 only (b) 2 only
(c) 1 and 2 (d) Neither 1 nor 2
48. Consider the following statements:
1. The basic objective of the Viability Gap Funding
Scheme is to promote PPP investment in Infrastructure
2. The Infrastructure Projects are funded up to 20% by
the Central Government
Which among the above code is / are correct?
(a) 1 only (b) 2 only
(c) 1 and 2 (d) Neither 1 nor 2
E-14 Structure of Economy and Human Resource in India

49. Which among the following sector of Indian Economy 54. With reference to Indian economy, consider the following
is maximum dependent on economic developments in statements:
advanced nations? 1. The rate of growth of Real Gross Domestic Product
1. Manufacturing Sector has steadily increased in the last decade.
2. Agricultural Sector 2. The Gross Domestic Product at market prices (in
3. Mining Sector rupees) has steadily increased in the last decade.
4. Services Sector Which of the statements given above is/are correct?
Which statement is/are correct (a) 1 only (b) 2 only
(a) 1 only (b) 2 only (c) Both 1 and 2 (d) None of these
(c) 3 only (d) 4 only
50. Consider the following statement: (d) Neither 1 nor 2
Matching Based MCQ
1. Increase in annual private investment.
2. Increase in real national income.
55. Matching Based MCQ
3. Increase in real per capita income.
Match columns A and B
4. Increase in net annual investment.
Column A Column B
Which among the following is considered to be the best
I. Mixed economy a. India has strong powers
measure of an increase in a country’s economic efficiency?
invested in the Centre with
(a) 1 only (b) 2 only
financial independence
(c) 3 only (d) 4 only
and adequacy
51. Role of the government in the economy is II. Fedral economy b. Public sector business
1. Provision of public goods enterprise exist with
2. Provision of merit goods Private sector
3. Poverty reduction III. Over population c. In each decade Indian
Which among the following code is/are correct population is increased By
(a) 1 only (b) 2 only 20%
(c) 3 only (d) 1, 2 and 3 IV. Disparities in d. India’s per capita income
52. Human Development Index comprises literacy rates, life Income Distribution is about 1/40 of US level
expectancy at birth and Of per capita
1. GDP per head in the US dollars. (a) I-b, II-a, III-d, IV-c
2. GDP per head at real purchasing power. (b) I-a, II-b, III-c, IV-d
3. GNP in US dollars (c) I-a, II-d, III-b, IV-c
4. National Income per head in US dollars. (d) I-c, II-a, III-b, IV-d
Which of the statement is correct 56. Match the following
(a) 1 only (b) 2 only Column A Column B
(c) 3 only (d) 4 only I. 1962 a. The objective of NPP
53. The national income of a country for a given period is equal was announced by govn
to II. 1990 b. First HDR report was
1. total value of goods and services produced by the published
nationals III. 2000 c. Family planning programme
2. sum of total consumption and investment expenditure was launched
3. sum of personal income of all individuals (a) I-c, II-b, III-a
4. money value of final goods and services produced (b) I-a, II-b, III-c
Which of the following code is/are correct (c) I-b, II-a, III-c
(a) 1 only (b) 2 only (d) I-c, II-a, III-b
(c) 3 only (d) 4 only
Structure of Economy and Human Resource in India E-15
EXERCISE-1
1. (b) 2. (b) 3. (d) 4. (a) 5. (a) 6. (d)
7. (c) During last decade tertiary sector has shown
remarkable expansion. The economy is divided
into three sector on the basis of activities–primary,
secondary and tertiary. Primary sector is involved
into agriculture, Secondary sector is involved
into manufacturing, mining, construction while
tertiary sector is involved into trade, transport,
communication, banking & other services. In the last
decade India has expanded maximum in providing
services like IT, Telecommunication, Healthcare,
Tourism which is contributing around 60% to GDP.
8. (b) India is a labour-surplus economy because in India
there is disguised unemployment along with under-
employment which means that qualified, skilled
workforce willing to work is available but there are
not enough employment opportunities.
9. (d) total population of the country. Per capita income,
10. (b) In India, planned economy is based on socialist
system in which all have equal opportunities to
education, healthcare, non exploitation, equality of
wealth etc. The concept was borrowed from Russia
and is based on achieving directive principles
mentioned in our constitution.
11. (c) The term was coined by Indian economist Raj
Krishna. The Hindu rate of growth is a derogatory
term referring to the low annual growth rate of
the socialist economy of India before 1991, which
stagnated around 3.5% from 1950s to 1980s. The
word “Hindu” implies that the Hindu outlook of
fatalism and contentedness was responsible for the
slow growth.
12. (d) Investment method is not a method of measurement
of National Income. There are three methods of
measurement; income method, product or value
added method and the expenditure method. In the
initial phase, production of goods and services takes
place. During the course of production payment
is made to all factors of production like wages to
labour etc. Once the production completes the output
is distributed for different uses like consumption etc.
13. (a) Rate of GDP growth is a major indication of the state
of the economy of a country. Economic growth is
the increase in the market value of the goods and
services produced by an economy over time. It
is conventionally measured as the percent rate of
increase in gross domestic product. Gross domestic
product (GDP) is the market value of all officially
recognized final goods and services produced within
a country in a year, or other given period of time.
14. (b) GNP is the total value of all final goods and services
produced within a country in a particular year, plus
income earned by its citizens (including income
of those located abroad), minus income of non-
residents located in that country. GNP measures
the value of goods and services that the country’s
citizens produced regardless of their location.
15. (c) Tertiary sector of the Indian Economy contributes
largest to the GNP. During last decade tertiary
sector has shown remarkable expansion. The
economy is divided into three sectors on the basis of
activities-Primary, Secondary and tertiary. Primary
sector is involved into agriculture, Secondary sector
is involved into manufacturing, mining, construction
while tertiary sector is involved into trade, transport,
communication, banking & other services. In the last
decade, India has expanded maximum in providing
services like IT, Telecommunication, Healthcare,
Tourism which is contributing around 60% to GDP.
16. (c) Per capita income of a country derived from
National Income and population both. Per Capita
Income is obtained by dividing National Income by
also known as income per person, is the mean
income of the people in a country . It is calculated
by taking a measure of all sources of income in the
aggregate (such as GDP or Gross national income)
and dividing it by the total population.
17. (d) Dadabhai, known as the Grand Old Man, wrote
the book ‘Poverty and Un-British Rule in India’
describing the theory of economic drain of India
during British rule.
18. (d) The most appropriate measure of a country’s
economic growth is its per capita real income. Per
capita income is average income, a measure of the
wealth of the population of a nation. It is used to
measure a country’s standard of living thus a better
indicator of economic growth.
19. (b) India, among the countries has the lowest GDP
per capita. GDP per capita is as follows- India
1489 USD,China 6091USD, Sri Lanka 2923 USD,
Indonesia 3556 USD.
20. (d) 21. (b) 22. (c)
23. (b) Green shoots is a term used colloquially and
propagandistically to indicate signs of economic
recovery during an economic downturn. It was first
used in this sense by Norman Lamont, the then
Chancellor of the Exchequer of the United Kingdom,
during the 1991 recession.
24. (b) GDP deflator is an economic metric that accounts for
inflation by converting output measured at current
prices into constant-collar GDP. The GDP deflator
shows how much a change in the base year’s GDP
relies upon changes in the price level.
25. (d) Human Development Report the HDI combines
three dimensions: A long and healthy life: Life
expectancy at birth, Education index: Mean years of
schooling and Expected years of schooling and A
decent standard of living: GNI per capita (PPP US$).
E-16 Structure of Economy and Human Resource in India
26. (d) National Income ignores sale of land.
27. (a) The sum of a nation’s gross domestic product
(GDP) plus net income received from overseas.
Gross national income (GNI) is defined as the sum
of value added by all producers who are residents in
a nation, plus any product taxes (minus subsidies)
not included in output, plus income received from
abroad such as employee compensation and property
income.
28. (a) National product at factor cost is equal to net
domestic product at factor cost + Net factor Income
from Abroad.
EXERCISE-2
1. (a) 2. (a) 3. (d) 23. (b)
4. (d) Infant mortality rate indicates the number of infant
death under one years of age per 1000 live birth
under one year of age.
5. (d) Megacities of India have more than 5 million
population. But not all the major megacities are
located on the sea coast or are sea ports. Delhi,
which is the national capital is not a sea port.
6. (c) 2, 3, 1, i.e. High birth rate with high death rate,
High birth rate with low death rate, Low birth rate
with low death rate.
7. (d) 8. (d) 9. (c) 10. (a)
11. (d) 12. (c) 13. (c)
14. (c) Higher growth in GDP and population can occur
together. Per capita income always decreases with
high population growth as income per person
decreases with rise in population.
15. (a) In India a large number of farmers are illiterate
and know little about scientific-agriculture, prices
of primary products are lower than those of
manufactured products and Investment in agriculture
has been lower when compared to investment in
industry .All these reasons are responsible for lower
rural income.
16. (d) In 1976, Government of India launched a plan
scheme called “Economic Census and Surveys”.
In 1977 Central Statistical Organisation conducted
First economic census in collaboration with the
Directorate of Economics & Statistics (DES) in the
States/Union Territories. Current Economic Census
is Sixth Economic Census held in 2013.
The Central Statistics Office (CSO) in the Ministry of
Statistics and Programme Implementation (MOSPI)
conducted the Sixth Economic Census during
January, 2013 to April, 2014 in collaboration with
Directorates of Economics and Statistics in all the
States and Union Territories.
17. (c) Primary sector-Agriculture, fishing, mining and
quarrying
Secondary sector- Manufacturing and construction,
Gas and water supply
Tertiary sector- trade, transport etc, finance & real
estate, community and personnel services
18. (b) Economics takes care of various needs and wants of
life.
19. (c)
20. (c) Different types of economy are dependent on time
which helps in providing several ways to structure
an economy.
21. (b) National income measures the net value of goods
and services produced in a country during a year and
it also includes net earned foreign income.
22. (d) Gross National Product refers to the money value of
total output or production of final goods and services
produced by the nationals of a country during a given
period of time, generally a year. In the calculation
of GNP, we include the money value of goods and
services produced by nationals outside the country.
24. (d) The total of national income measures the flow of
goods and services in an economy.
The increasing population of India hinders the
growth and progress of country.
The National Commission on Population was
constituted on May 11, 2000 under the Chairmanship
of the Prime Minister Shri Atal Bihari Vajpayee to
provide overall guidance for population stabilisation
by promoting synergy between demographic,
educational, environmental and development
programmes.
25. (b) The increasing population of India hinders the
economic growth of the country. It is important to
control the population growth.
26. (c) Over population of India can be controlled by
providing maximum employment and giving proper
education how to control population.
27. (c) The long-term objective of NPP is to achieve a stable
population by 2045, at a level consistent with the
requirement of sustainable economic growth, social
development and environmental protection.
28. (b) Since independence, India’s economic development
has been guided by the twin objectives (1) a rapidly
and technologically progressive economy by
democratic means; and (2) a social order based on
justice, offering equal opportunity to every citizen of
the country.
29. (d) India is developing economy. Its per capita income
level is much low as compared with other developed
countries. According to World Development Report
(2011) India’s per capita income was US $ 1499
in 2014. The per capita income in United States is
US $ 47240 and hence India’s per capita income
is about 1/40 of US level of per capita. The per
capita income of 2015 has increased by 10.1%, (as
compared to 2014) as stated by Minister of State for
Statistics and Programme Implementation Gen. V K
Singh. The national income in 2014-15 stood at Rs.
11,217,079 crore. With the mentioned per capita
income India falls in category of Lower Middle
Income Countries(LMC)
30. (b) The team which developed HDI was led by Mehbub
ul Haq and Inge Kaul.
Structure of Economy and Human Resource in India E-17
31. (a) Occupational structure refers to distribution of work
force in the different occupations of the country. As
economy grows, labour force shifts from primary
sector to secondary and tertiary sector.
32. (a)
33. (c) In the calculation of GNP, we include the money value
of goods and services produced by nationals outside
the country. Hence, income produced and received
by nationals of a country within the boundaries of
foreign countries should be added in Gross Domestic
Product (GDP) of the country. Similarly, income
received by foreign nationals within the boundary of
the country should be excluded from GDP.
34. (b) First stage of stable or slow population growth:
The growth of population was slow due to the high
death rate which nullified the high birth rate. In this
stage, these economies were primitive and primarily
agrarian, with widespread illiteracy, poor sanitation
and health care conditions, negligible knowledge
of family planning and large family sizes which
contributed to factors such as high fertility rate and
high death rate. In the period between the first and
the second stages, the death rates start reducing
and birth rates remain stable which brings an
imbalance in the economy. Measures like diseases
control, improving nutrition levels, and sanitation
improvement are implemented to reduce death rates,
but the measures for controlling birth rates are not
implemented, which results in population explosion.
This required a period of transition for adjustment,
thus bringing the second stage of transition.
Second stage of population explosions: In this stage
rise in income levels contributed to improvement
in health-care, education, disease control and so
on which in turn contributed to reducing the death
rates. This accelerated the growth of population.
The family size reduced and improved trade and
economic conditions resulted in more food and better
food habits which further helped the population to
grow at a much higher rate than in the first stage.
The demographic changes brought imbalances in the
economy, creating conditions for further transition
of society.
Third stage of low birth rates and low death rates:
Modernization and industrialization changed the
living pattern in such nations, the rural population
shifted to cities and family sizes reduced to become
nuclear families. The standard of living increased
which further brought down mortality rates and birth
rates. As a result, the growth of population declined.
35. ( c) X =Income from Abroad (income earned and
received by nationals within the boundaries of
foreign countries.)M = Income received by
foreign nationals within the country.
36. (c) Personal income is a flow concept. It is the income that
is obtained by nationals. Personal income is obtained
by subtracting corporate taxes and payments made
for social securities provision from national income
and adding to it government transfer payments,
business transfer payments and net interest paid by
the government.
37. (d) Provision of public goods like defence which no
private agency can be entrusted with. Provision of
merit goods - goods like education and housing -
through policies which encourage the consumption
of such goods and discourage the use of non-merit
goods like cigarettes. Poverty reduction is considered
a prime responsibility of all modern governments, as
the market caters to the needs of only those who can
afford to pay, not of the poor.
38. (d) The problem of over population can be solved by
two ways
• An effective employment policy, which can absorb
the growing number of workers and promote
economic growth.
• An imaginative family planning programme to
encourage families to adopt the small family norm.
39. (b) The Indian economy constitute of predominance
of agriculture, low per capita income, massive
unemployment.
40. (c) The family planning programme was officially
launched in 1962. The first two family planning
clinics were opened in Karnataka in 1930 which
were supposed to be the first such in the world
41. (a) India is a developing country. Its per capita income
level is much low as compared with other developed
countries. Predominance of Agriculture : In India,
almost 60-70% of the total population still resides in
rural areas and hence they depend on agriculture for
their livelihood.
42. (d) India has not yet achieved the goal of balanced
economic development. Balanced Growth mentions
to a definite type of economic growth that is
maintainable in the long term. Balanced growth is
contrasting to the high and low nature of economic
cycles. According to latest data available about 64%
of total labour force is dependent on agriculture,
16% on industries and the rest about 20% on trade,
transport and other services.
43. (d) The National Development Council (NDC) or the
Rashtriya Vikas Parishad is the apex body for decision
making and deliberations on development matters
in India, presided over by the Prime Minister. The
functions of the Council are to prescribe guidelines
for the formulation of the National Plan; to consider
the National Plan as formulated by the Planning
Commission; to consider important questions
of social and economic policy affecting national
development; and to review the working of the
Plan from time to time and to recommend such
measures as are necessary for achieving the aims
and targets set out in the National Plan.
44. (a) The limited advisory function accorded to the Public
Service Commission and the continued stress on this
aspect by the leaders of our freedom movement
resulted in the setting up of a Federal Public Service
Commission under the Government of India Act,
1935. The Federal Public Service Commission
E-18 Structure of Economy and Human Resource in India
became the Union Public Service Commission after
Independence. The portfolio system in the Executive
was introduced by the Indian constitution council act,
1861. The separation of provincial budgets from the
central budget was introduced by the Indian councils
Act, 1919.
45. (d) Austerity describes policies used by governments
to reduce budget deficits during adverse economic
conditions. These policies may include spending
cuts, tax increases. This is done in economic crisis
situation to improve the credit rating of the countries
going through adverse economic condition.
46. (d) The Government of India in February 2000,
announced the National Population Policy (NPP)
with the objectives The immediate objective is to
address the unmet needs for contraception, health
care infrastructure and basic reproductive and
child health care. (ii) The medium-term objective
is to bring the Total Fertility Rate (TFR) to
replacement levels of 2.1 by 2010. (iii) The long-
term objective is to achieve a stable population by
2045, at a level consistent with the requirement of
sustainable economic growth, social development
and environmental protection.
47. (c) Population growth directly impacts on Indian
economy. The three stages of population growth are:
First stage of stable or slow population growth:
The growth of population was slow due to the high
death rate which nullified the high birth rate. In this
stage, these economies were primitive and primarily
agrarian, with widespread illiteracy, poor sanitation
and health care conditions, negligible knowledge
of family planning and large family sizes which
contributed to factors such as high fertility rate and
high death rate. In the period between the first and
the second stages, the death rates start reducing
and birth rates remain stable which brings an
imbalance in the economy. Measures like diseases
control, improving nutrition levels, and sanitation
improvement are implemented to reduce death rates,
but the measures for controlling birth rates are not
implemented, which results in population explosion.
This required a period of transition for adjustment,
thus bringing the second stage of transition.
Second stage of population explosions: In this stage
rise in income levels contributed to improvement
in health-care, education, disease control and so
on which in turn contributed to reducing the death
rates. This accelerated the growth of population.
The family size reduced and improved trade and
economic conditions resulted in more food and better
food habits which further helped the population to
grow at a much higher rate than in the first stage.
The demographic changes brought imbalances in the
economy, creating conditions for further transition
of society.
Third stage of low birth rates and low death rates:
Modernization and industrialization changed the
living pattern in such nations, the rural population
shifted to cities and family sizes reduced to become
nuclear families. The standard of living increased
which further brought down mortality rates and birth
rates. As a result, the growth of population declined.
48. (c)
49. (b) Indian Economy is highly dependent on agriculture
because still the maximum population stays in rural
area.
50. (c) Indian economy is increased by real per capita
income
51. (d) Provision of public goods like defence which no
private agency can be entrusted with.
Provision of merit goods - goods like education
and housing - through policies which encourage the
consumption of such goods and discourage the use
of non-merit goods like cigarettes.
Poverty reduction is considered a prime responsibility
of all modern governments, as the market caters to
the needs of only those who can afford to pay, not
of the poor.
52. (d) Human Development Report the HDI combines
three dimensions: A long and healthy life: Life
expectancy at birth, Education index: Mean years
of schooling and Expected years of schooling and
A decent standard of living: GNI per capita (PPP
US$).
53. (d) National Income is the money value of all the final
goods and services produced by a country during a
period of one year. National Income consists of a
collection of different types of goods and services of
different types.
54. (c) Both statements are correct.
55. (a) There are different types of economic types. The
benefit of mixed economy is to achieve a welfare
state with socialistic pattern of society. India is a
federal economy. India is developing economy.
India’s population is getting increased in each
decade.
56. (a) Family planning programme was launched in 1962.
First HDR report was published in 1990. The
objective of NPP was announced by govn in 2000.
 PLANNING, UNEMPLOYMENT
2
& POVERTY IN INDIA

Introduction
Economic planning is the making of major economic decisions what and how much is to be produced, how, when and
where it is to be produced, and to whom it is to be allocated by the comprehensive survey of the economic system as whole.
(H.D.Dickinsom)

Composition Functions

Planning in India
Planning in India starts in 1930s. Even before independence,
the colonial government had established a planning board
that lasted from 1944 to 1946. Before independence private
industrialists and economists published three development
plans in 1944. India’s leaders adopted the principle of formal
economic planning soon after independence as an effective
way to intervene in the economy of faster growth and social
justice.
Four decades of planning show that India’s economy, a mix
of public and private enterprise, is too large and diverse to be
wholly predictable or responsive to directions of the planning
authorities.
Important Dates
• 1934: M. Visvesvaryya, in his book ‘Planned Economy of
India’, advocates the necessity of planning in the country
much before Independence.
• 1944: Bombay Plan, published in January 1944, prepared
by eight leading industrialist of Bombay.
E-20 Planning, Unemployment and Poverty in India
• Gandhian Plan put forward by S.N. Agrawal (1944).
• 1944: Planning Development Council was set up under
the chairmanship of A. Dalal.
• Peoples Plan drafted by M.N. Roy (1945).
• 1946: Interim Government sets up the Planning Advisory
Board.
• 1947: Economic Programme Committee was set up under
the chairmanship of Jawaharlal Nehru.
• 1950: Planning Commission was set up.
• 2015: Formation of NITI Aayog.
Planning Commission
The Planning Commission was established in 1950, in accordance
with Article 39 of the Directive Principles of the Constitution of
India headed by Prime Minister. The Commission is independent
of the Cabinet. A staff drafts plans under the guidance of the
Commission; the draft plans are presented for approval to the
National Development Council, which consists of members of
the Planning Commission, the Chief Ministers of the States and
Administrators of UTs and All Union Ministers. The Council
can make changes in the draft plan. After Council approval, the
draft is presented to the Cabinet and subsequently to Parliament,
whose approval makes the plan an operating document for
Central and State governments.
Jawaharlal Nehru was the first chairman of the Planning
Commission by virtue of his being the Prime Minister of India.
Functions
(i) Assessment of the material, capital and human resources of
the country, including technical personnel and formulation
of proposals for the augmentation of such resources;
(ii) Formulation of plans for effective and balanced
utilization of resources;
(iii) Defining stages in which the plan should be carried out;
(iv) Determination of the resources necessary for implemen-
tation of the plans;
(v) Appraisal from time to time of the progress achieved;
(vi) Public co-operation in national development;
(vii) Perspective planning;
National Planning Council: Is an advisory body attached
to the Planning Commission It was established in 1965. It
includes experts representing a cross-section of the Indian
economy.
NITI Aayog
The government of India has replaced Planning Commission
with a new institution named NITI Aayog (National Institution
for Transforming India).
The institution will serve as ‘Think Tank’ of the Government
- a directional and policy dynamo.
NITI Aayog will provide Governments at the Central and State
Levels with relevant strategic and technical advice across the
spectrum of key elements of policy, this includes matters of
national and international importance on the economic front,
dissemination of best practices from within the country as well
as from other nations, the infusion of new policy ideas and
specific issue-based support.
Composition: NITI Aayog will have Prime Minister as its
chairman, one Vice-Chairman cum chief-executive officer,
5 fulltime members and 2 part time members, apart from 4
central government ministers.
Five Year Plans
The development plans drawn up by the Planning Commission
to establish India’s economy in five-year phases are called
Five-Year Plans. A five-year plan is an indicative plan of
action reflecting largely the intent of the government for that
period at the national, regional, and sectorial level.
First Plan (1951-56)
Major Objective: Agriculture, Price Stability, Power &
Transport.
The first five year plan focused on to stimulate balanced
economic development while correcting imbalances caused by
World War II and partition various objectives were.
• It was based on Harrod Domar Model.
• Its Highest priority on agriculture, irrigation and power
projects.
• Rate of investment was targetted at 7% of national income.
• National income grew by 18% and per capita income by
11%.
• Food production increased by 20%. Under the first five
year plan provision was made to spend a total of ` 2,378
crore during the plan period. But the actual expenditure
outcome to ` 1960 crore only.
Second Plan (1956-61)
Major objective: Rapid Industralisation.
• It was based on Mahalnobis Model.
• It targetted a 25% increase in national income through
rapid industrialisation. Actual achievement was only 20%.
• Goal of establishing the socialistic pattern of society.
• Rate of investment planned to be raised from seven per
cent to 11% of national income.
• Per capita income rose by eight per cent.
• Rapid industrialization with particular emphasis on
development of basic and heavy industries. Large
industries including steel plants (Durgapur, Bhilai
and Rourkela) were set up. The locomotive factory at
Chittaranjan and Coach factory at Perambur were other
major projects of this period.
Third Plan (1961-66)
Major Objective : Self sustaining growth.
• Emphasis on basic industries continued but agriculture
and allied sectors (irrigation and power) were allocated
35% of the outlay.
• A series of crises - China war (1962), Nehru’s death
(1964), Pakistan war (1965) and Shastri’s death
(1966), major drought (1965-66) - marred the smooth
implementation of the plan.
• Growth rate of only 2.2% achieved as against a target of
5% per annum.
• Inflation (36%) ate up much of the achievement; Rupee
devaluation (1966).
Planning, Unemployment and Poverty in India E-21
Holiday Plan (1966-69)
After the disastrous experience of the Third Plan, a plan
holiday was declared for three years. All available resources
were mobilised for building a buffer stock and for stepping up
food production learning from the experience of near-famine
years (1965-66).
Favourable monsoons and technological break-through in
wheat popularly known as ‘green revolution’ reduced the
inflationary pressure. Nationalisation of banks was another
major step during this period.
Fourth Plan (1969-74)
Major objective: Growth with stability and progress towards
self-reliance.
• Emphasis on growth with distributive justice.
• A substantial increase in the outlay for family planning
(` 278 crores from ` 25 crores in third plan).
• Goal of attaining self-sufficiency in agriculture and indus-
trial production. (In agriculture, growth rate of 5% per
annum and in industrial production growth rate of 8% to
10% per annum were targeted.)
• Poor achievement of targets – national income grew by
3.3% per annum; per capita income by 1.2% per annum;
agricultural production by 2.8%; industrial production
by 3.9%.
Fifth Plan (1974-79)
Major objective: Poverty eradication and attainment of self
reliance.
• Twin objectives of poverty eradication and attainment of
self-reliance.
• A National Programme for Minimum Needs including
elementary education, safe drinking water, health care,
and shelter for landless.
• Adequate collection and distribution system in order to
provide the commodities of necessary consumption to the
poor people on reasonable and stable prices.
• Stress on Export Promotion and Import Substitution.
• A growth rate of 5.2% (against a target of 4.4%)
achieved.
• Agricultural production increased by 4.2% – the highest
so far.
• Moderate inflation of 2.1% per annum during the
Emergency years (1975-1977).
• The Janata Government terminated the Plan in 1978.
Sixth Plan (1980-85)
Major objective : Poverty Alleviation.
• Janata Government had adopted a Sixth Plan (1978-83),
which was conceived as a rolling plan. Mrs. Gandhi’s
Government in 1980 abandoned this and a new sixth plan
was drafted.
• Poverty alleviation gives the top priority.
• Qualitative improvement in the living standards of people
by means of Minimum Need Programme (MNP).
• Schemes for transferring skills (TRYSEM) and assets
(IRDP) and providing slack season employment (NREP).
• Actual growth of national income was higher at 5.3%
(against a target of 5.2%).
• Increase of 16% per annum in real investment in fixed
asset by private sector.
• Poverty declined from 48.3% in 1977-78 to 37.4% in
1983-84.
Seventh Plan (1985-90)
Major objective: Growth, modernisation, Self-reliance
and Social justice.
• Strong emphasis on creation of productive employment
on farm as well as rural subsidiary occupations.
• Stress on increasing the production of food grains,
oilseeds, sugar, textiles, domestic fuel and housing.
• Outward-looking strategy with exports receiving high
priority.
• Tempo of domestic and external liberalisation hastened.
• The Plan also had a 15-year perspective (1985-2000) for
removal of poverty, providing for basic needs, achieving
universal elementary education and total access to health
facilities.
• Average annual growth rate during the plan period was
5.6% (target 5%).
• Agriculture grew at 4.1% against a target of 4%.
• Manufacturing industries achieved a growth rate of 8.8%
(target 8%).
• There was a severe short fall in mining sector (5.6%
against a target of 13%).
• Social sector performance fell far short of targets–
especially in housing for the landless, elementary
education and general poverty alleviation.
Eighth Plan (1992-97)
Major objective: Human development.
• The plan was launched in 1992 after the plan holiday
during the economically and politically difficult days of
1990-91 and 91-92.
• It was Manmohan-Rao (F.M- P.M.) Era of economic
liberalization.
• Modernisation of industries was focussed.
• India became member of WTO to pace with world
economics.
The economic paradigm had also considerably shifted with
the acceptance of liberalisation and the need for market
forces to play a greater role.
• Employment generation to be speeded up to achieve full
employment by 2000.
• Total literacy to be achieved in the 15-35 age group by
covering an additional 110 million people.
• Restructuring the systems of economic management
through public sector reforms, including selective
disinvestment.
• The Eighth Plan was to walk on ‘two legs’ - one leg
of alleviating poverty and removing unemployment; and
the other ‘leg’ providing a ‘safety net’ for those who
will be affected by the structural adjustment programme.
The plan had thus built in the ‘human face’ element of
adjustment.
E-22 Planning, Unemployment and Poverty in India
• To strengthen the basic infrastructure (energy, transport,
communication, irrigation) in order to support the
development process on a sustainable basis.
• The plan was explicitly indicative with a long-term
policy approach replacing the target approach.
• Per capita national output grew by 3.9% per annum.
But, this growth masked considerable distortion in the
distribution front. From data regarding inflation and
price indices, there is evidence that the poor became
poorer despite ‘the safety net’.
• Actual employment growth was only two percent against
a target of 2.6%.
• Annual growth rate achieved in the Plan period is 6.8%
against the target of 5.6 %.
Ninth Plan (1997-2002)
Major objective: Growth with Equity and Distributive
Justice.
• This objective was sought to be achieved through a policy
of concentrating on agriculture and rural development to
provide more employment; ensuring food and nutritional
security to all, especially the vulnerable; providing
basic minimum needs in a time-bound manner; curbing
population growth; environmental sustainability of
development; empowerment of women; promotion of
Panchayati Raj institutions and strengthening efforts to
build self reliance.
• The development strategy emphasised the role of markets
and the need for government to intervene to promote
a degree of competition through suitable legislation.
Licence Raj was to be ended. The Plan emphasised co-
operative federalism. It also stressed the importance of
infrastructural development.
• The Plan was indicative in nature, focusing on policies. It
also provided a 15-year perspective. It aimed to achieve a
growth rate of 8% per annum in the medium term and a
rate of 6.5% during the plan period (’97-’02).
• The plan envisaged the creation of 52 million jobs as
against the demand for job opportunities for 60.5 million
persons. The backlog of unemployment, which was 7.5
million at the close of the eighth Plan, was expected to be
6.6 million at the end of the Ninth Plan.
• The GDP grew only by 5.35% per annum during the plan
period against the target of 6.5%. The shortfall was due
to poor performance by agricultural and industrial sectors,
as explained in the table below.
Performance of Agricultural and Industrial Sectors
Sector 8th Plan 9th Plan
Agriculture 4.69 2.06
Manufacturing 7.58 4.51
Services 7.54 7.78
Total 6.68 5.35
Source: Planning Commission
Tenth Plan (2002-07)
Major objective: 8% annual growth rate.
• The Tenth Plan laid down an ambitious target of 8%
annual growth rate for the economy, against the
prevailing rate of 5.5%. Its long term vision was to double
the per capita income in the next ten years, to reduce the
decadal population growth from 21.3% (1991-2001) to
16.2% by 2010-11 and to ensure that the growth in gainful
employment kept pace with the addition to the labour force.
• Against the ambitious target of 8%, the economy grew at
the rate of 7.7% on an average during the 10th Plan period.
However, an evaluation by the Planning Commission
noticed that while the rate of growth was impressive, it was
lop-sided and did not benefit all people alike. For too
many people still lacked the basic requirements for a
decent living in terms of nutritional standards, access to
education and basic health, and also many other public
services such as water supply and sewage. The benefits
did not reach fully some disadvantages sections like the
Scheduled Castes and Tribes and minorities. Regional
imbalances - both across states and even within states -
were also noticed.
Eleventh Plan (2007-12)
Major objective: Faster and more Inclusive Growth
• The Eleventh Plan targets to resolve the regional
imbalance still prevailing in the country. The Plan
document, sub-titled Inclusive Growth, outlines a
strategy for making growth both faster and more
inclusive. Encouraged by the achievement of a rate of
7.7% on an average during the 10th Plan, itself a target
of 9% growth during the Plan period, with acceleration
during the period to reach 10% by the end of the Plan.
• The target of 9% growth requires the average rate of
investment to rise from 32% (during 10th Plan) to 37%
in the current plan, reaching 39% at the end of the plan
period. Private investment which has contributed 78%
of the investment during the 10th Plan is expected to
maintain its share. Public investment is expected to be
maintained at the same level of 22% as in the 10th Plan.
Planning Commission has framed a plan for achieving
faster growth with greater inclusiveness which involves
the following interrelated components:
(i) a continuation of the policy of economic reform
which has created a competitive private sector
capable of benefiting from the opportunities
provided by greater integration with the world;
(ii) more emphasis on agriculture,
(iii) improved access to essential services in health and
education (including skill development);
(iv) special thrust on infrastructural development;
(v) special attention to the needs of disadvantaged
groups, and
(vi) good governance at all level, central, state and
local.
• The broad targets fixed by the 11th Plan include a 4%
per cent growth in Agriculture sector, 10% growth in
Industries and Minerals, and investment in infrastructure
to grow from 5.43% of GDP in 06-07 to 9.43% by the
end of the 11th Plan.
• The total public sector outlay in the Eleventh Plan (both
Central and States and including the PSEs) is estimated at
` 36,44,718 crore. Of this total, the share of the Centre
(including the plans of Public Sector Enterprises (PSEs)
will amount to ` 21,56,571 crore, while that of the States
and union territories (UTs) will be ` 14,88,147 crore.
Planning, Unemployment and Poverty in India E-23

The 27 National Targets under 11th Plan • Achieving Growth rate of 9.0 to 9.5% needs strong
The Plan has adopted 27 targets at the national level to policy action. Major sectoral challenges are Energy,
ensure inclusive growth. These are related to: (i) income and Water and Environment, which need to be addressed
poverty, (ii) education, (iii) health, (iv) women and children without sacrificing growth. To find resources to create a
(v) infrastructure and (vi) environment. world class infrastructure in the country.
(i) Targeted growth of GDP at 9% per year. • Require better performance in agriculture, for growth to
be more inclusive. Faster creation of jobs, especially in
(ii) To raise industrial growth rate from 9.2% in 10th Plan to
manufacturing, and stronger effort at health, education
10% in 11th Plan.
and skill development are given importance.
(iii) To reduce unemployment among educated youth to less • Also, need to improve effectiveness of programmes
than 5%.
directly aimed at the poor, special programmes for
(iv) To reduce Infant Moraling Rate (IMR) to 28 and Material
socially vulnerable groups, and special plans for
Morality Rate (MMR) to 1 per 1000 on live births by the
disadvantaged/backward regions.
end of plan.
(v) To increase sex-ratio to 935 by 2011-12 and 950 by Sectorial Growth Rate in Different Five Years Plans
2016-17.
(vi) To ensure that all children enjoy a safe childhood, Plan Growth Agri- Industry Services Actual
without any compulsion to work. Rate culture Growth
(vii) To ensure electricity connection to all villages and BPL Rate
household by 2009 and 24-hour power supply by the end Frist Plan 2.1 2.71 5.54 4.17 3.6
of this plan.
Second Plan 4.5 3.15 5.59 4.94 4.21
(viii) To achive standards of air quality in all cities.
(ix) To treat all urban waste water by 2011-12. Third Plan 5.6 –0.73 6.28 5.26 2.72
(x) To increase forest and tree cover by 5%. Plan Holiday 4.16 1.42 4.1 3.69
Twelfth Five Year Plan (2012-2017) Fourth Plan 5.7 2.57 4.91 3.22 2.01
Major objective: Faster, Sustainable and More Indusive Fifth Plan 4.4 3.28 6.55 5.66 4.83
Growth. Sixth Plan 5.2 2.25 5.32 5.41 5.4
Planning Commission in its meeting held on April 2011, the Seventh Plan 5 3.47 6.77 7.19 6
Prime Minister, Dr. Manmohan Singh, addressed the Planning
Eighth Plan 5.6 4.68 7.58 7.54 6.68
Commission concerning the twelth Five Year Plan of India.
The main point of the Twelfth Plan are: Ninth Plan 6.5 2.06 4.51 7.78 5.4
Tenth Plan 8 2.34 8.9 9.4 7.5
Resource Allocation Priorities in 12th plan
Eleventh Plan 9 (8.1) 4 10.5 9.9 8
• Health and Education received less than projected in
Eleventh Plan. Allocations for these sectors will have to Twelth Plan 8 04 10.9 10 –
be increased in 12th plan.
• Health, Education and Skill Development together in the Unemployment
Centre’s Plan will have to be increased by at least 1.2%
point of GDP. Nature of Unemployment in India
• Infrastructure, including irrigation and watershed Employment refers to a situation when a labour does not
management and urban infrastructure, will need obtain employment opportunity despite his willingness to work
additional 0.7 percentage point of GDP over the next 5 on existing wage rate. India is a developing economy where
years.
the nature of unemployment is entirely different from that of
• Since Centre’s GBS will rise by only 1.3 percentage
developed nations. In India, the unemployment rate measures
points over 5 years, all other sectors will have a slower
the number of people actively looking for a job as a percentage
growth in allocations.
• Decrease the number of Centrally Sponsored Schemes of the Labour force. As per the ministry of Labour and
(CSS) to a few major schemes. For the rest, create new Employment, the unemployment rate for the year 2014 is
flexi-fund which allow Ministries to experiment in other 4.90%.
CSS areas.
Different types of Unemployment in India
• PPP model must be encouraged, including in the social
sector, i.e. health and education. Efforts on this front (1) Structural Unemployment
need to be intensified. In this type of unemployment demand for labour falls
• Distinction between plan and non-plan being reviewed short to the supply of labour due to rapidly growing
by Rangarajan Committee. population and their immobility.
(2) Disguised Unemployment
Objectives from the initial white paper It refers to a state of unemployment in which more
presented on April 21, 2011 people are engeged in work than are really needed. In
• Basic objective is faster, more inclusive, and sustainable the late 1950 s, about one-third of workers in India were
growth. disguisedly unemployed.
E-24 Planning, Unemployment and Poverty in India
(3) Seasonal Unemployment
It refers to an unemployment that occurs at certain
seasons of the years. The period of such unemployment
varies from state to state, depending upon the methods of
farming, the condition of soil, the type and numbers of
crops grown, etc.
(4) Open Unemployment
It refers to that economic phenomenon in which persons
are able and willing to work at the prevailing wage rate,
but fail to get work. It is called open unemployment
because such unemployment can be seen and corrected
in terms of the number of unemployed people.
(5) Industrial Unemployment
It refers to the unemployment among the illiterates, who
wish to work in industrial establishments. The slow
pace of industralisation is unable to generate sufficient
employment opportunities. As a result, there is a huge
industrial unemployment in the country.
(6) Frictional Unemployment
It refers to temporary unemployment which exists during
the period, wherein workers leave one job and join some
other.
(7) Cyclical Unemployment
It is associated with the down-swing and depression
phases of business cycle. It is the most common type of
unemployment in the developed capitalist economies.
Magnitude of Unemployment
There is great diversity in the forms of unemployment.
It has been found that no single measure can adequately
capture the magnitude of unemployment in India. In addition
to the decadal census figures, the National Sample Survey
Organisation (NSSO) conducts more detailed sample surveys
every five years on employment and unemployment. It uses
three different tests for measuring:
• The Usual Status (US) concept which has a reference
period of one year and classifies a person as unemployed
if she was not working but was available for work for
most or all of the period of one year.
• The Current Weekly Status (CWS) includes a person if
she has not worked even for one hour during the week,
though available for work.
• The Current Daily Status (CDS) measures the
employment status during the seven days preceding the
survey and adds up all the hours of work undertaken
during this reference period to decide the un/
underemployment status of the person.
Chronic unemployment can be measured by the US and
CWS data. However, the policy formulation regarding
supplementary employment all the three sets of data are used
in conjuction. The Planning Commission and NSSO have
been using the CDS data recently as this gives a more realistic
estimate.
Poverty
Poverty refers to a state in which an individual is unable to
fulfil even the basic necessities of life. The minimum basic
requirement include food, clothing, housing, education and
health facilities. According to the survey conducted in
2011-12 (Planning Commission), the percentage of persons
below the poverty line in India for the year 2011-12 has
been figured out as 25.7% in rural areas, 13.7% is urban
areas and 21.9% for the country as a whole.
Poverty, is defined in human development report as denial
of opportunities “to lead a long, healthy, creative life and
to enjoy a decent standard of living, freedom, dignity, self-
respect and the respect of others”.
(i) Absolute Poverty
Absolute Poverty is when a person cannot obtain certain
absolute standards of minimum requirements, usually
measured in terms of income. It refers to the total
number of people living below Poverty line. As per this
measure, around 30% of India’s population is below
poverty line.
(ii) Relative Poverty
Relative Poverty is when a person falls behind others.
It is thus a measure of inequality of income. It refers
to Poverty of people, in comparison to other people,
regions or nations.
There are many approaches to measure poverty . Income is
one approach. Another approach is the basic needs approach,
according to which poverty should not be looked at merely
in terms of private income but should include access to basic
needs like health, education, employment and other essential
services which the community usually provides to its citizens.
There are important limitations in measuring poverty in terms
of either income or consumption levels. These approaches
do not pay attention to the assets on which most poor people
rely for their livelihood. These assets can include their access
to natural and financial resources, their health and capacity
to work. Another drawback of the traditional approaches
is that these do not focus on the social relations which lead
to the process of impoverishment. For instance, the lack of
political influence of the poor and their being subjected to
discrimination are issues which are relevant while studying the
nature and causes of their poverty.
The ‘Sustainable livelihoods’ is the new approach. This
addresses issues such as the capabilities, assets and labour
required for a means of living. A livelihood is stated to be
sustainable if it can cope with and recover from stresses and
shocks and maintain or enhance its assets both now and in the
future.
Measurement of Poverty
The overall estimation of poverty is based on the data available
from NSSO, all-India sample survey of household consumption
expenditure, where poverty is defined with reference to a poverty
line which is the level of monthly per capita consumption
expenditure considered to be a minimum necessary for living.
Committees constituted for measurement of Poverty
• Dr. Y.K. Alagh (1977)
• D.T. Lakdawala (1989)
• Suresh D.Tendulkar (2005)
• N.C. Saxena (2008)
• S.R. Hashim (2010)
• Dr. C. Rangarajan (2012)
Planning, Unemployment and Poverty in India E-25

Number & Percentage of Poor*

Poverty line (in `) Number or Poor (million) Poverty Ratio (%)
Year
Rural Urban Rural Urban Total Rural Urban Total
2004-05 446.8 578.80 326.3 80.8 407.1 41.8 25.7 37.2
2011-12 816.00 1000.00 216.5 52.8 269.3 25.7 13.7 21.9
Source : Economic Survey 2014-15,* Estimated by Tendulkar Method.

According to the World Bank (2014), the national poverty
line for 2011-12, after adjusting it to Indian currency using
PPP (Purchasing Power Parity) Conversion factor is $1.94
a day. India with 17.5 % of total world’s population, had
20.6% share of world’s poorest in 2011 (World Bank, 2014).
Poverty : (Rural And Urban)
Main Reasons for Rural Poverty
1. Rapid population growth.
2. Lack of capital.
3. Lack of alternate employment opportunities other than
agriculture.
4. Excessive employment pressure on agriculture.
5. Illiteracy.
6. Regional disparities.
7. Orthodox society.
8. Child marriage tradition.
9. Indifferent attitude towards investment.
10. Lack of proper implementation of public distribution
system.
11. Lack of vocational education/training.
Government Efforts for Eliminating Rural Poverty
1. Antyodaya plan.
2. Small Farmer Development Programme (SFDP).
3. Drought Area Development Programme (DADP).
4. Minimum Needs Programme (MNP).
5. Food for work programme.
6. National Rural Employment Programme (NREP).
7. Integrated Rural Development Programme (IRDP).
8. Jawahar Gram Samriddhi Yojana (JGSY) (Formerly
known as Jawahar Rojgar Yojana).
9. Rural Labour Employment Guarantee Programme
(RLEGP).
10. TRYSEM scheme.
11. Family planning/welfare programme for population
control.
12. Scheme for Rural artisans / craftsmen.
13. Mahila Samriddhi Yojana.
14. Rural Housing Programme. Non-government organisations (NGO) and other semi-
15. DWCRA programme.
16. National Social Assistance Programme (NSAP).
17. Employment Assurance Scheme.
18. Group Life Insurance Scheme for Rural Areas.
19. Pradhan Mantri Rojgar Yojana.
20. Agriculture Income Insurance Scheme.
21. Mahatma Gandhi National Rural Employment Guarantee
Scheme (MGNREGS).
22. Pradhan Mantri Gramodaya Yojana (PMGY).
23. Swarna Jayanti Gram Swarojgar Yojana.
24. Sampurna Gramin Rojgar Yojana.
25. Indira Awaas Yojana.
26. Samagra Awaas Yojana.
Government Efforts for Eliminating Urban Poverty
1. Emphasis on vocational education.
2. Nehru Rozgar Yojana (NRY).
3. Self-Employment Programme for the Urban Poor
(SEPUP).
4. Financial assistance for constricting houses.
5. Self-Employment to the Educated Urban Youth (SEEUY)
programme.
6. Prime Minister’s Rozgar Yojana (PMRY).
7. National social Assistance Programme.
8. Urban Basic Services for the Poor programme (UBSP).
9. Prime Ministers Integrated Urban Poverty Eradication
Programme (PMIUPEP).
10. Swarna Jayanti Shahri Rozgar Yojana.
Important Programmes in Brief
1. Swarnajayanti Gram Swarojgar Yojana (SGSY)
Swarnajayanti Gram Swarojgar Yojana launched by the
Union Ministry of Rural Development was a poverty alleviation
programme, came into effect from April 1, 1999 which has
replaced IRDP and its allied schemes, viz. Training of Rural
Youth for Self Employment (TRYSEM), Development of
Women and Children in Rural Areas (DWCRA), Supply of
Improved Toolkits to Rural Artisans (SITRA), Ganga Kalyan
Yojana (GKY) and Million Wells Scheme (MWS).
The main objectives of SGSY are :
(i) focussed approach to poverty;
(ii) capitalising advantages of group lending; and
(iii) overcoming the problems associated with multiplicity of
programmes.
The SGSY is conceived as a holistic programme of micro
enterprises covering all aspects of self-employment which
includes organising rural poor into Self-Help Groups (SHGs).
It integrates various agencies – District Rural Development
Agencies, banks, departments, Panchayati Raj Institutions,
government organisations. It is only self-employment
programme currently being implemented for the rural poor.
The scheme aims of establishing a large number of micro
enterprises in rural areas of the country. The objective of
SGSY is to bring the assisted poor family above the poverty
line in three years by providing them income generating
assets through a mix of bank credit and government
subsidy. The monthly income from the activity to be
undertaken should not be less than ` 2000, net of repayment
to the Bank, at least in the third year.
E-26 Planning, Unemployment and Poverty in India
Subsidy under SGSY is uniform at 30% of the project cost
subject to a maximum of ` 7500. In respect of Scheduled
Castes and Scheduled Tribes, it is 50% subject to a maximum
of ` 10,000. For groups, the subsidy is 50% subject to a
ceiling of ` 1.25 lakh. The scheme is being implemented on a
cost-sharing basis between the centre and states of 75 : 25 for
non-north eastern states and 90 : 10 for north-eastern states.
Below the poverty line families in rural areas constitute the
target group of the SGSY. Within the target group social
safeguards have been provided to vulnerable sections, by way
of reserving 50% benefits for SC/ST, 40% for women and 3%
for disabled persons.
The scheme of SGSY covers all aspects of self-employment
such as organisation of the poor into self-help groups, training,
credit, technology, infrastructure and marketing.
2. National Food for Work Programme
National food for work programme was Launched on
November 14, 2004.
It is started in 150 most backward districts of the country
identified by the Planning Commission in consultation with the
Ministry of Rural Development and State Government.
The objective of the programme was to provide additional
resources apart from the resources available under Sampoorna
Grameen Rozgar Yojana (SGRY) to 150 most backward
districts of the country so that the generation of supplementary
employment and providing of food security through creation
of need based economic, social and community assets in these
districts is further intensified. The scheme was 100% central
sponsored. The programme has been subsumed in National
Rural Employment Guarantee Act initiated since February
2, 2006, which has now come in force in all districts of the
country.
3. Sampoorna Grameen Rojgar Yojana (SGRY)
This Scheme has been subsumed under ‘National
Rural Employment Guarantee Programme (NREGP)’
which has been started since February 2, 2006.
The ongoing schemes - the Employment Assurance Scheme
(EAS) and the Jawahar Gram Samridhi Yojana (JGSY) were
merged into the Sampoorna Grameen Rojgar Yojana (SGRY)
on September 25, 2001. The thrust area of the programme
was to provide additional wage employment in rural areas and
also to provide food security, alongside creation of durable
community, social and economic assets and infrastructure
development in these areas. Preference was given to BPL
families for providing wage employment under SGRY, poor
families above the poverty line were also offered employment
under SGRY. The annual outlay was ` 10,000 crore which
includes 50 lakh tonnes of foodgrains. The fund was shared
between the Centre and the States in the ratio of 75 : 25.
Foodgrains are provided free of cost to the States/UTs. The
payment of foodgrains was made directly to FCI at economic
cost by the Centre. However, the cost of the transportation of
foodgrains from the FCI godown to the work-site/ PDS and
its distribution are the responsibility of the State Government.
Minimum wages are paid to the workers through a mix of
minimum five kg. of foodgrains and at least 25% of wages in
cash.
The programme was implemented by all the three-tiers of
Panchayats. Each level of Panchayat was an independent unit
for formulation of Action Plan and executing the scheme.
The resources were distributed among District Panchayat,
Intermediate Panchayats and the Gram Panchayats in the ratio
of 20 : 30 : 50.
4. Mahatma Gandhi National Rural Employment
Guarantee Scheme (MGNREGS)
After the notification of ambitious step of UPA
government of the National Rural Employment Guarantee
Act on September 7, 2005, a new scheme named “National
Rural Employment Guarantee Scheme (NREGS)” (It was
later changed with the name Mahatma Gandhi National
Rural Employment Guarantee Act) has been launched on
February 2, 2006. The ongoing programmes of Sampoorna
Grameen Rozgar Yojana (SGRY) and National Food for Work
Programme (NFFWP) were integrated within the NREGS in
the 200 districts identified in the initial stage. Implemented
by the Ministry of Rural Development, National Rural
Employment Guarantee Act (NREGA) is a flagship programme
of the government that directly touches lives of the poor and
promotes inclusive growth. NREGS has been launched with
following guidelines:
• To enhance livelihood security of households in rural
areas of the country by providing at least 100 days of
guaranteed wage employment in every financial year to
every household whose adult members volunteer to do
unskilled manual work.
• Until such time as a wage rate is fixed by the Central
Government, the minimum wage for agricultural
labourers shall be applicable for the scheme.
• An applicant not provided employment within fifteen
days, to be entitled to a daily unemployment allowance
as specified by the State Government.
• Central Employment Guarantee Council to be constituted
to discharge various functions and duties assigned to the
Council. Every State Government is to constitute a State
Council for this purpose.
• Panchayat at the district level is to constitute a Standing
Committee of its members to supervise, monitor and
oversee the implementation of the Scheme within the
district.
• For every Block, State Governments is to appoint a
Programme Officer for implementing the Scheme.
• Gram Panchayat is to be responsible for identification
of the projects as per the recommendations of the Gram
Sabha and for executing and supervising such works.
• Central Government is to establish a National
Employment Guarantee Fund. State Governments
to establish State Employment Guarantee Funds for
implementation to the Scheme.
• The Scheme is to be self-selecting in the sense that those
among the poor who need work at the minimum wage
would report for work under the scheme.
The Act was implemented in a phased manner. In phase one
it was introduced in 200 of the most backward districts of the
country. It was expanded to 330 districts during 2007-08. The
Act has been notified throughout the country with effect from
April 1, 2008. During the year 2010-11, 5.48 crore households
were provided employment under the scheme.
Planning, Unemployment and Poverty in India E-27

MGNREGA is the first ever law of the world, that guarantees poverty like drought, deforestation and soil erosion and so
wage employment at an unprecedented scale. The primary encourage sustainable development. The process outcomes
objective of the Act is augmenting wage employment. include strengthening grassroot processes of democracy and
Its auxiliary objective is strengthening natural resource infusing transparency and account ability in governance.
management through works that address causes of chronic
Various Poverty and Unemployment Elimation Programmes initiated by Govt. In Five-Year Plans.
S. No. Name of the Programme Year of Main Objectives
Starting
1. Crash Scheme for Rural Employment 1971-72 Generation of new employment rural development.

2. Pilot Intensive Rural Employment 72-73 Construction work in Villages.

3. Drought Prone Areas Programme 73-74 To develop natural resources in drought prove rural areas.

4. Food for work Programme 77-78 To provide food for work in development process.

5. Antyodaya Yojana 77-78 To give economic assistance to families BPL.

6. National Rural Employment Pro- 80-81 Helping that segment of Population which largely depends
gramme (NREP) on wage employment by providing gainful employment.

7. Rural landless Employment Gurantee 1983-84 To expand Employment.

Programme (RLEGP)

8. Million Wells Scheme (MWS) 1988-89 To provide open irrigation wells, free of cost, to poor small
and Marginal farmers belonging to Sc/ST.

9. Jawahar Rojgar Yojana (JRY) 1989-90 Generation of gainful employment to unemployed in rural
areas.

10. Employment Assurance Scheme 1993-94 Providing assured employment of days unskilled manual
(EAS) work to rural.

11. Prime Minister Rojgar Yojana 1994-95 To provide self-employment to educated unemployed by
(PMRY) setting up of sever lakh micro-enterprises.

12. Jawahar Gram Samridhi Yojana 1999-2000 To create employment and durable assets in rural areas.
(JGSY)

13. Swarnjayanti Gram Swarozgar Yo- 1999-2000 To promote micro-enterprises and helping the rural poor
gana (SG SY) into self-help group.

14. Pradhan Mantri Gramodaya Yojana 2000-01 Improving the quality of life of people in rural areas.

15. Jai Prakash Rojgar Guarantee Yojana 2002-03 To provide employment guarantee to the unemployed in the
(JPRGY) most distressed districts of the country.

16. National food for work Programme 2004-05 To intensify the generation of supplementary wage
(NFWP) employment.

17. National Rural Employment Guaran- 2006 To entitle the rural poor to guaranted employment for 100
tee Act (NREGA) days. w.e.f April 2008 expanded from 200 to all 614 rural
districts of India.

18. Swavalamban Scheme 2010 New Pension Scheme for poorer section in which Govt. will
contribute a sum of ` 1000 along with the subscriber upto `
12000. This scheme will cover 10 lakh subscribers each in
four years beginning 2010-11 bringing the total number to 40
lakh by March, 2014.

19 Pradhan Mantri Jan Dhan Yojana 2014 Start by current PM Narendra Modi to eradicate poverty at
grass root level.
E-28 Planning, Unemployment and Poverty in India
5. Indira Awas Yojana (IAY)
The Indira Awas Yojana was launched in 1985-86 to
provide dwellings. In 1989-90, after merging the RLEGP
with Jawahar Rozgar Yojana, this plan also became a part
of Jawahar Rozgar Yojana (JRY). Since January 1, 1996,
it was again separated from JRY. At present, IAY is one
of the six components of the Bharat Nirman Programme.
The objective of IAY is to provide financial assistance for
construction upgradation of houses to BPL rural households
belonging to Scheduled Castes and Scheduled Tribes, freed
bonded labourers, non -SC/ST rural households, widows and
physically handicapped persons living in the rural areas. At
present, it is the flagship programme for rural housing.
The main points of this scheme are as follows:
1. Since 1993-94, the benefit of Indira Awas Yojana is
being provided even to those rural poor of non-schedule
caste/schedule tribe who are living below the poverty
line.
2. A minimum of 60% of funds are to be utilized for
construction of houses for the SC/ST people.
3. From 1995-96, IAY benefits have been extended to
widows or next to kin of defence personnel killed in
action.
4. Benefits have also been extended to ex-servicemen and
retired members of para military forces as long as they
fulfil the normal eligibility conditions of IAY.
5. 3% of funds are reserved for the disabled persons living
below the poverty line in rural areas.
6. Under the plan, the allocation of the house is done in the
name of the female member of the benefited family or in
the joint names of husband and wife.
7. The ceiling on assistance for construction of new houses
has been increased from ` 25,000 to ` 35000 per unit
for the plain areas and from ` 27,500 to ` 38,500 per
unit for the hilly/difficult areas with effect from April 1,
2008.
8. Under the scheme, financial resources are shared
between the Centre and State on a 75 : 25 basis. In
case of NE states, the funding pattern has recently been
revised to 90 : 10.
6. Pradhan Mantri Gram Sadak Yojana (PMGSY)
Pradhan Mantri Gram Sadak Yojana (PMGSY), a 100%
centrally sponsored scheme was launched on December 25,
2000. The prime objective of the PMGSY was, to provide
connectivity to all unconnected habitations in the rural areas
having population of more than 500 persons, by the end of
Tenth Plan Period (2007). In respect of the Hill States (North-
East, Sikkim, Himachal Pradesh, Jammu and Kashmir and
Uttarakhand), Desert Areas and Tribal (Schedule - V) Areas,
the objective is to connect habitations with a population of 250
persons and above.
Under Bharat Nirman, goal has been set to provide connectivity
to all the habitations with population of more than 1000 in the
plain areas and habitations with a population of 500 or more
in hilly and tribal areas in a time bound manner by 2009. The
systematic upgradation of the existing rural road networks is
also an integral component of the scheme. Accordingly, an
Action Plan has been prepared for connecting 66,802 habitations
with 1,46,185 km of all-weather roads. This action plan also
envisages upgradation/renewal of 1,94,130 km of the existing
rural road network. It is estimated that an investment of about
` 48,000 crore would be required for achieving the targets
under Bharat Nirman.
During the first two years of 11th Five Year Plan, an
expenditure of ` 25780.7 crore has been incurred on rural
roads under PMGSY in which 93636 km long road work has
been completed in rural areas.
7. Swarna Jayanti Shahari Rozgar Yojana (SJSRY)
Swarna Jayanti Shahari Rozgar Yojana (SJSRY) became
operational Since December 1, 1997. The Government has
recently revamped the SJSRY with effect from April 1, 2009.
Its objective is community impowerment through promoting
community organisation like Neighbourhood Groups (NHGs)
Neighbourhood Committees (NHCs) and Community
Development Societies (CDSs). CDS will be the nodal agency
for project identification and co-ordination. It is founded on a
75:25 proportion between the Centre and states. The scheme
provides gainful employment to the urban unemployed and
underemployed poor, by encouraging the setting up of self-
employment ventures by the urban poor and also by providing
wage employment and utilizing their labour for construction of
socially and economically useful public assets. This is urban
counterpart of SGSY. The SJSRY has five targets:
(a) The Urban Self-Employment Programme (USEP) which
targets individual urban poor for setting up of micro
enterprises;
(b) The Urban Women Self-help Programme (UWSP) which
targets urban poor women self-help groups for setting
up of group enterprises and providing them assistance
through a fund for credit activities;
(c) Skill Training for Employment Promotion amongst
Urban Poor (STEP-UP) which targets the urban poor
for imparting quality training so as to enhance their
employability for self-employment or better salaried
employment;
(d) The Urban Wage Employment Programme (UWEP)
which seeks to assist the urban poor by utilizing their
labour for the construction of socially and economically
useful public assets, in towns having population less than
5 lakhs as per the 1991 census; and
(e) The Urban Community Development Network (UCDN)
which seeks to assist the urban poor in organizing
themselves into self-managed community structures so as
to gain collective strength to address the issues of poverty
facing them and participate in effective implementation
of urban poverty-alleviation programmes.
8. Antyodaya Anna Yojana (AAY)
In order to make TPDS more focused and targeted
towards the poorest section of population, the ‘Antyodaya
Anna Yojana’ (AAY) was launched in December 2000 for one
crore poor families. Initially AAY contemplated identification
of one crore poorest of the poor families from amongst the
BPL families covered under TPDS within the States and
providing them foodgrains at a highly subsidised rate of ` 2
per kg for wheat and ` 3 per kg for rice. The States/UTs
are required to bear the distribution, cost, including margin to
dealers and retailers as well as the transportation cost. Thus
the entire food subsidy is being passed on to the consumers
under the scheme.
Planning, Unemployment and Poverty in India E-29
9. Rashtriya Mahila Kosh (National Women Fund)
The objective of this institution set-up on March 30, 1993
is to facilitate credit support to poor women for their socio-
economic upliftment. The support is extended through NGOs,
Women Development Corporations. Suitable state government
agencies like DRDAs, Dairy Federations, Municipal Councils,
etc. RMK extends loan to the above organisations at 8% and
the above. Organisation can lend to the women Self Help
Groups/ ultimate women beneficiaries at an interest ranging
from 8% to 18%. The financial assistance given by RMK is
totally security free and RMK does not insist for any sort of
collateral from the organisations availing loan from it.
10. National Rural Health Mission (NRHM)
The National Rural Health Mission (NRHM) was
launched on 12th April, 2005, to provide accessible, affordable
and accountable quality health services to rural areas. The
difficult areas with unsatisfactory health indicators were
classified as special focus States to ensure greatest attention
where needed. The thrust of the Mission was on establishing
a fully functional, community owned, decentralized health
delivery system with inter-sectoral convergence at all levels,
to ensure simultaneous action on a wide range of determinants
of health like water, sanitation, education, nutrition, social and
gender equality. Institutional integration within the fragmented
health sector was expected to provide a focus on outcomes,
measured against Indian Public Health Standards for all health
facilities. From narrowly defined schemes, the NRHM shifted
focus to a functional health system at all levels, from the
village to the district.
NRHM is being operationalized throughout the country with
special focus on 18 states which includes 8 Empowered
Action Group States (Bihar, Jharkhand, Madhya Pradesh,
Chhattisgarh, Uttar Pradesh, Uttarakhand, Odisha and
Rajasthan), 8 NE states, Himachal Pradesh, Jammu &
Kashmir.
Among major innovations of the NRHM are creation of a cadre
of Accredited Social Health Activists (ASHA) and improved
hospital care, decentralisation at district level to improve intra
and inter-sectoral convergence and effective utilisation of
resources through NGOs and community in general.
11. Intensified Jawahar Rozgar Yojana (The Second
Stream of JRY)
Second phase of Jawahar Rozgar Yojana is being
implemented in 120 backward districts of 12 states of the
country which are badly affected with unemployment and
under-unemployment problems. These states are Andhra
Pradesh, Bihar, Gujarat, Jammu & Kashmir, Karnataka,
Madhya Pradesh, Maharashtra, Odisha, Rajasthan, Tamil
Nadu, Uttar Pradesh and West Bengal. Since January 1, 1996
this plan was merged with Employment Assurance Scheme
(EAS). The main points of this plan were as under -
1. Under this programme, those works are given priority
which provide ample employment opportunities, like
creating small irrigation facility on barren lands, foresty,
etc.
2. This plan also includes various activities which create
rural infrastructure including primary education
institutions.
12. Innovative and Special Employment Scheme (The
Third Stream of JRY)
The third phase of Jawahar Rozgar Yojana which is
known as the Innovative and Special Employment Scheme is
being implemented since the year 1993-94. In this scheme,
special and modern projects are included whose objective
is to stop the migration of labour, to encourage the female
employment and to develop the productivity in the desert
areas. Following are some of the main points of this scheme-
1. Under this plan, the schemes like Operation Black Board
were also given place which fulfil the main objectives of
Jawahar Rozgar Yojana. The construction of the school
building and of class rooms has been given priority.
Operation Black Board scheme was started in 1987.
2. All the projects coming under the third stream are
given acceptance by a Screening Committee which is
constituted under the chairmanship of the Secretaries of
Rural Employment and Poverty Eradicating Departments
of the Central Government.
13. CAPART
To promote rural development the Council for
Advancement of People’s Action and Rural Technology
(CAPART) was constituted on September 1, 1986. CAPART
is a registered body under the Ministry of Rural Development.
The head office of CAPART is at New Delhi. CAPART has
nine Regional Committees / Centres at Jaipur, Lucknow,
Ahmedabad, Bhubaneswar, Patna, Chandigarh, Hyderabad,
Guwahati and Dhanbad. The Regional Committees are
empowered to sanction projects proposals to voluntary agencies
upto an outlay of ` 25 lakhs in their respective regions. Its
main objective is to encourage and assist the voluntary
activities for implementing projects for rural prosperity. Some
important features related to it are as under-
(i) CAPART extends assistance to Jawahar Rojgar Yojana,
Organisation of the Beneficiaries of Poverty Eradicating
Programme, Integrated Rural Development Programme,
Development of Women and Children in Rural Areas
and other related organisations.
(ii) The Rural Development Department of the Indian
Government provides the required funds to CAPART.
14. Bharat Nirman
This programme, launched in 2005-06, for building
infrastructure and basic amenities in rural areas, has six
components, namely rural housing, irrigation potential,
drinking water, rural roads, electrification and rural telephony.
A goal has been set to provide connectivity to all villages
with a population of 1000 (500 in hilly or tribal areas) with
all-weather roads. New connectivity is proposed to a total of
63940 habitations under Bharat Nirman. As per Economic
Survey 2011-12, under the rural roads component of bharat
Nirman, 42249 habitations have been provided all weather road
connectivity up to December, 2011 and projects for connecting
16126 habitations are at different stages of implementation.
15. Pradhan Mantri Jan Dhan Yojna (PMJDY)
PMJDY was introduced on the 15th August, 2014 by
Prime Minister Narendra Modi. It is a part of the drive of
national inclusion. The scheme entails a ‘no-frills account’
with an overdraft facility of `5000 and a Rupay Debit Card.
Other attractions of the scheme include accidental insurance
cover of `1 lakh and a life insurance coverage of `30000.
An unprecedented number of 1.5 crore bank accounts were
opened under the scheme on the first day of its launch.
E-30 Planning, Unemployment and Poverty in India
16. Rural Electrification in India
Rural electrification involves supply of energy for two
types of programmes:
(a) production-oriented activities like minor irrigation, rural
industries, etc. and,
(b) electrification of villages. Rural Electrification
Corporation (REC)
It was established in July 1969 to finance various projects of
rural electrification. REC is a Public Financial Institution under
section 4A of the Companies Act 1956. REC is also registered
as a Non-Banking Financial Company (NBFC) under section
451A of RBI Act, 1934. At present REC is a ‘Navratna’
Company. The current mission of REC is to facilitate
availability of electricity for accelerated growth and for
enrichment of quality of life of rural and semi-urban population
and to act as a competitive, client-friendly and development
oriented organisation for financing and promoting projects
covering power generation, power conservation, power
transmission and power distribution network in the country.
To give impetus to rural electrification, the Government has
given special attention for creation and augmentation of Rural
Electricity Distribution Backbone and Village Electricity
Infrastructure so as to cover all unelectrified villages and rural
households within a span of five years.
Rural Electricity Supply Technological Mission (REST) has
been set up to oversee the implementation of schemes under
Accelerated Rural Electrification Programme.
Rural Electrification Policy
On August 23, 2006, Government notified Rural Electrification
Policy under section 4 & 5 of the Electricity Act, 2003.
The policy aims at provision of access to electricity to all
households by year 2009, quality and reliable power supply at
reasonable rates and minimum lifeline consumption of 1 unit
per household per day as a merit by year 2012.
Important Programmes introduced
in Union Budget
2014-15
• Housing for all - 2 crore houses in urban areas & 4 crore
houses in Rural areas
• Micro units Development Refinance Agency (MUDRA)
Bank, with a corpus of ` 20,000 crores, and credit
guarantee corpus of ` 3,000 crores to be created.
• A new sheme for providing physical Aids and Assisted
Living Devices for Senior Citizens, living below the
poverty line.
• SETU (Self-Employment and Talent Utilization) to
establish as Techno-financial, incubation and facilitation
programme to support all aspects of start-up business.
• A national skill mission to consolidate skill initiatives
spread across several ministeries to be Launched.
• Deen Dayal Upadhyay Gramin Kaushal Yojana to enhance
the employability of rural youth.
• Job creation through revival of growth and investment and
promotion of domestic manufacturing - “Make in India”
Millennium Development Goals (MDGs)
MDGs were eventuated at the UNs Millennium Summit, 2000,
where the world leaders agreed on a set of quantifiable and
monitorable goals for development and poverty eradication to
be achieved by 2015. These MDGs were based on the assump-
tion that, “progress that world has made over the past 30 years
shows that these goals are attainable”.
MDGs
The main MDGs, as per UN are –
• Eradicate extreme hunger and poverty.
• Achieve universal primary education.
• Promote gender equality and empower women.
• Reduce child mortality.
• Improve maternal health.
• Combat HIV/AIDS, malaria and other diseases.
• Ensure environmental sustain ability.
• Develop a global partnership for development.
Sustainable Development Goals (SDGs)
At the United Nations Sustainable Development Summit on 25
September 2015, World Leaders adopted the 2030 Agenda for
sustainable Development, which includes a set of 17 sustain-
able Development Goals to end poverty, fight inequality and
injustice and tackle climate change by 2030.
17 SDGs are–
1. End poverty in all its forms everywhere.
2. End hunger, achieve food security and imporve nutrition
and promote sustainable agriculture.
3. Ensure healthy lives and promote well-being for all at all
ages.
4. Ensure inclusive and equitable Quality Education and por-
mote life long learning opportunities for all.
5. Achieve gender equality and empower all women and girls.
6. Ensure availability and sustainable management of water
and sanitation for all.
7. Ensure access to affordable, reliable, sustainable and mod-
ern energy for all.
8. Promote sustained, inclusive and sustainable economic
growth, full and productive employment and decent work
for all.
9. Build resilient infrastructure, promote inclusive and Sustain-
able industrialization and foster innovation.
10. Reduce inequality within and among countries.
11. Make cities and human settlements inclusive, safe, resilient
and sustainable.
12. Ensure sustainable consumption and production patterns.
13. Take urgent action To combat climate change and its im-
pacts.
14. Conserve and sustainably use the oceans, seas and marine
resources for sustainable development.
15. Protect, restore and promote sustainable use of terrestrial
ecosystems, sustainable manage forests, combat deserti-
fication, and halt and reverse land degradation and halt
biodiversity loss.
16. Promote peaceful and inclusive societies for sustainable
development, provide access to justice for all and build
effective, accountable and inclusive institutions at all levels.
17. Strengthen the means of implementation and revitalize the
global partnership for Sustainable development.
Planning, Unemployment & Poverty in India E-31
1. The rationale given in the first plan for state intervention
in the industrial sector was that:
(a) private sector was inefficient
(b) state alone can ensure decentralization of wealth
(c) private sector was neither willing nor capable of
investing in certain sectors
(d) the commanding heights of the economy should be
in the public sector
2. Which of the following is not one of the International
Development Targets of the Millennium Development
Goals?
(a) Reducing the number of persons living in extreme
poverty by one half of 2015
(b) Universal primary education by 2015
(c) Reduction of infant and child mortality by 2/3rd by
2015
(d) Reducing the total population by 1/3rd
3. Structural unemployment arises due to:
(a) deflationary conditions
(b) heavy industry bias
(c) shortage of raw materials
(d) inadequate productive capacity
4. ‘Disguised unemployment’ refers to:
(a) persons with no jobs
(b) more persons employed for a job which a few can
accomplish
(c) unemployment among women
(d) unemployment of people above 60 years of age
5. This type of unemployment can occur even in a situation
of full employment.
(a) Structural unemployment
(b) Functional unemployment
(c) Cyclical unemployment
(d) Disguised unemployment
6. Usual status (US) unemployment is calculated with
reference to a period of:
(a) one year (b) indefinite
(c) one month (d) one week
7. Chronic unemployment is measured using:
(a) US data (b) CWS data
(c) None of the two (d) Both (a) and (b)
8. The Planning Commission was set up in accordance with
the directive principles in:
(a) Article 38 (b) Article 39
(c) Article 42 (d) 51 A
9. Structural Planning refers to:
(a) laying down broad goals and strategies
(b) centralised planning
(c) fixing flexible targets
(d) changing existing institutions or creating new ones
10. First Plan adopted (b) community, social, and personal services
(a) Lewis-Fei model (b) Mahalanobis model
(c) Harrod Domar model (d) Keynesian model
11. The phenomenon known as green revolution began to
manifest during:
(a) 2nd Plan
(b) 3rd Plan
(c) Annual Plans (1966-69)
(d) 4th Plan
12. Relative poverty refers to a situation where:
(a) a person falls behind others
(b) a person is unable to obtain the necessaries for life
(c) a person is below poverty line
(d) a person is poorer than another in the developed
world
13. Use of energy requirements (calorie) as a measure of
poverty in India was made for the first time by:
(a) Amartya Sen
(b) Dandekar and Rath
(c) Planning Commission
(d) T. N. Srinivasan
14. Human Poverty Index (HPI) measures the deprivation as
a composite index of:
(a) longevity, nutrition and knowledge
(b) knowledge, basic needs and standard of living
(c) longevity, standard of living and sanitation
(d) longevity, knowledge, and standard of living
15. After the launch of New Economic Policy:
(a) both urban and rural poverty increased
(b) rural poverty increased initially but declined in
1993-94
(c) both rural & urban poverty decreased
(d) rural poverty increased but urban poverty declined
16. Aam Admi Bima Yojana provides social security to-
(a) All labours in rural areas
(b) All landless labours living below poverty line in
rural areas
(c) All labours in urban areas
(d) All labours in both rural as well as urban areas
17. CAPART is related with-
(a) Assisting and evaluating rural welfare programmes
(b) Computer hardware
(c) Consultant service of export promotion
(d) Controlling pollution in big industries
18. Which day has been declared as ‘Balika Diwas’ (Girl Day)
by the Ministry of Woman and Children Development?
(a) April 5, every year
(b) July 9, every year
(c) October 9, every year
(d) December 9, every year
19. Sector wise, maximum employment in the public sector
in
(a) electricity, gas, and water
(c) finance, insurance, and real estate
(d) transport, storage, and communication
E-32 Planning, Unemployment & Poverty in India
20. Which plan was suspended one year before the time
schedule?
(a) First Plan (1951-56) (b) Third Plan (1966-71)
(c) Sixth Plan (1980-85) (d) Fifth Plan (1974-79) India, namely, IRDP, NREP, RLEQP, FWP. They are
21. Rajeev Gandhi Scheme for Empowerment of Adolescent
Girls named to ‘Sabla’ includes the girls of the age
group–
(a) 9 to 12 years (b) 10 to 15 years
(c) 11 to 18 years (d) 15 to 18 years
22. Which Indian plan ensured high growth rate as compared
with targeted growth rate ?
(a) Fifth Plan (b) Fourth Plan
(c) Second Plan (d) Eighth Plan
23. What was the aim of Antyodaya Programme?
(a) Elimination of Urban Poverty
(b) Improving the standards of scheduled castes
(c) Uplifting minorities
(d) Helping the poorest among poor
24. Economic survey in India is published officially, every
year by the
(a) Reserve Bank of India
(b) Planning Commission of India
(c) Ministry of Finance, Government of India
(d) Ministry of Industries, Government of India
25. The schemes of Urban Micro-Enterprises, Urban Wage
Employment and Housing, and Shelter Upgradation are
part of
(a) Integrated Rural Development Programme
(b) Nehru Rozgar Yojana
(c) Jawahar Rozgar Yojana
(d) Prime Minister’s Rozgar Yojana
26. The Employment Assurance Scheme envisages financial
assistance to rural areas for guaranteeing employment to
at least
(a) 50 per cent of the men and women seeking jobs in
rural areas
(b) 50 per cent of the men seeking jobs in the rural areas
(c) one man and one women in a rural family living
below the poverty line
(d) one person in a rural landless house hold living
below the poverty line
27. The growth rate of which one of the following sectors has
very low employment elasticity?
(a) manufacturing (b) construction
(c) financial services (d) mixed farming
28. The planning process in the industrial sector in India
has assumed a relatively less important position in the
nineties as compared to that in the earlier period. Which
one of the following is not true in this regard?
(a) With the advent of liberalization, industrial
investments/development have largely been placed
within the domain of private and multinational
sectors.
(b) With markets assuming a central place, the role of
central planning in many sectors has been rendered
redundant
(c) The focus of planning has shifted to sectors like
human resource development, infrastructure,
population control and welfare.
(d) The nation’s priorities have shifted away from
industrial development to rural development
29. Various employment programmes have been launched in
meant to improve
(a) rural employment
(b) urban employment
(c) rural and urban employment
(d) educated employment
30. Among the following who are eligible to benefit from
the “Mahatma Gandhi National Rural Employment
Guarantee Act”?
(a) Adult members of only the scheduled caste and
scheduled tribe households
(b) Adult members of below poverty line (BPL)
households
(c) Adult members of households of all backward
communities
(d) Adult members of any household
31. Inclusive growth as enunciated in the Eleventh Five Year
Plan does not include one, of the following:
(a) Reduction of poverty
(b) Extension of employment opportunities
(c) Strengthening of capital market
(d) Reduction of gender inequality
32. In the context of India’s Five Year Plans, a shift in the
pattern of industrialization, with lower emphasis on
heavy industries and more on infrastructure begins in
(a) Fourth Plan (b) Sixth Plan
(c) Eighth Plan (d) Tenth Plan
33. Deputy chairman of the Planning Commission is the:
(a) Prime Minister
(b) Planning Minister
(c) Holds the rank of a cabinet minister
(d) Economist of repute
34. Overall aim of Indian plans is
(a) industrial development
(b) economic growth with social justice
(c) socialist pattern of society.
(d) regional prosperity
35. Ninth Plan put emphasis on
(a) universal education
(b) growth with social justice and equity
(c) removal of rural unemployment
(d) decentralization
36. _____ sector was the largest contributor to GDP during
the Ninth Plan?
(a) Manufacturing
(b) Trade
(c) Information technology
(d) Financial services
37. Durgapur, Bhilai and Rourkela steel plants were
established during _____ Plan.
(a) Second (b) Third
(c) Fourth (d) First
38. ____ Plan had the fastest growth rate.
(a) First (b) Fifth
(c) Sixth (d) None
Planning, Unemployment & Poverty in India E-33
39. National Development Council is concerned with
(a) implementing state plans
(b) approving and assessing major development projects
in India
(c) approval of five-year plans
(d) implementing community development programmes
40. Which of the following is not a millennium development
goal?
(a) The eradication of extreme poverty and hunger.
(b) Universal primary and secondary education.
(c) Gender equality and empowerment of women.
(d) Reducing the child mortality rate.
41. Which plan emphasised optimum utilisation of capacities,
improvement in productivity and establishment of sunrise
industries”?
(a) Fifth Plan (b) Sixth Plan
(c) Second Plan (d) Seventh plan
42. Which of the following programmes is specially directed
towards helping women in difficult circumstances or in
distress?
(a) Swadhar
(b) Swayamsiddha
(c) Mahila Samriddhi Yojana
(d) Rashtriya Mahila Kosh
43. PEARL is a programme related to
(a) improvement of gems and jewellery export
(b) pet awareness and rescue
(c) knowledge sharing on urban reforms and city
governance
(d) quality enhancement of processed food for export
44. Indicative planning
(a) replaces the market system
(b) is a method of controlling the
(c) economy by setting short term goals
(d) can work only when capital account convertibility
operates works through the market
45. Which one of the following statements is not correct?
(a) Under the Targeted Public Distribution System, the
families below Poverty Line are provided 50 kg
of food grains per month per family at subsidized
price.
(b) Under Annapurna Scheme, indigent senior citizens
of 65 years of age or above eligible for National Old
Age Pension but not getting pension can get 10 kg
of food grains per person per month free of cost.
(c) Ministry of social justice and empowerment has a
scheme in which indigent people living in welfare
institutions like orphanages are given 15 kg of
foodgrains per person per month of BPL rates.
(d) Ministry of Human Resource Development gives
financial support to mid-day meal scheme for the
benefit of Class I to V students in government or
government aided school.
46. Which Five- Year Plan had an objective of “Rapid
industrialization with particular emphasis on development
of basic and heavy industries” ?
(a) First (b) Second
(c) Third (d) Fourth
47. In which one the following Five Year Plans the actual
growth performance in India in respect of GDP(at factor
cost) was less than the target set ?
(a) Sixth Five Year Plan
(b) Seventh Five Year Plan
(c) Eighth Five Year Plan
(d) Ninth Five Year Plan
48. How would the size of the labour force and the rate of
unemployment be affected if people retrenched from
their jobs did not actively seek employment?
(a) The labour force would be smaller and the
unemployment rate would be lower.
(b) The labour force would be smaller and the
unemployment rate would be higher.
(c) There would be no change in the labour force and
the unemployment rate would be higher.
(d) The labour force would be smaller and there would
be no change in the unemployment rate.
49. The natural rate of unemployment is likely to fall if:
(a) unemployment benefits increase
(b) income tax increases
(c) more training is available for the unemployed
(d) geographical immobility increases
50. To reduce cyclical unemployment the government might:
(a) increase the budget surplus
(b) increase the balance of payments deficit
(c) increase the budget deficit
(d) reduce government expenditure
51. The Economic Planning Committee was established in
the chairmanship of
(a) J.L. Nehru
(b) Dr. Rajendra Prasad
(c) Ramkrishna Mudaliyar
(d) K.C. Niyogi
52. The second five year plan was based on
(a) P.C. Mahalnobis Model
(b) Nehruvian Model
(c) Harro-Domar Model
(d) None of these
53. What was the main objective of the Third Five year Plan?
(a) To make economy self dependent
(b) To ensure social development
(c) For abolition of poverty
(d) To establish heavy industries
54. Which five year plan was focused on poverty and
unemployment for the first time?
(a) Third Five Year Plan
(b) Fourth Five Year Plan
(c) Fifth Five Year Plan
(d) Sixth Five Year Plan
55. Who among the following has written the book named
‘Indian Economy: Gandhian Blue print”?
(a) Acharya Vinoba Bhave
(b) Morarji Desai
(c) Jai Prakash Narayan
(d) Charan Singh
56. A shift in pattern of Industrialisation with lower emphasis
of the heavy industry and move on infrastructure begins
in which five year plan?
(a) Fifth plan (b) Sixth plan
(c) Seventh plan (d) Eight plan
E-34 Planning, Unemployment & Poverty in India
57. The government introduced an agricultural strategy which
gave rise to green revolution in India under the plan
(a) Third Five Year Plan (b) Fourth Five Year Plan
(c) Fifth Five Year Plan (d) Sixth Five Year Plan
58. Agriculture, Irrigation and Power Projects were given
highest priority in which among the following plans?
(a) First Five Year Plan (b) Second Five Year Plan
(c) Third Five Year Plan (d) Fourth Five Year Plan
59. Who among the following works as Ex-officio secretary
of National Development Council?
(a) Secretary of Finance Ministry
(b) Vice Chairman of Planning Commission
(c) Secretary of Planning Commission
(d) Secretary of Planning & Implementation Ministry
Secretary of Planning Commission
60. Socio-economic planning is a part of ____?
(a) Union List (b) State List
(c) Concurrent List (d) Reserved List
61. In which five year plan self reliance as an object of
planning was emphasized?
(a) First Five Year Plan
(b) Second Five Year Plan
(c) Third Five Year Plan
(d) Fourth Five Year Plan
62. Who among the following is NOT a part of National
Development Council?
(a) Finance Commission of India Chairman
(b) Vice Chairman of Planning Commission
(c) Secretary of Planning Commission
(d) Secretary of Planning & Implementation Ministry
63. Which five year plan Infrastructure as an object of
planning was emphasized?
(a) First Five Year Plan (b) Second Five Year Plan
(c) Third Five Year Plan (d) Sixth Five Year Plan
64. Which five year plan is also known as Mahalanobis
model plan?
(a) First Five Year Plan (b) Second Five Year Plan
(c) Third Five Year Plan (d) Sixth Five Year Plan
65. Disguised unemployment generally means
(a) Large number of people remain unemployed
(b) Alternative employment is not available
(c) Marginal productivity of labour is zero
(d) Productivity of worker is low
66. Which Five-Year Plan had an objective of “Rapid
industrialization with particular emphasis on development
of basic and heavy industries” ?
(a) First (b) Second
(c) Third (d) Fourth
67. In which of the following years was the planning
commission set up in India ?
(a) 1947 (b) 1948
(c) 1949 (d) 1950
68. Who is the ex-officio Chairman of the Planning
Commission of India ?
(a) Vice-President of India
(b) The Prime Minister of India
(c) The Finance Minister of India
(d) The Law Minister of India
69. In which one the following Five Year Plans the actual
growth performance in India in respect of GDP(at factor
cost) was less than the target set ?
(a) Sixth Five Year Plan
(b) Seventh Five Year Plan
(c) Eighth Five Year Plan
(d) Ninth Five Year Plan
70. The ‘Bombay Plan’ drafted by GD Birla and JRD Tata
emphasized:
(a) that the economy should be left to the dynamic
investments by the private sector in heavy industries,
etc.
(b) the public sector investment in infrastructure and
heavy industries
(c) annual planning
(d) that the private sector should foot the Bill for
intensive and low return investments in the industrial
sector.
71. Which one among the following statements regarding the
Eighth five year plan in India is not correct?
(a) The plan was postponed by two years because of
political upheavals at the centre
(b) It aimed at high growth of both agriculture and
manufacturing sectors
(c) Its emphasis was on growth in export and import,
improvement in trade and current account deficit
(d) It set before itself the two principal objectives of
‘growth with stability’ and ‘growth with justice’
72. By which one of the following years does the 11th Five
Year Plan aim at achieving 10% rural tele-density in
India from the present 1.9%?
(a) 2009 (b) 2010
(c) 2011 (d) 2012
73. When the productive capacity of the economic systems of
a state is inadequate to create sufficient number of jobs, it
is called
(a) seasonal unemployment
(b) structural unemployment
(c) disguised unemployment
(d) cyclical unemployment
74. The main objective of the 12th Five-Year Plan is
[CSAT-2014-I]
(a) inclusive growth and poverty reduction
(b) inclusive and sustainable growth
(c) sustainable and inclusive growth to reduce
unemployment
(d) faster, sustainable and more inclusive growth
75. ‘Pradhan Mantri Jan-Dhan Yojana’ has been launched
for [CSAT-2015-I]
(a) providing housing loan to poor people at cheaper
interest rates
(b) promoting women’s Self-Help Groups in backward
areas
(c) promoting financial inclusion in the country
(d) providing financial help to the marginalized
communities
76. The Government of India has established NITI Aayog to
replace the [CSAT-2015-I]
(a) Human Rights Commission
(b) Finance Commission
(c) Law Commission
(d) Planning Commission
Planning, Unemployment & Poverty in India E-35
Statement Based MCQ
1. Which of the two employment programmes are being
merged in newly introduced Prime Minister’s Employment
Generation Programme?
1. PMRY 2. NREP
3. REGP 4. RLEGP
Choose the right option
(a) 1 only (b) 1 and 2
(c) 1 and 3 (d) 2 and 4
2. Which of the following is/are correct?
1. Bulk of unemployment in India is in rural areas.
2. The disguised unemployment in agricultural sector is
perennial.
3. Industrialization has rendered several people jobless in
India.
(a) 1 and 2 (b) 1, 2 and 3
(c) 1 only (d) 2 and 3
3. Which of the following were the priority objectives of the
Eighth plan?
1. Universalization of elementary education.
2. Growth and diversification of agriculture.
3. Containment of population growth.
4. Gradual privatization of most public sector undertakings.
Choose your answer from the following codes
(a) 1, 2 and 4 (b) 2, 3 and 4
(c) 1, 3 and 4 (d) 1, 2 and 3
4. With reference to the government’s welfare schemes,
consider the following statements.
1. Under the Antyodaya Anna Yojana, the foodgrains are
available to the poorest of the poor families at ` 2 kg
for wheat and ` 3 kg of rice.
2. Under the National Old Age Pension Scheme, the
old and destitute are provided ` 75 month as Central
Pension, in addition to the amount provided by most
State Governments.
3. Government of India has allocated 25 kg foodgrains
per below poverty line family per month, at less than
half the economic cost.
Which of these statements are correct?
(a) 1 and 2 (b) 1 and 3
(c) 2 and 3 (d) 1, 2 and 3
5. Which of the following can aid in furthering the Government’s
objective of inclusive growth ?
1. Promoting Self-Help Groups.
2. Promoting Micro Small and Medium Enterprises.
3. Implementing the Right to Education Act.
Select the correct answer using the codes given below:
(a) 1 only (b) 1 and 2
(c) 2 and 3 (d) 1, 2 and 3
6. The Multi-dimensional Poverty Index developed by Oxford
Poverty and Human Development Initiative with UNDP
support covers which of the following?
1. Deprivation of education, health, assets and services at
household level.
2. Purchasing power parity at national level.
3. Extent of budget deficit and GDP growth rate at
national level.
Select the correct answer using the codes given below:
(a) 1 only (b) 2 and 3
(c) 1 and 3 (d) 1, 2 and 3
7. With reference to “Aam Admi Bima Yojana’’, consider the
following statements
1. The member insured under the scheme must be the
head of the family or an earning member of the family
in a rural landless house-hold.
2. The member insured must be in the age group of 30 to
65 years.
3. There is a provision for free scholarship for upto two
children of the insured who are studying between
classes 9 and 12.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 and 3
(c) 1 and 3 (d) 1, 2 and 3
8. Consider the following statements regarding Indian Planning:
1. The Second Five-Year Plan emphasized on the
establishment of heavy industries.
2. The Third Five-Year Plan introduced the concept of
import substitution as a strategy for industrialization.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
9. Planning Commission of India
1. was set up in 1950
2. is a constitutional body.
3. is an advisory body
4. is a government department
(a) 1 and 2 (b) 2 and 3
(c) 1 and 3 (d) 3 only
10. _____ is/are not matched correctly?
1. First Plan 1950-55
2. Third Plan 1961-66
3. Fourth Plan 1966-71
4. Seventh Plan 1985-90
(a) 1 and 2 (b) 3 only
(c) 1 only (d) 1 and 3
11. Basic objectives of Indian plans are
1. economic growth
2. self-reliance
3. employment generation
4. population growth
(a) 1, 2 and 4 (b) 1, 2 and 3
(c) 2 and 3 (d) 1, 2, 3 and 4
12. ____ is an achievement of Indian planning.
1. development of infrastructure
2. diversification of industry and exports
3. high growth in national in-come
4. control over prices
(a) 1 and 2 (b) 1, 2 and 3
(c) 1, 2 and 4 (d) 2 and 3
13. Which plans and features are wrongly matched?
1. First Plan - Community development projects
2. Second - Heavy industries
3. Third - Green Revolution
4. Fourth Plan
(a) 1 and 4 (b) 3 and 4
(c) 3 only (d) 1 and 3
E-36 Planning, Unemployment & Poverty in India
14. Fourth Plan failed due to
1. Indo-China conflict
2. Bangladesh refugee influx
3. bad monsoons
4. bad prices situation
(a) 1, 3 and 4 (b) 1, 2 and 3
(c) 2, 3 and 4 (d) 1, 2, 3 and 4
15. National Rural Employment Guarantee Act ensures that the
1. Centre bears 75% of the cost of wages of unskilled
manual workers.
2. State government provides 100 days of work to every
member of a household in a financial year.
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
16. Consider the following statements :
1. The period of the 10th Five Year Plan is 2003-2008.
2. The 10th Five year Plan approach towards tourism signifies
a distinct shift from that adopted in previous plans.
Which of the statements given above is/are correct ?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
17. Which among the following is not correct with regard to
Sampoorna Garmeena Rozgar Yojana?
1. The cash component of the programme is borne
exclusively by the Central Government.
2. Foodgrains are provided free of costs to the States/Union
Territories.
Select the answer using the code given below:
(a) 1 only (b) 2 only
(c) Both1 and 2 (d) Neither 1 Nor 2
18. _____ was the priority objectives of the 10th Plan?
1. 7.92% growth of CPP
2. Increasing literacy rate to 75 per cent
3. Five years of schooling to all children by 2007
4. Creating 100 million jobs in 5 years
(a) 1, 2 and 4 (b) 2, 3 and 4
(c) 1, 3 and 4 (d) 1, 2 and 3
19. The National Development Council (NDC) :
(1) discusses progress of the National plan.
(2) suggests the ways to achieve goals of the national
plan.
(3) gives guidelines to formulate the National plan.
(4) suggests plan allocation.
Consider the above statements, select the correct answer
from the codes given below :
Codes :
(a) 1, 2 and 3 (b) 2, 3 and 4
(c) 1, 2 and 4 (d) All of the above
20. Inclusive growth would necessitate :
(a) Development of infrastructural facilities
(b) Revival of agriculture
(c) Increase availability of social services such as
education and health.
(d) All the above.
21. Consider the following statements regarding Indian
planning.
(1) The second five year plan emphasized on the
establishment of heavy industries.
(2) The third five year plan aimed to achieve self-
sufficiency in foodgrains and increase agricultural
production to meet the requirements of industry and
exports.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
22. Consider the following statements about Indian Economy?
(1) During 11th Five Year Plan, the foodgrain
production steadily increased.
(2) During 11th Five Year Plan, the average inflation
on the wholesale price Index is above 10%.
Which of the statements given above is/are correct?
(a) only 1 (b) only 2
(c) Both 1 and 2 (d) Neither 1 nor 2
23. Consider the following statements :
(1) MNREGA was launched in the 11th five year plan.
(2) Indira Awas Yojana was launched in the 9th Five
Year Plan.
Which of the statements given above is/are correct?
(a) only 1 (b) only 2
(c) Both 1 and 2 (d) Neither 1 nor 2
24. Consider the following statements :
(1) The Ninth Five Year Plan was launched in the 50th
year of India’s independence.
(2) For the first time in the Indian economy the GDP
growth rate of the Ninth Five Year Plan was set at
7%.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
25. Consider the following statements :
(1) In the 11th Five Year Plan, the growth rate of the
export was always positive.
(2) In the middle of the 11th Five Year Plan, the import
growth was negative due to external factors.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
26. Consider the following statements :
(1) Indo-china war had hampered the proper progress
and implementation of Fourth Five Year Plan in
India.
(2) In the Indian Economy, the plan Holiday took place
during 1966 to 1969
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
27. Consider the following statements :
(1) The state sets broad parameters and goals for the
economy.
(2) The targets to be achieved are broadly set by the
state.
(3) The plan is made for the specific time period of
about 15 years.
Which of the statements given above is/are correct
about the Indicative planning?
(a) 1, 2 and 3 (b) 1 and 2
(c) 1 and 3 (d) only 1
Planning, Unemployment & Poverty in India E-37
28. Consider the following statements about the LPG model
of economic development process in India?
(1) Disinvestment of profit making public sector
Enterprises.
(2) Permitting private sectors to establish Industrial
Units without taking a licence.
(3) Chronically sick industries were referred to BIFR
for the formulation of revival or rehabilitation plan.
Which of the processes given above is/are taken after
adoption of LPG model?
(a) 1, 2 and 3 (b) 1 and 3
(c) 2 and 3 (d) only 2
29. Consider the following two statements and answer the
question–
I. The rural poverty alleviation programme will
henceforth run on mission mode.
II. National Rural Livelihood Mission is centrally
sponsored programme implemented by the states.
(a) Only I is correct
(b) Only II is correct
(c) Both I and II are correct 2. Low rate of capital formation
(d) None is correct
30. Which of the statement[s] is true regarding the NDC
1. to prescribe guidelines for the formulation of the
National Plan, including the assessment of resources
for the Plan;
2. to consider the National Plan as formulated by the
Planning Commission;
3. to consider important questions of social and
economic policy affecting national development;
and
4. to review the working of the Plan from time to time
and to recommend such measures as are necessary
for achieving the aims and targets set out in the
National Plan.
(a) Only 1, 2,and 3 (b) Only 2, 3
(c) Only 1 and 2 (d) All of them
31. Who among the following constitute the National
Development Councils?
1. The Prime Minister of India
2. The Leader of Opposition
3. Minister of Union Cabinet
4. Chief Minister of the States
Select the correct answer using the given code below.
(a) 1 and 2 only
(b) 1, 2, 3 and 4
(c) 1, 3 and 4 only
(d) 1, 2 and 3 only
32. Consider the following statements:
1. Bulk of employment in India is in rural areas.
2. The disguised unemployment in agricultural sector
is perennial.
3. Industrialization has rendered several people jobless
in India. Which of the statement(s) given above is/
are correct?
(a) 1 and 2 (b) 1 and 3
(c) 2 and 3 (d) 1, 2 and 3
33. In context of ‘Indira Awaas Yojana’, consider the
following statements:
(1) Indira Awaas Yojana seeks to provide shelter to
rural BPL households.
(2) Allotment under this housing scheme is made only
in the name of the female member of the household.
Which of the following is/are correct?
(a) Only1 (b) Only 2
(c) Both 1 and 2 (d) Neither 1 nor 2
34. A person qualifies for insurance under the Aam Aadmi
Bima Yojana only if he ______
1. Is earning member of rural household
2. Is Landless
3. Belongs to BPL category
4. Between 15- 59 years of age which among the above
statements is / are correct?
(a) Only 1 (b) 1 & 2
(c) 1, 2 , 3 & 4 (d) 1 , 3 & 4
35. Consider the following:
1. Low per capita income
3. Working force largely in the tertiary sector
Which among the above is/ are the characters of an
underdeveloped economy?
(a) 1 & 2 (b) 2 & 3
(c) 1 & 3 (d) 1, 2 & 3
36. Consider the following statements:
1. Indira Gandhi Matritva Sahyog Yojana (IGMSY) has
been launched to improve the health and nutrition
status of pregnant, lactating women and infants.
2. The scheme envisages Cash Incentives for the above
beneficiaries
3. All Government Women Employees are beneficiaries
of the IGMSY
Which among the above statements is / are correct?
(a) Only 1 & 2 are correct
(b) Only 2 & 3 are correct
(c) Only 1 is correct
(d) All are correct
37. Which among the following is not correct with regard to
Sampoorna Garmeena Rozgar Yojana?
1. The cash component of the programme is borne
exclusively by the Central Government.
2. Foodgrains are provided free of costs to the States/
Union Territories.
Select the answer unsing the code given below:
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 Nor
38. Consider the following statements
1. Food for Work Programme was launched in India
during the 10th Five Year Plan.
2. The Planning commission in India is a constitutional
body.
Which of the statements given above is/are correct?
(a) Only 1 (b) Only 2
(c) Both 1 and 2 (d) Neither 1 nor 2
E-38 Planning, Unemployment & Poverty in India
39. The 11th Five Year Plan strategy to raise agricultural
output envisages which of the following?
1. Greater attention to land reforms.
2. Double the rate of growth of irrigated area.
3. Promote animal husbandry and fishery.
4. Interest free credit to the farmers.
Select the correct answer using the codes given below
(a) 1 and 3 (b) 2 and 3
(c) 1, 2 and 3 (d) 2 and 4
40. ‘Inclusive growth’ is a phrase used in India’s
1. 9th Plan 2. 10th Plan
th
3. 11 Plan 4. 12th Plan
Select the correct answer using the codes given below.
(a) 1, 2 and 3 (b) 2 and 4
(c) 3 and 4 (d) Only 4
41. Consider the following statement:
1. The Planning Commission was established in 1950,
by Article 39 of the Directive Principles of the
Constitution of India.
2. Prime Minister, Narendra Modi dissolved the
planning commission in his first Independence Day
speech in 2014. It has since been replaced by a new
institution named niti Aayog.
Which among the following statement is not true?
(a) 1 only (b) 2 only
(c) 1 and 2 (d) Neither 1 nor 2
42. NITI AAYOG is defined as:
1. The National Institution for Transforming India
aayog
2. It has replaced YojanaAayog by Prime Minister,
Narendra Modi
3. Niti Aayog provides less opportunity than Yojana
Aayog
Which among the following statement is true?
(a) 1 only (b) 2 only
(c) 1 and 2 (d) 1 and 3
43. The difference between Niti Aayog and Yojana Aayog is
as follows:
1. In Niti Aayog there are 3 full time members while
Yojana Aayog has 8 members.
2. NITI is a think-tank and does not have the power
to impose policies while Yojana impose policies on
states and tied allocation of funds with projects it
approved.
3. NITI has power to allocate funds while Yojana
doesn’t.
Which among the following statement is true?
(a) 1 and 2 (b) 1 and 3
(c) 2 and 3 (d) 1, 2 and 3
44. Consider the following statement
1. The major objective of first plan is to increase National
Income by 25% through rapid industrialisation. This
plan was developed by Professor Mahalanobis.
2. The major objective of second plan is to stimulate
balanced economic development while correcting
imbalances caused by World War II and partition.
The plan targeted the socio-economic development
but the outcome was very poor.
3. The major objective of third plan is continued
emphasis on basic industries together with an
increased outlay of 35% in agriculture and applied
sectors.
Which among the following statement is correct:
(a) 1 only (b) 2 only
(c) 3 only (d) 3 and 2
45. Consider the following statement
1. The plan holiday was declared for three years as
there was discontinuity in the planning process.
2. Plan period was from 1965-1968
Which among the following Statement is correct:
(a) 1 only (b) 2 only
(c) 1 and 2 (d) 1 and 3
46. In _____ demand for labour falls short to the supply due
to rapidly growing population and their immobility
1. Structural Unemployment
2. Disguised Unemployment
3. Seasonal Unemployment
Choose the correct Code
(a) 1 only (b) 2 only
(c) 3 only (d) 2 and 3
47. Which of the following statements is/are incorrect?
1. Open Unemployment: It refers to an unemployment
that occurs at certain seasons of the years. The
period of such unemployment varies from state to
state, depending upon the methods of farming, the
condition of soil, the type and numbers of crops
grown, etc.
2. Frictional Unemployment: It refers to temporary
unemployment that exists during the period, wherein
workers leave one job and join some other.
3. Cyclical Unemployment: It is associated with the
downswing and depression phases 9 business cycle.
It is the most common type of unemployment in the
developed capitalist economies.
Select the incorrect definition using the code given below:
(a) 1 only (b) 2 only
(c) 3 only (d) 2 and 1
48. Scheme ______ is a Government of India program aimed
at providing 24x7 uninterrupted power supply to all
homes in Rural India
1. Deendayal Disabled Rehabilitation Scheme
2. Deen Dayal Upadhyaya Gram JyotiYojana
3. Digital IndiaProgramme
Select the name of the scheme
(a) 1 only (b) 2 only
(c) 3 only (d) 2 and 3
49. Consider the following statements
1. Absolute Poverty: It refers to the total number
of people living below Poverty line. As per this
measure, around 30% of India’s population is below
poverty line.
2. Reative Poverty: It refers to Poverty of people,
in comparison to other people, regions in the nation.
Which among the following statement is/ are incorrect?
(a) 1 only (b) 2 only
(c) Neither 1 nor 2 (d) Both 1 and 2
Planning, Unemployment & Poverty in India E-39
50. Which among the following is the objective of Prime
Minister RojgarYojana (PMRY)
1. To provide self-employment to educated unemployed
by setting up of sever lakh micro-enterprises
2. To promote micro-enterprises and helping the rural
poor into self-help group.
3. To create employment and durable assets in rural
areas.
4. Improving the quality of life of people in rural areas.
Choose the correct code
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
51. Consider the following statements
1. Since 1993-94, the benefit of Indira AwasYojana
is being provided even to those rural poor of non-
schedule caste/schedule tribe who are living below
the poverty line.
2. A minimum of 60% of funds is to be utilized for
construction of houses for the SC/ST people.
3. From 1995-96, IAY benefits have been extended to
widows or next to kin of defence personnel killed in
action.
4. Benefits have also been extended to ex-servicemen
and retired members of Para military forces as long
as they fulfil the normal eligibility conditions of IAY.
Which of the following is / are correct
(a) 1 and 2 (b) 3 and 4
(c) 1 and 4 (d) 1, 2, 3, 4
52. Whose objective is to facilitate credit support to poor
women for this socio-economic upliftment.
(a) RashtriyaMahilaKosh
(b) National Rural Health Mission
(c) Village Grain Bank Scheme
(d) Annapurna Scheme
53. Consider the following statement regarding usual status
1. One year 2. Indefinite
3. One month 4. One week
Usual status (US) unemployment is calculated with
reference to a period of?
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
54. Consider the following statements:
1. Indira Gandhi Matritva Sahyog Yojana (IGMSY) has
been launched to improve the health and nutrition
status of pregnant, lactating women and infants.
2. The scheme envisages Cash Incentives for the above
beneficiaries
3. All Government Women Employees are beneficiaries
of the IGMSY
Which among the above statements is / are correct?
(a) 1 and 2 (b) 2 and 3
(c) 1 only (d) 1, 2, 3
55. Which of the two employment programmes are
being merged in newly introduced Prime Minister’s
Employment Generation Programme?
1. PMRY 2. NREP
3. REGP 4. RLEGP
Choose the right option
(a) 1 only (b) 1 and 2
(c) 1 and 3 (d) 2 and 4
56. Which of the following were the priority objectives of the
Eighth plan?
1. Universalization of elementary education.
2. Growth and diversification of agriculture.
3. Containment of population growth.
4. Gradual privatization of most public sector
undertakings.
Choose your answer from the following codes
(a) 1, 2 and 4 (b) 2, 3 and 4
(c) 1, 3 and 4 (d) 1, 2 and 3
Matching Based MCQ
DIRECTIONS (Qs. 57-66) : Match List-I with List-II and
select the correct answer using the codes given below the lists.
57. List-I List-II
(A) Development (1) UN India Human
Programme Development Report
(B) National Council of (2) India Development
Applied Economic Report
Research
(C) Indira Gandhi Institute (3) World Development
of Development Report
Research
(D) World Bank (4) Human Report
Development
(a) A – 4 ; B – 1 ; C – 2 ; D – 3
(b) A – 4 ; B – 2 ; C – 1 ; D – 3
(c) A – 2 ; B – 3 ; C – 4 ; D – 1
(d) A – 2 ; B – 1 ; C – 4 ; D – 3
58. Match List I with List II and select the correct answer
using the codes given below the list
List-I List-II
(Five Year Plan) (Objective)
A. First Plan 1. Growth with social justice
B. Third Plan 2. Sustainable inclusive growth
C. Fifth Plan 3. Self reliant and generating
economy
D. Twelfth plan 4. Agriculture, Irrigation and
power projects
Codes :
A B C D
(a) 2 4 3 1
(b) 2 3 4 1
(c) 4 3 1 2
(d) 1 3 2 1
59. Match the items in List-I with List-II:
List-I List-II
A. Reproductive 1. Police Research
Child Health
B. The National Rural 2. Trauma
Employment
Guarantee Act
C. Post Traumatic 3. Mother
Stress Disorder and Child
D. Bureau of Police 4. Employment at
Research and village level
Development
E-40 Planning, Unemployment & Poverty in India

Codes : 63. Match the important dates

A B C D Dates Event
(a) 2 1 3 4 I. 1934 a. Planning commission set
(b) 3 4 2 1 up
(c) 4 3 2 1 II. 1944 b. Interim government sets
(d) 1 2 3 4 up the Planning Advisory
60. Match List-I with List-II and select the correct Board
answer from the codes given below – III. 1946 c. M. Visvesvaryya, in his
List-I List-II book Planned Economy
A. Sarva Shiksha 1. 1987 of India, advocates the
necessity of planning in
Abhiyan
the country much before
B. Saakshar Bharat 2. 1988
Independence
Mission
IV. 1950 d. Planning and Development
C. Operation Blackboard 3. 2001 Department set up under
D. National Literacy 4. 2009 the chairmanship of A.
Mission Dalal
Codes : (a) I-a, II-b, III-c,IV-d
A B C D (b) I-c, II-d, III-b, IV-a
(a) 3 4 1 2 (c) I-d, II-c, III-b, IV-a
(b) 4 3 2 1 (d) I-a, II-d, III-a, IV-b
(c) 1 2 3 4 64. Match the plans with the years
(d) 1 2 4 3 Plan Year
61. Match the following I. First Plan a. 1961-1966
List-I List-II II. Second Plan b. 1951-1956
(Five Year Plan) (Emphasis) III. Third Plan c. 1956-1961
A. First 1. Food security and women (a) I-a, II-b, III-c
empowerment (b) I-b, II-c, III-a
B. Second 2. Heavy industries (c) I-c, II-b, III-a
(d) I-a, II-c, III-b
C. Fifth 3. Agriculture and
65. Match the following
community development Date of Launch Scheme
D. Ninth 4. Removal of poverty I. 2007 a. Aam Admi Bima Yojana
Codes : II. 2009 b. Bachat Lamp Yajana
A B C D III. 2015 c. Atal Pension Yojana
(a) 1 2 4 3 (a) I-a, II-b, III-c
(b) 1 4 2 3 (b) I-c, II-b, III-a
(c) 3 2 4 1 (c) I-b, II-c, III-a
(d) 3 4 2 1 (d) I-c, II-c, III-b
62. Match the members of NitiAayog: 66. Match the following
Column-A Column-B Year of starting Name of programme
I. Chairperson a. Arvind Panagariya I. 1971-72 a. Pilot Intensive Rural
II. CEO b. Narendra Modi Employment
III. Vice Chairperson c. Nitin Gadkari II. 1972-73 b. Crash Scheme for Rural
IV. Special Invitees d. Smt. Sindhushree Khullar Employment
(a) I-b, II-d, III-a,IV-c III. 1973-74 c. Food for work Programme
IV. 1977-78 d. Drought Prove Areas
(b) I-a, II-b, III-c, IV-d
Programme
(c) I-c, II-b, III-d, IV-a (a) I-a, II-b, III-c, III-d (b) I-b, II-a, III-d, IV-c
(d) I-c, II-b, III-d, IV-a (c) I-d, II-c, III-b, IV-a (d) I-a, II-d, III-a, IV-b
Planning, Unemployment & Poverty in India E-41
EXERCISE-1
1. (c) 2. (d) 3. (d) 4. (b) 5. (c) 6. (a)
7. (d) 8. (b) 9. (d) 10. (c) 11. (c) 12. (a)
13. (b) 14. (d) 15. (b) 16. (b) 17. (a) 18. (d)
19. (b) 20. (d) 21. (c) 22. (d) 23. (d) 24. (c)
25. (b) 26. (c) 27. (c) 28. (d) 29. (c)
30. (d) All adult members of the household who registered
can apply for work. To register, they have to : Be
local residents
31. (c) Inclusive growth is ‘broad-based growth’, ‘shared
growth’, and ‘pro-poor growth’. It excludes the
capital markets which is left to operate by itself in
the open market.
32. (c) It was during eighth plan period (1992-97) that
emphasis was put on infrastructure development.
33. (c) 34. (b) 35. (b) 36. (a) 37. (a) 38. (a) economy. But the earlier plans had shown that the
39. (c) 40. (b) 41. (b) 42. (a) 43. (c) 44. (d) agricultural production was the limiting factor so
45. (a)
46. (b) The Second Five Year Plan’s broad objective was
establishment of a socialistic pattern of society. It
aimed at rebuilding rural India, development of
basic and heavy industries and enlarging scope of
public sector.
47. (d) The revised targeted annual rate of growth of 9th
plan was 6.5% while the actual growth rate was
5.5%.
48. (b)
49. (c) Supply-side measures can be used to reduce the
natural rate of unemployment. In this case training
enables more employees to accept jobs thereby
reducing the natural rate of unemployment.
50. (c) Low interest rates might encourage more spending
and reduce cyclical unemployment.
51. (a) After India gained independence, a formal model
of planning was adopted, and the Planning
Commission, was established on 15 March 1950,
with Prime Minister Jawaharlal Nehru as the
chairman.
52. (a) The second five year plan was based on
P.C. Mahalnobis Model. The Mahalanobis model
is a Neo-Marxist model of economic development,
created by statistician Prasanta Chandra Mahalanobis
in 1953. Mahalanobis became essentially the key
economist of India’s Second Five Year Plan.
53. (a) The main objective of the third five year plan was to
make economy self-dependent. The third Five-year
Plan stressed on agriculture and improvement in the
production of wheat so as to be self-sufficient.
54. (c) Fifth five year plan was focused on poverty and
unemployment for the first time. The slogan of
‘poverty abolition’ was given by Indira Gandhi in
1971 and it was implemented during the fifth five
year plan(1974–79). Gandhi promised to reduce
poverty by targeting the consumption levels of the
poor and enact wide ranging social and economic
reforms.
55. (d) Charan Singh wrote the book named, “Indian
Economy: Gandhian Blue Print”. He was the fifth
Prime Minister of India, serving from 1979 until
1980.
56. (b) Sixth five year plan (1980–85) marked the beginning
of economic liberalisation.
In Sixth Five year plan, a shift in pattern of
Industrialisation with lower emphasis of the heavy
industry and move on infrastructure begins.
57. (a) Under the third five year plan, the government
introduce an agricultural strategy which gave rise to
green revolution in India. Under the third plan the
goal was to establish self reliance and self generating
agriculture was given top priority .
58. (a) 59. (c) 60. (c) 61. (d)
62. (a) 63. (d) 64. (b) 65. (c)
66. (b) The Second Five Year Plan’s broad objective was
establishment of a socialistic pattern of society. It
aimed at rebuilding rural India, development of
basic and heavy industries and enlarging scope of
public sector.
67. (d) In March 1950, Government of India constituted a
statutory body with the Prime Minister of India as
its chairman called Planning Commission of India.
68. (b)
69. (d) The revised targeted annual rate of growth of 9th
plan was 6.5% while the actual growth rate was
5.5%.
70. (b) 71. (c)
72. (d) The aim of 11th Five Year Plan is to connect
every village by telephone and provide broadband
connectivity to all villages by 2012.
73. (d) Cyclical unemployment is unemployment that results
when the overall demand for goods and services
in an economy cannot support full employment. It
occurs during periods of slow economic growth or
during periods of economic contraction.
74. (d) 12th Five Year Plan of the Government of India aims
at faster, sustainable and more inclusive growth.
75. (c) Pradhan Mantri Jan-Dhan Yojana (PMJDY) is
National Mission for Financial Inclusion to ensure
access to financial services, namely, Banking/
Savings & Deposit Accounts, Remittance, Credit,
Insurance, Pension in an affordable manner.
76. (d) The Government of India has established NITI
Aayog to replace the Planning Commission. The
Union Government of India announced formation of
NITI Aayog on 1 January 2015 and the first meeting
of NITI Aayog was held on 8 February 2015.
E-42 Planning, Unemployment & Poverty in India
EXERCISE-2
1. (c) 2. (b) 3. (d) 4. (d)
5. (d) The concept of the inclusive growth is based on both
economic and social empowerment of ordinary and
under privileged individuals. Thus all the statement
are correct.
6. (a) Deprivation of education, health, assets and services
at household level
7. (c) The statements 1st and 3rd are correct, but 2nd
statement is wrong because, the member should be
aged between 18 and 59 years not 30 and 65 years.
8. (a) Second Five-Year Plan (1956-1961); The fourth
Five-Year Plan (1969-74) introduced the concept of
import substitution as a strategy for industrialization.
9. (c) 10. (d) 11. (b) 12. (a) 13. (b) and poverty and inequity in distribution of state
14. (c) 15. (b) 16. (d) 17. (b) 18. (d) resources remained stark. Consequently, the period
19. (a) National Development Council aims to prescribe
guidelines for the formulation of the National Plan,
including the assessment of resources for the Plan;
to consider the National Plan as formulated by
the Planning Commission; to consider important
questions of social and economic policy affecting
national development; and.to review the working of
the Plan from time to time and to recommend such
measures as are necessary for achieving the aims
and targets set out in the National Plan.
20. (d) Inclusive growth is a concept which involves
equitable allocation of resources during the process
of economic growth with benefits incurred by every
section of society. Inclusive growth necessitates
development of infrastructural facilities, revival of
agriculture and also increases availability of social
services such as education and health.
21. (c) The Second Five Year Plan heralded in a true sense
the Socialist Project of the then Prime Minister,
Jawaharlal Nehru. The economic policies of Nehru
were heavily influenced by the erstwhile Union
of Soviet Socialist Republics (USSR) which had
followed the path of speedy industrialisation to
expand the manufacturing base of its economy.
The Second Five year Plan focused mainly on
heavy industry as against the First Plan which was
essentially an agricultural plan. This was done to
boost domestic production and manufacturing of
goods. Third plan aimed to achieve self-sufficiency
in foodgrains and to increase agricultural production
to meet the requirements of industry and exports.
22. (c) During The eleventh plan ( 2007-12)the food grain
production steadily increased and the average
inflation on the wholesale price Index was above
10%.
23. (b) The Mahatma Gandhi National Rural Employment
Guarantee Act (MNREGA) is an Indian law that
aims to guarantee the ‘right to work’ and ensures
livelihood security in rural areas by providing at
least 100 days of guaranteed wage employment in
a financial year to every household whose adult
members volunteer to do unskilled manual work.
MNREGA was launched in 200 select districts in
2006. However Indira Awas Yojana was lauched
in the 9th Five Year Plan to provide housing for the
rural poor in India.
24. (c) The Ninth Five Year Plan was launched in the
50th year of India’s independence. Under the plan
for the first time in the Indian Economy the GDP
growth rate was set at 7%.
25. (b) Regarding the 11th Five Year Plan, in the middle
of the plan, the import growth was negative due to
external factors and the growth rate of the export
was negative during certain periods.
26. (b) Despite big investments during the first three Plans
the living standards of the poor could not be raised
between 1966 and 1969 marked the shift from a
‘growth approach’ to a ‘distribution from growth
approach’. Looking at the failures and pitfalls the
planners suspended the impending Fourth Plan,
which was due in 1966, until 1969 for a revision of
objectives and targets. This was called as the ‘Plan
Holiday’ extending from 1 April 1966 to 31 March
1969.
27. (b) Indicative planning is a form of economic planning
implemented by a state in an effort to solve the
problem of imperfect information in market and
mixed economies in order to increase economic
performance. Regarding the indicative planning,
state sets broad parameters and goals for the
economy and the targets to be achieved are broadly
set by the state.
28. (a) LPG model of economic development process in
India involves disinvestment of profit making public
sector enterprises, permitting private sectors to
establish industrial units without taking a licence and
chronically sick industries were referred to BIFR
for the formulation of revival or rehabilitation.
29. (c) 30. (d) 31. (c) 32. (a) 33. (b)
34. (b) 35. (a) 36. (a) 37. (b)
38. (a) According to The National Food for Work
Programme, food subsidy should be better targeted
through targeted public distribution system and
specific programmes for the poor like Food for
Work Programme. The National Food for Work
Programme was launched on 14 November 2004
in 150 of the most backward districts of India with
the objective of generating supplementary wage
employment. The Planning commission is not a
constitutional body.
39. (c) 11th Five Year Plan’s initiatives for agriculture
were:
• Focusing on land reform issues
• Doubling the rate of growth of irrigated area
• Promoting animal husbandry and fishery
• Providing easy access to credit at affordable rates
40. (c) Inclusive growth is a phrase used in India for 11th
(2007-2012) and 12th (2012-2017) Five year plans.
Planning, Unemployment & Poverty in India E-43

41. (d) The Planning Commission was established in 1950, speech in 2014. It has since been replaced by a new
by Article 39 of the Directive Principles of the institution named nitiaayog.
Constitution of India. The planning commission 42. (c) Nitiaayog (The National Institution for Transforming
(yojanaaayog) was an institution in the government India AAYOG) established by Prime Minister
of India, which formulated India’s five-year plans, Narendra modi (chairperson) to replace the planning
among other function. Prime Minister Narendra commission. Nitiaayog will provide opportunities
that the previous planning commission structure
modi announced his intention to dissolve the
lacked, to represent the economic interests of the
planning commission in his first Independence Day
state governments and union territories of India.
43. (a)
S. No. Points of Difference NITI Aayog Planning Commission
1 Financial clout To be an advisory body, or a think-tank. Enjoyed the powers to allocate funds to
The powers to allocate fund vested in the ministries and state governments
finance ministry.
2 Full-time members Three full-time members. had eight full-time members
3 States’ role Includes the Chief Ministers of all States States’ role was limited to the National
and the Lieutenant Governors of all Union Development Council and annual interaction
territories in its Governing Council, during Plan meetings
devolving more power to the States of the
Union.
4 Member secretary To be known as the CEO and to be Secretaries or member secretaries were
appointed by the prime minister appointed through the usual process
5 Part-time members To have a number of part-time members, Full Planning Commission had no provision
depending on the need from time to time for part-time members
6 Constitution Governing Council has state chief ministers The commission reported to National
and lieutenant governors. Development Council that had state chief
ministers and lieutenant governors.
7 Organization New posts of CEO, of secretary rank, and Had deputy chairperson, a member secretary
Vice-Chairperson. Will also have two full- and full-time members.
time members and part-time members as
per need. Four cabinet ministers will serve
as ex-officio members.
8 Participation Consulting states while making policy and Policy was formed by the commission and
deciding on funds allocation. Final policy states were then consulted about allocation of
would be a result of that. funds.
9 Allocation No power to allocate funds Had power to decide allocation of government
funds for various programs at national and
state levels.
10 Nature NITI is a think-tank and does not have the Imposed policies on states and tied allocation
power to impose policies. of funds with projects it approved.
44. (c) The major objective of first plan is to stimulate 46. (a) Structural Unemployment: In this type of
balanced economic development while correcting unemployment demand for labour falls short to the
imbalances caused by World War II and partition. supply due to rapidly growing population and their
The plan targeted the socio-economic development immobility.
but the outcome was very poor. The major Objective 47. (a) Seasonal Unemployment: It refers to an
unemployment that occurs at certain seasons of the
of second plan is to increase National Income by
years. The period of such unemployment varies
25% through rapid industrialisation. This plan was
from state to state, depending upon the methods of
developed by Professor Mahalanobis. The major farming, the condition of soil, the type and numbers
objective of third plan is continued emphasis on of crops grown, etc.
basic industries together with an increased outlay of Frictional Unemployment: It refers to temporary
35% in agriculture and applied sectors. unemployment that exists during the period, wherein
45. (a) After the disastrous experience of the Third Plan, workers leave one job and join some other.
a plan holiday was declared for three years. This Cyclical Unemployment: It is associated with the
period was named as Plan Holiday as there was downswing and depression phases 9 business cycle.
discontinuity in the planning process. Gap in Plan It is the most common type of unemployment in the
Period (1966-69) developed capitalist economies.
E-44 Planning, Unemployment & Poverty in India
48. (b) Deen Dayal Upadhyaya Gram Jyoti Yojana is a
Government of India program aimed at providing
24x7 uninterrupted power supply to all homes in
Rural India. It was launched in 2015.
49. (c) Absolute Poverty: It refers to the total number
of people living below Poverty line. As per this
measure, around 30% of India’s population is below
poverty line. Relative Poverty: It refers to Poverty
of people, in comparison to other people, regions in
the nation.
50. (a) The objective of Prime Minister Rojgar Yojana
(PMRY) is to provide self-employment to educated
unemployed by setting up of sever lakh micro-
enterprises.
51. (d) 1. Since 1993-94, the benefit of Indira
AwasYojana is being provided even to those
rural poor of non-schedule caste/schedule tribe
who are living below the poverty line.
2. A minimum of 60% of funds is to be utilized for
construction of houses for the SC/ST people.
3. From 1995-96, IAY benefits have been
extended to widows or next to kin of defence
personnel killed in action.
4. Benefits have also been extended to ex-
servicemen and retired members of Para
military forces as long as they fulfil the normal
eligibility conditions of IAY.
52. (a) The objective of Rashtriya Mahila Kosh is to
facilitate credit support to poor women for this socio-
economic upliftment.
53. (a) Usual status (US) unemployment is calculated with
reference to a period of one year.
54. (a) Indira Gandhi Matritva Sahyog Yojana (IGMSY)
has been launched to improve the health and
nutrition status of pregnant, lactating women and
infants. The scheme envisages Cash Incentives for
the above beneficiaries.
55. (c) 56. (d) 57. (a)
58. (c) First plan – agriculture, Irrigation and power projects
Third Plan – self reliance and generating economy
Fifth Plan – growth with social justice
Twelfth plan – sustainable inclusive growth
59. (b)
60. (a) Sarva Shiksha Abhiyan, 2001; Saakshar Bharat
Mission, 2009; Operation Blackboard, 1987.
National Literacy Mission, 1988.
61. (c) 1. First Five Year Plan (1951-56)- Agriculture
and community development
2. Second Five Year Plan (1956-61)- Heavy
Industry
3. Fifth Five Year Plan (1974-79)- Removal of
Poverty
4. Ninth Five Year Plan (1997-2002)- Food
Security and woman empowerment
62. (a) The various members of NITIAAYOG are:
 Chairperson: Prime Minister Narendra Modi
 Ceo: Smt. Sindhu shree Khullar, IAS
 Vice Chairperson: Arvind Panagariya
 Special invitees: Nitin Gadkari, Smriti Zubin
Irani and Thawar Chand Gehlot
63. (b) 1934: M. Visvesvaryya, in his book Planned
Economy of India, advocates the necessity of
planning in the country much before Independence.
1944: Planning and Development Department set up
under the chairmanship of A. Dalal.
1946: Interim government sets up the Planning
Advisory Board.
1947: Economic Programme Committee set up
under the chairmanship of Jawaharlal Nehru.
1950: Planning Commission set up.
64. (b) First plan – 1951-56, Second Plan – 1956-61, Third
plan – 1961-66
65. (d) Aam Admi Bima Yojana was launched in 2007, Atal
Pension Yojana was launched on May 9, 2015 and
Bachat Lamp Yojana was launched in 2009.
66. (b)
S. Name of the Year of Main Objectives
No. Programme Starting
1. Crash Scheme 1971-72 Generation of new employment
for Rural rural development.
Employment
2. Pilot Intensive 72-73 Construction work in Villages.
Rural
Employment
3. Drought 73-74 To develop natural resources
Prove Areas in drought prove rural areas.
Programme
4. Food for work 77-78 To provide food for work in
Programme development process
 AGRICULTURE
3
Introduction
Agriculture has always been one of the most important sectors of Indian economy, be it pre- independence or post- independence
periods. This is further proved by the large number of Indians whose livelihood depends on agriculture. Indian agriculture has
a fairly successful history. It is now first in the world in the production of milk, pulses, jute and many fruits; second in rice,
wheat, sugarcane, cotton, etc. and a leading producer of spices, plantation crop, livestock, fishes and poultry.

Agriculture

Growth and Agriculture Points to

Introduction National Major Land
Productivity Insurance remember
Agriculture Agriculture Reforms
policy Revolutions
Public Distribution
Major Cooperative AICIL
Features of Agriculture System
Agriculture Farmaing
Indian in five NAIS
Programmes Green
Agriculture year plans Revolutios
Rural Credit Agricultural FCI
Second and Extension Marketing TPDS
NFSM Green Services
Revolution Agricultural
RKVY
White Price Policy
NHM Cooperative
Revolution
Credit WTO and
ISOPOM
Blue Societies Agriculture
NMSA Revolution subsidies
NABARD
Evergreen
RADP
Revolution Kisan
NeGPA Credit Green Box
Card Subsidies
NMFP
Commerical Blue Box
Banks Subsidies
NAFED Amber Box
Subsidies
TRIFED
NCDC
E-46 Agriculture

Features of Indian Agriculture •• Indian agriculture is still largely dependent on

the uncertainties of monsoon for its irrigational
•• Agriculture is the primary occupation in India as it requirements. However, India’s water resources,
provides direct livelihood to more than 49% (2015) of if fully harnessed, can irrigate more than 50% of our
its labour force. In India, 75% of below the poverty line cultivated area.
(BPL) population lives in rural areas, and is directly or
indirectly dependent on agriculture. Growth and Productivity
•• Agriculture contributes to more than 17.9% (2015) of
GDP, although this share has progressively declined •• The total irrigated area increased from less than one
from 57% in 1950-51. In developed countries, like the million hectares per annum before the green revolution to
about 2.5 million hectares per annum during the 1970’s.
UK and USA, the share of agriculture in GDP is only
The total gross irrigated area now is 80 million hectares.
around 2%.
•• Total food grains (cereals and pulses) production increased
•• India accounts for 7.68 % (2015) of total global
from 48.1 million tonnes in 1950-51 to an expected 257.07
agricultural output. India is the second largest producer
million tonnes in 2014-15. This remarkable progress
of agricultural products in the world.
which the nation has achieved in food self-sufficiency is
•• Agriculture contributes to around 10% of the total shown in the given table.
value of India’s commodity exports. Thirteen
•• As evident in the table, overall growth in food grains
major commodities including tea, coffee, tobacco, production has been impressive, assisted largely by
cashew, spices, raw cotton and sugar are the primary technological breakthrough. However, one disturbing
agricultural exports in India. Almost 30% of tea and aspect is the year-to-year fluctuation in cereals output
50% of coffee and jute produced in the country are which affects the employment and income of the poor
exported. In addition to this, credit must be given to who depend solely on on-farm activities. This emphasizes
export of manufactured goods using agricultural raw the need for the government to procure and store food
materials, which further accounts for another 15% of grains in years of surplus and release the same through
India’s exports. PDS in drought years in order to avoid famine conditions.
•• Indian agriculture has been able to improve its per •• Although production has increased several folds,
capita net availability of food-grains to 491.2 grams Indian agriculture is still lagging behind because of low
(2014) from 395 grams in 1950s. productivity.
Change in Area and Production of Crops During 2012-13 and 2013-14
Area (MHA) Production (MT)
Name of Crops
2012-13 2013-14 change 2012-13 2013-14 change
Wheat 30.00 30.61 +0.61 93.51 95.60 +2.09
Rice (Rabi) 3.84 4.38 +0.54 12.87 14.19 +1.32
Sorghum 3.79 3.55 –0.24 2.44 3.21 +0.77
Maize 1.46 1.49 +0.03 6.06 6.40 +0.34
Barley 0.69 0.76 +0.07 1.75 1.92 +0.17
Total coarse cereals 5.94 5.80 –0.14 10.25 11.53 +1.28
Gram 8.52 9.66 +1.14 8.83 9.79 +0.96
Urad 0.69 0.75 +0.06 0.47 0.41 –0.06
Moong 0.74 0.65 –0.09 0.40 0.31 –0.09
Total Pulses 13.30 14.66 +1.36 12.43 13.52 +1.09
Total food grains 53.09 55.45 +2.36 129.06 134.84 +5.78
Groundnut 0.79 1.08 +0.29 1.51 2.12 +0.61
Rapeseed &Mustard 6.36 6.63 +0.27 8.03 8.25 +0.22
Total Rabi Oilseeds 8.16 8.63 +0.47 10.15 10.96 +0.81
Total Area /Production 61.25 64.08 +2.84 139.21 145.80 +06.59

It is evident that the yield per hectare of food grains has shown variety of seeds, plant protection measures, fertilizers and
remarkable increase in the post Green Revolution period. irrigation. The growth was less impressive in the case of rice
The growth is comparatively less in the case of wheat where and minimal in pulses, as the latter is still grown in marginal
technology could provide an optimum mix of high-yielding lands under rain-fed conditions in vast areas of the country.
Agriculture E-47

Agriculture in Five Year Plans

Five year Plan Major Features
1 (1951-56)
st
•• Launch of the Community development Programme, abolition of Zamindari system, campaigns for
growth in food and other related areas like fisheries, forestry, animal husbandry, soil conservation,
etc. were the major features.
•• Growth in agriculture was 2.71%.
2nd (1956-61) •• Industrial sector was given more importance in this plan.
•• Industrial sector was given more importance in this plan.
•• Agricultural Expenditure was only 20% of the actual plan expenditure.
•• The agricultural growth, however, was high at 3.15%.
3rd (1961-66) •• Achieving self- sufficiency in foodgrains and increase in agricultural production was one of the main
aims of this plan.
•• Higher priority was given to agricultural and allied areas as compared to industrial development.
•• However, the plan did not achieve its goals and agricultural growth fell to 0.73%.
•• Land reforms, land ceiling and Green Revolution were some of the major initiatives in this plan.
Annual Plans •• Priority was given to minor irrigation projects and High Yielding Variety of seeds was preferred so as
(1966-69) to increase agricultural productivity.
•• Agricultural growth was high at 4.16%.
4 (1969-74)
th
•• The results of the introduction of Green revolution and HYV seeds were good.
•• Expenditure on agriculture was 22% of annual expenditure.
•• Agricultural growth was 2.57%.
5th (1974-79) •• Emphasis was laid on spread of HYV seeds, use of fertilizers, pesticides and insecticides to increase
production.
•• Expenditure on agriculture was around 21% of annual expenditure.
•• Agricultural growth was 3.28%.
6th (1980-85) •• It was realised by this plan that growth of Indian economy depends on rural and agricultural development.
•• The growth rate in agricultural production was a high 4.3% against a target of 3.8%.
•• Overall growth in agricultural sector was 2.52%.
7th (1985-90) •• Expenditure on agriculture was 22% of annual expenditure.
•• Growth in agriculture was 3.47%
8th (1992-97) •• The growth target was 4.1% but the agricultural sector showcased an impressive growth of 4.68%.
9th (1997-2002) •• This plan was a failure in the agricultural sector and it registered an agricultural growth rate of 2.44%.
10th (2002-07) •• Against a target of 4%, the average agricultural growth rate was only 2.3%.
11th (2007-12) •• The major emphasis was on increasing agricultural productivity and profitability by making available
affordable institutional credit, farm mechanisation, biotechnology, cold storages, and marketing.
•• Growth in agriculture was 3.5%.
12 (2012-17)
th
•• This plan, like its predecessors, has a target of 4% agricultural growth rate, with growth in food-grains
at 2% and non- food grains at 5.6%.
•• The plan puts an emphasis on improvement in technology, use of public- private partnership, greater
road connectivity, development of horticulture, dairying, and other related agricultural fields.

National Agricultural Policy
The National Agriculture Policy aims to realise the vast
untapped potential for growth in Indian agriculture, developing
rural infrastructure, promote value addition, accelerate the
growth of agro business, create employment in rural areas,
secure a fair standard of living for the farmers and agricultural
workers and their families, discourage migration to urban areas
and face the challenges arising out of economic liberalization
and globalisation. The major features of the new agricultural
policy are:
1. Over 4 % annual growth rate aimed over next two decades.
2. Greater private sector participation through contract
farming.
3. Price protection for farmers.
4. National agricultural insurance scheme to be launched.
5. Dismantling of restrictions on movement of agricultural
commodities throughout the country.
6. Rational utilisation of country’s water resources for
optimum use of irrigation potential.
7. High priority to development of animal husbandry,
poultry, dairy and aquaculture.
E-48 Agriculture
8. Capital inflow and assured markets for crop production.
9. Exemption from payment of capital gains tax on
compulsory acquisition of agricultural land.
10. Minimise fluctuations in commodity prices.
11. Continuous monitoring of international prices.
12. Plant varieties to be protected through a legislation.
13. Adequate and timely supply of quality inputs to farmers.
14. High priority to rural electrification.
15. Setting up of agro-processing units and creation of off-
farm employment in rural areas.
Major Agriculture Programmes
The Central government supplements the efforts of the state
governments through centrally sponsored schemes. Some of
these major schemes are as follows :
National Food Security Mission (NFSM)
NFSM was launched in 2007-08 to increase the production of
rice, wheat and pulses by 10, 8 and 2 million tonnes respectively,
by the end of 11th plan through productivity enhancement and
area enhancement, enhancing farm level economy and creating
employment opportunities. This has been extended to the 12th
plan too with additional production targets.
Rashtriya Krishi Vikas Yojana (RKVY)
RKVY was launched in 2007-08 for the 11th plan to incentivize
states to enhance investment in agriculture and allied sectors
to achieve 4% growth rate. The government has approved
continuation of the RKVY scheme in the 12th plan whereby the
funding will be routed into three components-
(i) production growth,
(ii) infrastructure and assets, and
(iii) sub-schemes and flexi-fund.
National Horticulture Mission (NHM)
NHM was launched in 2005-06 for promotion of holistic
growth of horticulture sector, including fruits, vegetables,
root and tuber crops, mushroom, spices, flowers, aromatic
plants, cashew and cocoa. Central share would be 85%, while
the states will contribute 15% of the share. From 2014-15,
the Mission for Integrated Development in Horticulture
(MIDH) has been started by bringing all ongoing schemes
related to horticulture under a single umbrella scheme.
Integrated Scheme For Oilseeds, Pulses, Oil
Palm And Maize (Isopom)
ISOPOM provides flexibility to states in implementation based
on a regionally differentiated approach for promoting crop
diversification and providing a focus to the programme. This
scheme is under implementation in the country for increasing
area, production and yield of these crops from 2004-05. The
pulses component was merged with NFSM w.e.f. April 2010.
National Mission for Sustainable Agriculture
(NMSA)
NMSA is one of the eight missions outlined under National
Action Plan for Climate Change. It seeks to address issues
related to “sustainable agriculture” in the context of risks
associated with climate change. It hopes to achieve its aims by
preparing appropriate adaptation and mitigation strategies for
enhancing livelihood opportunities, ensuring food security and
contributing to economic stability.
Rainfed area Development Programme (RADP):
RADP was launched by the government as a pilot scheme
under RKVY, focusing on small and marginal farmers and
farming systems. It targets integrated farming, on- farm water
management, storage, marketing and value addition of farm
produce in order to enhance farmers’ income in rain-fed areas.
National e-Governance Plan in Agriculture
NeGPA
This aims to achieve rapid development of agriculture in
India through ICT enabled  multiple delivery channels such
as Internet, Government Offices, Touch Screen Kiosks, Krishi
Vigyan  Kendras , Kisan Call Centres,  Agri-Clinics, Common
Service Centres, Mobile Phones for ensuring timely access to
agriculture related information for the farmers of the country. 
This includes information on pesticides, fertilizers, seeds, soil
health, weather forecast, fishery inputs, drought relief and
management, etc.
National Mission on Food Processing (NMFP)
NMFP was launched in 2012. It is a centrally sponsored
scheme for giving greater role to states/ UTs, decentralised
administration, better outreach and effective supervision and
monitoring. The NMFP would also provide flexibility to states/
UTs in the selection of beneficiaries, location of projects, etc.
for development of food processing industry in India.
Major Agricultural Revolutions
Green Revolution
Introduction
The world’s worst recorded disaster the Bengal famine, which
hit India in year 1943 claimed approximately 4 million lives.
It was, therefore, first priority of the government to ensure
food security for all. This led to various measures taken by
government to increase production of food grain in the country.
The green Revolution which began in year 1967/68 focused
on expansion of farming areas and use of high yield variety
seeds along with adoption of double cropping in the existing
farmland.
It included a technology package. Comprising use of HYV
of two staple cereals (rice and wheat), improved irrigation,
proper utilisation of fertilizer and pesticides and associate
management skills. M.S. Swaminathan is considered father
of Green Revolution in India.
Objectives of the Green Revolution
•• To ensure food security by increasing production of main
crops like wheat, rice, etc.
•• To increase agriculture productivity.
•• To enhance modernisation of farm practices.
Agriculture E-49
Impact of Green Revolution
•• The Green Revolution has resulted in phenomenal increase
in the production of ‘wheat’ gain maximum benefit from
green Revolution.
•• This revolution led to prosperity of farmers, especially
those who were having more than 10 hectares of land.
•• Increased production of food grains resulted in reduction
in imports. Also, sometimes India exported foodgrains.
•• This revolution increased farmer’s income and farmer’s
invested surplus income to increase agriculture productivity.
The phenomenon of Green Revolution in India led to an
increase in yields due to improved agronomic technology.
The first phase of green revolution included introduction of
high-yielding varieties of crops and application of modern
agricultural techniques. This led to an increase in production
needed to make India self-sufficient in food grains. The
production of wheat produced the best results in fuelling self-
sufficiency of India. Other positive effects of this phenomenon
were reduction in imports of food grains, prosperity of farmers,
development of industries, overall growth of economy and
many more.
Second Green Revolution
Post green revolution, due to the rise in use of chemical
pesticides and fertilizers, there were negative effects on the
soil and the land such as land degradation, thereby becoming
ecologically untenable. Other challenges also became
apparent. India achieved an increase in production of food
grains so much so as to have an overflowing buffer stock, but
the economic access to food was a huge problem. We had to
export excess food which was not consumed by Indians due to
lack of economic power.
To counter these and other such problems, a Second Green
Revolution is visualised and it will largely depend on Indo-US
collaboration.
The Second Green Revolution seeks to minimise post-harvest
wastage, improve storage and help Indian farmers meet
the phyto-sanitary conditions so that they can participate
productively in the global agricultural trade. The first Green
Revolution was assisted by research undertaken by public
institutions such as Universities. However, the Second Green
Revolution (appropriately also called Gene Revolution,
because of the predominance of Biotechnology) will be directed
by proprietary research and governed by Intellectual Property
Rights.
Moreover, the research so far has been confined to crops of
high value meant solely for the market. No public or private
sector has invested significantly in new genetic technologies for
the so-called orphan crops such as cowpea, millet, sorghum,
etc. which are critical for the food supply and livelihoods of
the world’s poorest people. The Second Green Revolution on
the other hand seeks to focus on such crops and increases their
productivity too.
White Revolution
It occurred in India in 1970, when the National Dairy
Development Board (NDDB) was established to organise
the dairy development through the co-operative societies.
Prof. Verghese Kuerin was the father of White Revolution
in India. White revolution helped India become not only self
sufficient but also the largest dairy producer of the world.
It works through a network of co-operative societies which
are owned and managed by the milk producers. The co-
operative societies were most successful in the Anand District
of Gujarat. The main objectives of the co-operative society
are the procurement, transportation, storage of milk at the
chilling plants. These co-operatives, apart from providing
financial help, also provide consultancy. The increase in milk
production has also been termed as Operation Flood.
Blue Revolution
This is very similar to green revolution, but the focus here is
on aquaculture and water preservation. It has been used in
India for several years to increase the number of fresh water
fishes.
Evergreen Revolution
The emphasis in this revolution is on sustainable agriculture by
means of organic and green agriculture. Dr. MS Swaminathan
gave this concept. It includes the use of integrated pest
management, nutrient supply and resource management.
Yellow Revolution
Yellow Revolution refers to a marked increase in the production
of oilseeds in India. It started in year 1986-87 and within a
decade India became a leading producer of oilseeds by the
years 1996-97.
This revolution can be attributed to governmental support
especially the setting up of the Technology mission on oilseeds
in 1986. Factors that played an important role in bringing
yellow Revolution are:
•• Institution support and linkages.
•• Provision of extension and training in oilseeds technology.
•• Governments support price policy.
•• Use of hybrid and improved varieties of seeds.
•• Provision of plant genetic resources.
Land Reforms
Factors like the size of holdings, the pattern of ownership, the
method of inheritance and security of tenure have a definite
impact on investment in agriculture. In pre-Independent India
the following three types of land tenure system existed:
•• The Zamindari System It prevailed in Bengal, Bihar,
Orissa and North Madras. It was introduced by the East
India Company and under it a class of revenue collectors,
called zamindars, was created. These zamindars acted
as intermediaries between the cultivators and the
government. Revenue was ‘settled’ by the government
with zamindars, either permanently or temporarily. As
long as the zamindar assured the remittance of the settled
revenue to the government he was free to fix and extort
any revenue from the tenant. This led to gross abuses and
exploitation and spread of rural poverty in Bengal and
Bihar.
E-50 Agriculture
•• Mahalwari System It was introduced in North India
in terms of which the village community was jointly
responsible for payment of rent.
•• Ryotwari System It was prevalent in parts of Madras,
Bombay province and Assam. Under this system, the
cultivator paid the revenues directly to the state without
an intermediary.
Purpose
The purpose of land reforms was to achieve the following three
objectives:
•• to increase production by ensuring security of tenure to
the cultivator;
•• to increase the purchasing power of the rural population
and thereby boost the demand for industrial products; and
•• to achieve social justice along with economic growth
through a single set of measures rather than through
different, and sometimes contradictory, measures.
Major Land Reform Measures Taken after
Independence
Several important land reform measures were brought about
by the government after Independence, like.
•• Abolition of intermediaries like zamindars, jagirdars,
etc. It resulted led in several states promulgating laws
for putting an end to ‘absentee landlordism’. As a result,
about 30 lakh tenants acquired land ownership over an
area of 62 lakh acres throughout the country.
•• Imposition of ceiling laws It laid down the maximum
land that can be owned by a land holder (which was
subsequently amended to ‘holding’ by a family with effect
from 1972). The excess land was to be surrendered to the
government.
•• Consolidation of holding It was introduced as a measure
of improving farming efficiency. It made considerable
progress in Punjab, Haryana and Western U.P. However,
it did not have much effect in the southern and eastern
states.
The land reforms are included in the Ninth Schedule of the
Constitution, thereby making these laws immune to judicial
challenge. However, implementation of these laws requires far
stronger political will than is required in including them in the
Ninth Schedule.
Co-operative Farming
Co-operative farming had been advocated by Mahatma Gandhi
as far back as in 1942. Complete benefits of agriculture can be
acquired through co-operative farming.
Co-operative farming can take the form of:
•• Co-operative tenant farming, where the society holds
the land and leases it to individual members;
•• Co-operative collective farming, where land is
irrevocably surrendered to the collective;
•• Co-operative joint farming, where the farmers pool
their land and reap the economies of scale, although the
ownership continues to remain with the individual farmer.
It is the last type of farming which was sought to be encouraged
in the five-year plans. However, no breakthrough could be
made due to:
•• the farmer’s reluctance to alienate his land which is
usually the only inheritance he has;
•• unscrupulous elements using the co-operative farming
concept to circumvent land ceiling;
•• lack of political and administrative will.
Rural Credit and Extension Services
Three types of loans are provided to Indian farmers to meet
their financial requirements -
(i) Short term loans
These are provided for a period of less than 15 months
to meet out expenses of routine farming and domestic
consumptions. This type of loan is demanded by farmers
for purchasing seeds, fertilizers and for meeting family
requirements.
(ii) Medium term loans
These are provided for a period of 15 months to 5 years
to purchase agricultural equipments, animals and for land
improvements.
(iii) Long term loans
These are provided for a period of more than 5 years.
This type of loan is taken by farmers to purchase land and
expensive agricultural equipments and for repayment of
old loans.
During 2004-05 (up to December 2004) commercial
banks accounted for 61 % of the total institutional credit
to agriculture, RRBs for 11 % and co-operatives for 28
%.
Co-operative Credit Societies (CCS)
These are the most important source of rural credit. More than
88,000 primary agricultural credit societies provided short-
term loans of Rs. 34,520 crores during 2000-01.
Co-operatives are organised on a three-tier system. Each state
has a State Co-operative Bank (SCB) and Central Co-operative
Banks (CCBs) in each district with the Primary Agricultural
Credit Societies (PACS) as the lower tier. NABARD funding to
PACS is routed only through state co-operative banks.
In addition to the above, Land Development Banks (LDBs)
provide long-term rural credit for land improvement, soil
conservation and other investments of a capital nature. LDBs
have now been renamed as State Co-operative Agricultural
and Rural Development Banks (SCARDBs). They raise their
funds through long-term debentures offering state government
guarantee, and refinancing from NABARD.
National Bank for Agriculture and Rural
Development (NABARD)
NABARD is the apex institution for providing credit facility to
agricultural and rural areas. It came into existence on July 12,
1982 and took over the functions of the erstwhile Agricultural
Agriculture E-51
Credit Development (ACD), Rural Planning and Credit Cell
(RPCC) of RBI and the Agricultural Refinance Development
Corporation (ARDC).
NABARD is associated with policy, planning, operation and
even monitoring levels for providing agricultural credit. It has
been jointly set up by the government and the Reserve Bank
of India.
Objectives of NABARD
•• To provide refinance to banks and other credit institution
in rural areas.
•• To promote institutional development.
•• To evaluate, monitor and inspect client banks.
•• To act as a coordinator of rural credit institution.
•• To act as a regulator for cooperative banks and RRBs.
•• To maintain close link with RBI.
Most of the functions of RBI in the area of agricultural credit
have been taken over by NABARD.
Function of NABARD
1. It frames policies and guidelines for rural financial
institutions.
2. It provides credit facilities to issuing organisation and
monitors flow of ground level rural credit.
3. It helps RRBs to prepare development action plans.
4. It provides financial support for the training institutes of
co-operative banks, commercial banks and RRBs.
5. It undertakes inspection of RRBs, Co-operative banks,
rural development banks and apex credit co-operative
societies.
Kisan Credit Card
NABARD formulated a model scheme for issue of Kisan
Credit Cards (KCCs) to farmers so that they may use them to
readily purchase agricultural inputs such as seeds, fertilizers,
pesticides, etc. These are operated by commercial banks,
RRBs and co-operative banks.
The scheme, introduced in 1998-99, has made rapid progress
with the banking system. The scheme has helped in augmenting
the flow of short-term crop loans for seasonal agricultural
operations of farmers.
From January 31, 2006, the scheme has been extended to all
types of loan requirements of borrowers of State Co-operative
Agriculture Rural Development Banks (SCARDBs). It covers
short-term/medium-term credit and long-term credit for
agriculture and allied activities and a reasonable component of
consumption credit within the overall limit sanctioned to the
borrowers.
Commercial Banks
•• The CBs finance rural credit directly through Regional
Rural Banks (RRBs).
•• Direct financing is mainly through crop loans and term
loans for equipment and machinery.
•• In 1975, five RRBs were set up to provide direct loans to
small and marginal farmers, rural artisans and agricultural
labourers. The RRBs were co-sponsored by Central
Government (50%), State Government (15%) and the
sponsoring bank (35%). There were 196 RRBs covering
427 districts with a total of 14475 branches. With a
view towards consolidating and strengthening RRBs, the
Government of India initiated a process of amalgamation
of RRBs, in a phased manner.
NAFED
National Agricultural Co-operative Marketing federation of
India was established in 1958. It is the highest co-operative
organistaion at the national level. Its major functions are
procurement, distribution, export and import of selected
agricultural commodities.
TRIFED
The Tribal Co-operative Marketing Development Federation
of India Limited came into existence in 1987. It is a national-
level apex organization functioning under the administrative
control of Ministry of Tribal Affairs, Govt. of India. 
NCDC
National Cooperative Development Corporation was set up
by an Act of Parliament in 1963 as a statutory Corporation
under Ministry of Agriculture and Farmers Welfare. It aims to
provide financial assistance to co-operatives for infrastructure
and business development, for their economic upliftment,
along with capacity building interventions.
Agricultural Insurance
Many crop insurance schemes are available in our country
such as,
AICIL
Agriculture Insurance Company of India Limited was
incorporated in 2002 and is under the administrative control
of Ministry of Finance, Government of India, and under
the operational supervision of Ministry of Agriculture,
Government of India. It seeks to provide insurance coverage
and financial support to the farmers in the failure of any of the
notified crop, to encourage the farmers to adopt progressive
farming practices, high value in-puts and higher technology;
to help stabilize farm incomes, particularly in disaster years. 
NAIS
National Agricultural Insurance Scheme is a central sector,
government sponsored crop insurance scheme, in operation
since 1999. This scheme aims at tackling the issue of
production risk faced by the agricultural sector. It provides
financial support to the  farmers  in the failure of any of the
crops. The AICIL is the implementing agency of this scheme.
NAIS has been further modified as MNAIS with the aim of
further helping the farm sector.
Agricultural Marketing
Increase in agricultural production alone will not bring about
prosperity for the farmers. It is essential that agricultural
produce fetches a remunerative price too.
E-52 Agriculture
The Indian system of agricultural marketing suffers from a
number of defects, as a consequence of which the Indian farmer
is deprived of a fair price for his produce. The following are
the primary defects in the system of agricultural marketing in
India.
(i) Inadequate Warehouses
Unscientific methods of storage lead to considerable
wastage. The setting up of Central Warehousing
Corporation and State Warehousing Corporations has
improved the situation.
(ii) Lack of grading and standardisation
Different varieties of agricultural produce are not graded
properly and hence, do not meet official standardisation
requirements fully.
(iii) Inadequate transport facilities
Most of the roads are not cemented and therefore, are
unfit for motor vehicles. Thus, the produce has to be
carried on slow moving transport vehicles like bullock
carts, and this is one of the reasons that farmers sell their
products to the nearest mandis even if prices offered there
are fairly low.
(iv) Presence of a large number of middlemen
The chain of middlemen in the agricultural marketing
system is so prevalent that the share of farmers has
reduced substantially.
(v) Malpractices in unregulated markets
Even after so many years since the advent of technological
changes in the Indian agricultural system, the number of
unregulated markets in the country is substantially large.
Agents or brokers, taking advantage of the ignorance and
illiteracy of farmers, use unfair means and cheat them.
Another malpractice in the mandis relates to the use of
wrong weights and measures.
(vi) Inadequate market information
Most of the farmers have virtually no contact with the
mandis. As a result, they accept whatever price the
trader offers to them. The government is using radio and
television media to broadcast market prices regularly so
as to tackle this very problem.
(vii) Inadequate credit facilities
The Indian small and marginal farmers are poor and
lack staying power. They try to sell off the produce
immediately after the crop is harvested though prices at
that time are very low.
Warehousing and marketing facilities are essential to
ensure that these defects are overcome. The Government
has come out with solutions such as agriculture price
policy and maintaining buffer stocks so as to assist
marketing of agricultural produce.
Agriculture Price Policy
The main objectives of an agriculture price policy are:
•• To ensure that the producer gets a minimum
remunerative price.
•• To maintain a reasonable terms of trade between
agricultural sectors;
•• To maintain the general price level and protect the non-
producing consumer from violent fluctuations in price
of food grains.
During the pre-green revolution period, due to the shortage
in domestic production, the terms of trade were in favour
of the agriculture sector. However, with the surplus of food
grains in the years following the green revolution, the policy
shifted towards protecting the farmers from the prospect of
non- remunerative prices.
The Commission for Agricultural Costs and Prices (CACP)
formerly known as the Agricultural Prices Commission
analyzes the input costs and recommends the minimum
support prices for 24 major crops. MSP announced by
the government is that price at which government is ready
to purchase the crop from farmers directly if the crop prices
become lower than MSP. As a result, market price of the crop
never comes down from the level of MSP. The minimum
price security gives incentives to farmers to increase their
production. However, historically, the actual support prices
are fixed far above the recommended prices due to intense
lobbying by the interested parties. Procurement price and
minimum support price are different from each other.
Procurement price (PP) is that price at which government
purchases the crop after harvesting, while Minimum
Support price (MSP) is the minimum price at which
government declares it will buy the crop. Since 1968-69, the
MSP is usually the procurement price.
Apart from fixing support prices, government action in
holding the price consists of:
Buffer stocking, which is the practice of holding large
stocks by government agencies like Food Corporation of
India (FCI) and releasing the stocks in the market to counter
price rise. The buffer stock also helps to maintain the Public
Distribution System (PDS).
Import of food grains in case shortage is apprehended. There
has not been an occasion to resort to imports since 1996
largely because of the vast stock of food grain accumulated
by the FCI.
WTO and Agricultural Subsidies
The WTO Agreement on Agriculture (AoA), 1995 permitted the
developed countries to continue to provide farm subsidies, but
under certain restrictions. In WTO terminology, agricultural
subsidies have been segregated into various ‘boxes’:
Green Box subsidies
It includes amounts spent on research, disease control,
infrastructure and food security. These also include direct
payments made to farmers such as income support that do not
stimulate production. These are not considered trade distorting
and are encouraged.
Agriculture E-53
Blue Box subsidies
It includes direct payments to farmers to limit production and
certain government assistance to encourage agriculture and
rural development in developing countries.
Blue Box subsidies are seen as being trade distorting.
Amber Box subsidies
It includes all agricultural subsidies that do not fall into either
blue or green boxes. These include government policies of
Minimum support Prices (MSP) for agricultural products
or any help directly related to production quantities (e.g.
power, fertiliser, seeds, pesticides, irrigation, etc.). These
are subject to reduction commitment to the de-minimus level
of agricultural outputs- to 5% for developed and 10% for
developing countries.
India insisted that developed countries should first dismantle
their agricultural subsidy structure before asking developing
countries to open up their market for farm imports. Our
emphasis has been on making farm trade fair before it is made
free.
Public Distribution System
Objectives of Public Distribution System
The objectives of “public Distribution system” are as follows:
•• To protect the low income groups by guaranteeing the
supply of certain minimum quantity of food grains at
affordable price.
•• To ensure equitable distribution of food grains.
•• To control price fluctuation of essential commodities in
the open market.
Features
Features of Public Distribution system are:
1. PDS is a system of distribution of selected essential
commodities through ‘fair price shops’ which are operated
by private dealers.
2. Items which are distributed through PDS are rice, wheat,
Sugar, edible oil and kerosine
3. The purpose of PDS is to offer basic minimum quantity of
essential commodities at lowest price to poorer sections of
society.
4. The required commodities are acquired by the government
through procurement or import and a buffer stock is
maintained.
Public Distribution System (PDS) was conceived as a primary
social welfare and poverty alleviation programme of the
government to ensure price stabilisation in the grain market.
Achievements
Government’s objective of providing reasonable prices for
basic food commodities like food grains, sugar, edible oil and
kerosene is achieved through the Public Distribution System
of India, the largest PDS of the world. Channelling basic
food commodities through the PDS serves as a conduit for
reaching the truly needy and as a system for keeping general
consumer prices in check. More than 80 % of grain to the Public
Distribution System is provided by the Punjab, Haryana and
western Uttar Pradesh.
Food Corporation of India (FCI)
The Food Corporation of India (FCI) was established in
1965, as the public sector marketing agency responsible for
implementing government price policy through procurement
and public distribution operations. It was responsible for
securing for the government a commanding position in the
food-grain trade. By 1979, the Corporation was operating in
all states as the sole agent of the central government in food-
grain procurement. The Corporation uses the services of state
government agencies and co-operatives in its operations.
FCI is the sole repository of food-grains reserved for the
Public Distribution System. Food-grains, primarily wheat and
rice, account for between 60 and 75 % of the Corporation’s
total annual purchases.
TPDS Targeted
Targeted PDS (TPDS) means targeting the PDS to the poor.
This system started when the procurement and issue prices of
PDS items saw a rise with the ushering in of economic reforms
in the 1990s. Thus, while till 1992 any one could avail of
the PDS, beginning from 1996-97, the TPDS targeted only
poor households across all regions. The below poverty line
(BPL) households were identified and were provided with
food-grains at very low prices. From March 2000, the above
poverty line (APL) cardholders had to pay a much increased
price. The ‘poorest of the poor’ category was established by
the ‘Antyodaya’ programme. Those under this category are
entitled to avail rice and wheat at prices lower than those for
BPL households.
Points to Remember
After independence Indian Government undertook various
measures to improve the condition of Agriculture.
•• The ‘Land Reform’ measures and ‘Green Revolution’
were the greatest achievements of the Indian
Government in enhancing the agricultural production
and productivity.
•• Between 1950 and 1990, there was a substantial
increase in the agricultural productivity. As a result of
Green Revolution, India became self sufficient in food
production.
•• Land Reforms resulted in abolition of Zamindari system.
•• The proportion of GDP contributed by agriculture
changed significantly, but not the population depending
on it.
•• Around 65% of the country’s population continued to
be employed in agriculture, even till as late as 1990’s.
Agricultural output could have increased with much
less people working in this sector, but industrial and
service sectors required the extra people involved in
agriculture. This was regarded as a major failure of
policies followed during the planning periods.
E-54 Agriculture
1. First Agricultural University in India was established in
(a) Jabalpur (b) Kanpur
(c) Faizabad (d) Pant Nagar
2. Which one of the following agencies is not included in
the operation of the Kisan Credit Cards?
(a) Co-operative Banks
(b) Regional Rural Banks
(c) Scheduled Commercial Banks
(d) NABARD
3. Which one of the following is the objective of the
National Watershed Development project for rainfed
areas of India?
(a) Sustainable farming systems
(b) Integrated Watershed Management
(c) Reclanation of Forest Area
(d) Both ‘a’ and ‘b’
4. Which one among the following Agricultural sectors is
covered under the market Intervention scheme (MIS) of
the Indian Government?
(a) Forestry (b) Irrigation
(c) Horticulture (d) Animal Husbandry
5. The price at which the Government purchase foodgrains
for maintaining the public distribution system and for
building up buffer stocks are known as
(a) Minimum support prices
(b) Procurement prices
(c) Issue prices
(d) Coiling prices
6. Which one of the following agencies assigns the
Agricultural Income Tax to states in India?
(a) Inter – State council
(b) National Development Council
(c) Agriculture Finance Corporation
(d) Finance commission
7. Which one of the following agencies of Indian
Government implements the price support scheme (PSS)?
(a) FCI
(b) NAFED
(c) Agriculture pricing agency of India
(d) None of the above
8. Which one of the following is not included in the
Agriculture and Allied Services of Indian Economy?
(a) Fishing (b) Forestry
(c) Logging (d) Food Processing
9. In which five year plan in Indian Economy, the targets
for the crop function were not fixed for the first time-
(a) Seventh five year plan (c) Mahatma Gandhi (d) Sardar Patel
(b) Eighth five year plan
(c) Ninth five year plan Rural Development (NABARD) located in
(d) Tenth five year plan
10. The importance of agriculture in Indian Economy is
indicated by its contribution to which of the following?
(a) National income and employment
(b) Industrial development and international trade
(c) Supply of foodgrains
(d) All of the above
11. When the Kisan Credit Card schemes for the farmers
started in India?
(a) 1995–1996 (b) 1998–1999
(c) 2005–2006 (d) 2007–2008
12. Which one of the following apex co-operative organisation
at the national level of India?
(a) TRIFED (b) NAFED
(c) FCS (d) RRBs
13. Which one of the following co-operative societies is
responsible for the production of fertilizers?
(a) NAFED (b) IFFCO
(c) NCDC (d) TRI FED
14. Which one of the following states is the first state to
impose Agriculture Income Tax in India?
(a) Madhya Pradesh (b) Uttar Pradesh
(c) West Bengal (d) Bihar
15. Which one of the following five year plans has the highest
growth rate in Agriculture sector in India ?
(a) Sixth Five Year Plan
(b) Seventh Five Year Plan
(c) Eighth Five Year Plan
(d) Ninth Five Year Plan
16. National Seed Policy, 2002 was based on the
recommendation of
(a) Kelkar Committee
(b) M.V Rao Committee
(c) Y.V Reddy Committee
(d) Abhijit Sen Committee
17. When was the National Food Security Mission (NFSM)
launched in India?
(a) Rabi Season (1999–2000)
(b) Kharif Season (1999–2000)
(c) Rabi Season (2007–2008)
(d) Kharif Season (2007–2008)
18. The Bonded Labour System (Abolition) Act was legislated
in
(a) 1974 (b) 1976
(c) 1977 (d) 1978
19. In which of the following years was the Food Corporation
of India (FCI) set up ?
(a) 1955 (b) 1960
(c) 1965 (d) 1970
20. Rashtriya Krishi Vikas Yojna was launched in the year?
(a) 2003 (b) 2004
(c) 2006 (d) 2007
21. “Everything else can wait, but not agriculture”. The
statement is attributed to
(a) Jagjivan Ram (b) J.L. Nehru
22. The head office of the National Bank for Agriculture and
(a) Lucknow (b) Hyderabad
(c) New Delhi (d) Mumbai
23. Which is not a source of Agriculture finance in India?
(a) Co-operative societies
(b) Commercial Banks
(c) Regional Rural Banks
(d) None of these
Agriculture E-55
24. Which one of the following methods of soil conservation
is most effective in arid areas?
(a) Mulching (b) Shelter belt
(c) Gully plugging (d) Terracing
25. NABARD was established in the
(a) Fourth Five Year Plan the Cabinet decision in small saving schemes?
(b) Fifth Five Year Plan
(c) Sixth Five Year Plan
(d) Eighth Five Year Plan
26. In India, which of the following has the highest share
in the disbursement of credit to agriculture and allied
activities?
(a) Commercial Banks
(b) Co-operative Banks
(c) Regional Rural Banks
(d) Microfinance Institutions
27. An objective of the National Food Security Mission is to
increase the production of certain crops which are
(a) Rice and wheat only
(b) Rice, wheat and pulses only
(c) Rice, wheat, pulses and oil seeds only
(d) Rice, wheat, pulses, oil seeds and vegetables
28. What will be the ultimate impact on the poor and landless
farmers if all of a sudden, government decides to raise the
Minimum Support Prices of rice & foodgrains inexorably
or excessively?
(a) The poor farmers will become rich
(b) The markets will crash
(c) The poor farmers will get poorer
(d) This will encourage the exports of rice and food
grains
29. Which among the following is the largest food item
imported by India?
(a) Vegetable Oils
(b) Food Grains
(c) Milk and Dairy Products
(d) Meat and Poultry products
30. What is the main motive of the government behind having
a dual price system & setting up of fair price shops?
(a) To demote speculation and hoarding
(b) To incentivise the trading of essential commodities
(c) To eliminate the monopoly of the traders and
speculators
(d) To make the essential commodities available to the
weaker sections of the society
31. Which among the following is an example of Green Field
Investment?
(a) Investment made by a real estate company in
agriculture land to develop it later when the land
prices increase
(b) Investment made by a company in a new factory
complex in a remote land of the country where there
was no facilities
(c) Investment made by a company to clean up a
cement factory located in populated area because of
its pollution and using it for a commercial office
purpose
(d) Investment made by a company to clean up a cement
factory located in populated area because of its
pollution and using it for a residential purpose
32. The central nodal agency for implementing the price
support operations for commercial crops is:
(a) NAFED (b) NABARD
(c) TRIFED (d) FCI
33. Which among the following has been discontinued after
(a) National Saving Certificates (NSC)
(b) Kisan Vikas Patras (KVP)
(c) Monthly Income Scheme (MIS)
(d) Recurrent Deposit Schemes
34. Which of the following is an apex financing agency for
the institutions providing investment and production
credit for promoting the various developmental activities
in rural areas ?
(a) RBI (b) NABARD
(c) SIDBI (d) RRB
35. In 1982, the Rural Planning and Credit Cell (RPCC)
of Reserve Bank of India was merged to which of the
following banks?
(a) SIDBI (b) NABARD
(c) IDBI (d) RRB
36. Which among the following states is the highest producer
of Soya bean in India?
(a) Uttar Pradesh (b) Andhra Pradesh
(c) Rajasthan (d) Madhya Pradesh
37. Which among the following is largest producer of wheat
in India?
(a) Punjab (b) Uttar Pradesh
(c) Rajasthan (d) Madhya Pradesh
38. The Rural Infrastructure Development Fund (RIDF),
which is used by the state governments to develop
infrastructure in rural areas, is managed by which among
the following?
(a) IDBI (b) RBI
(c) NABARD (d) Rural Ministry of India
39. Which among the following commodity come under the
preview of Open Market Sale Scheme of the Government
of India to maintain a minimum buffer stock for meeting
the unforeseen exigencies like drought, flood and other
natural calamities and also for providing food grains
required for Public Distribution System and the other food
grain based welfare programmes of the Government?
(a) Wheat only
(b) Wheat & Rice
(c) Wheat , Rice and Pulses
(d) Wheat , Rice and Oilseeds
40. Which among the following facility has been started in
India for refinance assistance for small irrigation, IRDP,
Dairy Development and Mechanism of farms?
(a) National Credit Fund
(b) National Rural Credit Fund
(c) National Credit Stabilization Fund
(d) Rural Infrastructural Development Fund
41. Which programme targets integrated farming, on- farm
water management, storage marketing and value addition
of farm produce in order to enhance farmers’ income in
rainfed areas?
(a) Integrated Scheme for Oilseeds, Pulses, Oil Palm
and Maize
(b) National Mission for Sustainable Agriculture
(c) Mission for Integrated Development in Horticulture
(d) Rainfed Area Development Programme
E-56 Agriculture
Statement Based MCQ
1. Index ‘Residex’ is associated with-
1. Share Prices 2. Mutual Fund Prices
3. Price Inflation Index 4. Land Prices
Choose the right option
(a) 1 only (b) 1 and 2
(c) 3 only (d) 4 only
2. Green Revolution has led to:
1. Spurt in production of all food grains.
2. Greater regional inequalities
3. reduction in inter-personal inequalities.
4. Increase in production of wheat.
(a) 1 and 3 (b) 1, 2 and 3
(c) 2, 3 and 4 (d) 2 and 4
3. Increase in agricultural production is due to:
1. increase in cultivable area.
2. improvement in yield
3. better cropping pattern
4. implementation of land reforms:
(a) 1 and 3 (b) l and 2
(c) 1, 2 and 3 (d) 1, 2, 3 and 4
4. Consider the following statements 1. afford security of tenure to tenants
1. Food for Work Programme was launched in India
during the 10th Five Year Plan.
2. The Planning commission in India is a constitutional
body.
Which of the statements given above is/are correct?
(a) Only 1 (b) Only 2
(c) Both 1 and 2 (d) Neither 1 nor 2
5. The consequences of colonialism on Indian agriculture
were:
1. fragmentation of holdings
2. impoverishment of the peasantry
3. eviction of land owners for non-payment of dues
4. better farming practices
5. Commercialization of agriculture
(a) 1, 2 and 4 (b) 1, 2, 3 and 5
(c) 2, 3 and 4 (d) 2, 3 and 5
6. With reference to Indian agriculture, consider the
following statements:
1. Agriculture provides direct livelihood to 59% of the
labour force in India.
2. It contributes more than 20% to the GDP
3. It accounts for about 10% of the total value of
India’s commodity exports
4. Almost 80% of the area under agriculture is
irrigated.
Which of the above statement/s is/are correct?
(a) 1, 2, 3 and 4 (b) 1, 2 and 3
(c) 3 only (d) 4 only
7. Consider the following statements regarding the
objectives of the Second Green Revolution announced in
2005:
1. It seeks to minimise post-harvest wastage
2. It will focus on improved storage
3. It will help the Indian farmers meet phyto-sanitary
conditions
4. It will equip the Indian farmers to participate more
fully in global agricultural trade
Which of these statement/s is/are correct?
(a) 1, 2, 3 and 4 (b) 1, 3 and 4
(c) 4 only (d) 2, 3 and 4
8. With reference to India’s food policy, consider the
following statements:
1. It seeks to avert famines by maintaining a buffer
stock
2. It ensures remunerative price for the farmers so that
they do not switch crops
3. It encourages surplus production for the export
market
4. It aims to maintain general price line.
Which of these statements are correct?
(a) 1, 2, 3 and 4 (b) 1 and 4
(c) 1, 2 and 4 (d) 1 and 2
9. The purpose of the tenancy reform legislation was to:
2. enact fixation of air rent
3. conferment of ownership right on tenants in some
cases
(a) 1 only (b) 2 only
(c) 1 and 2 (d) 1, 2 and 3
10. Which of the following are features of Indian agriculture?
1. Disguised unemployment
2. High productivity
3. Majority of large farmers
4. Dependent on monsoon
(a) 1 and 2 (b) 2 and 3
(c) 2 and 4 (d) 1 and 4
11. Indian poverty is said to be predominantly rural. Yet
the problem of urban poverty appears to have reached
unmanageable proportions. The paradox is explained by:
1. greater visibility of urban poverty
2. migration of rural population to urban areas
3. seasonality of agricultural operations
4. the cycle of drought and floods
(a) 1 only (b) 1 and 2
(c) 1 and 4 (d) All of these
12. Which of the following statements with regard to Indian
Agriculture is/are true?
1. Although rice is the most important cereal being
cultivated in India in terms of total production, wheat
is fast catching up.
2. Green revolution did not make an impact on the
production of pulses.
(a) 2 only (b) 1 only
(c) 1 and 2 (d) Neither 1 nor 2
Agriculture E-57
13. Consider the following statements:
1. Regarding the procurement of foodgrains,
Government of India follows a procurement target
rather than an open-ended procurement policy.
2. Government of India announces minimum support
prices only for cereals
3. For distribution under Targeted Public Distribution
System (TPDS), wheat and rice are issued by the
Government of India at uniform Central issue prices
to the States/Union Territories.
Which of the statements given below above is/are correct?
(a) 1 and 2 (b) 2 only
(c) 1 and 3 (d) 3 only
14. Consider the following statements.
1. The loans disbursed to farmers under Kisan Credit
Card Scheme are covered under Rashtiya Krishi
Bema Yojna of Life Insurance Corporation of India
2. The Kisan Credit Card holders are provided personal
accident insurance of ` 50,000 for accidental death
and ` 25,000 for permanent disability.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
15. Consider the following statements:
India continues to be dependent on imports to meet the
requirement of oilseeds in the country because
1. farmers prefer to grow foodgrains with highly
remunerative support prices.
2. most of the cultivation of oilseed crops continues to
be dependent on rainfall
3. oils from the seeds to tree origin and rice bran have
remained unexploited
4. it is far cheaper to import oilseeds than to cultivate
the oilseed crops
Which of the statements given above are correct?
(a) 1 and 2 (b) 1, 2 and 3
(c) 3 and 4 (d) 1, 2, 3 and 4
16. In India, rural incomes are generally lower than the
urban incomes, which of the following reasons account
for this?
1. A large number of farmers are illiterate and know
little about scientific agriculture
2. Prices of primary products are lower than those of
manufactured products
3. Investment in agriculture has been low when
compared to investment in industry.
Codes:
(a) 1, 2 and 3 (b) 1 and 2
(c) 1 and 3 (d) 2 and 3
17. Which of the following are the objectives of the
Commission for Agricultural Costs and Prices (CACP)?
1. To stabilize agricultural prices
2. To ensure meaningful real income levels to the
farmers
3. To protect the interest of the consumers by providing
essential agricultural commodities at reasonable
rates through public distribution system.
4. To ensure maximum price for the farmer
(a) 1, 2 and 3 (b) 1, 2 and 4
(c) 1, 3 and 4 (d) 2, 3 and 4
18. Consider the following statements ;
1. The Union Government fixes the Statutory Minimum
Price of sugarcane for each sugar season
2. Sugar and sugarcane are essential commodities
under the Essential Commodities Act.
Which of the statements .given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
19. Increase in wheat production depends on
1. Area expansion
2. Developing marketing infrastructure
3. Better inputs
(a) 1 only (b) 1 and 2
(c) 1, 2 and 3 (d) 2 and 3
20. Which statements regarding wheat production is/ are
incorrect?
1. Maximum area under wheat is in Uttar Pradesh
2. Maximum production is in Uttar Pradesh
3. Highest productivity is in Haryana
(a) 1 and 3 (b) 2 only
(c) 1 and 2 (d) 3 only
21. Which of the fallowing are responsible for the decrease
of per capita holding of cultivated land in India?
1. Low per capita income.
2. Rapid rate of increase of population.
3. Practice of dividing land equally among the heirs.
4. Use of traditional techniques of ploughing.
Select the correct answer using the codes given below
(a) 1 and 2 (b) 2 and 3
(c) 1 and 4 (d) 2,3 and 4
22. Which among the following statements is/are true with
regard to WTO membership?
1. All WTO members automatically receive the ‘most
favoured nation’ status.
2. Over 75% of WTO members are from developing
countries, WTO membership allows them access to
developed markets at the lower tariff.
Select the correct answer using the codes given below.
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
23. Ministry of Agriculture has decided that despite adequate
stocks of wheat and rice, India will not export these
commodities. What are the reason(s) for this decision ?
1. Indian variety of wheat and rice are in limited
demand abroad.
2. National Food Security Bill provides 25 kg of wheat
or rice to all BPL families. Huge stock of grains will
be needed for this initiative.
3. As nations recover from global recession, a formula is
being worked out, where imports and exports will be
conducted by exchange of surplus commodities with
the trading nations. India will use its food stocks for
such trade.
(a) 1 only (b) 2 only
(c) 3 only (d) All 1, 2 and 3
E-58 Agriculture
24. As a policy to boost the agricultural sector, the GOI has
taken special measures over time. Which of the following
are not a measure with a direct impact on the agricultural
sector?
1. Setting up of a National Food Processing Bank
2. Opening irrigation, sanitation and water projects for
Private Participation.
3. Efforts to reduce fiscal deficit to 5.5 per cent
level of GDP
(a) 1 only (b) 2 only
(c) 3 only (d) 1 and 2
25. Consider the following statements areas.
1. The recent decision of Government of India to
partially decontrol the sugar industry gives the
millers the freedom to sell sugar in open market
and removes their obligation to supply sugar at
subsidised rates to ration shops.
2. C. Rangarajan panel also suggested decontrolling of
sugar industry in India.
Which of the statements given above is/ are correct?
(a) Only 1 (b) Only 2
(c) Both 1 and 2 (d) Neither 1 nor 2
26. Consider the following statements :
1. National Agricultural Insurance Scheme (NAIS) was
launched in the Sixth Five Year Plan of the Indian
Economy.
2. The growth rate of the primary sector of the Indian
Economy sector never reached 8% during the
planning history of Indian economy.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
27. With reference to the agriculture sector of India, consider
the following statements
1. Rural infrastructure Development Fund disperses
loans to the states to complete the minor irrigation
projects.
2. Rural infrastructure Development Fund is managed
by the public sector Commercial Banks.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
28. Consider the following statements :
1. Central warehousing corporation is responsible for
the construction and running of the godowns for
storage of agriculture products.
2. Central warehousing corporation of India was
established in 1957.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
29. Consider the following statements :
1. Agriculture including allied activities accounted for
about 55% employment in the country according to
census 2011.
2. The growth in agriculture and allied sectors is a
necessary condition for inclusive growth in India.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
30. Consider the following statements about the National
Cooperative Marketing Federation of India Limited
(NAFED).
1. NAFED promotes the inter-state trade as well as
export of certain agricultural commodities to many
foreign countries.
2. NAFED is responsible for the movement of the
essential commodities from surplus areas to scarcity
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
31. Consider the following statements about the Agriculture
Income Tax
1. Agriculture Income Tax is levied and collected by
the Union Government.
2. Agriculture Income Tax is levied throughout the
country in India.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
32. Consider the following statements :
1. In India, more than 85% agriculture workers are
mainly casual labourers.
2. Agriculture labourers in India are mainly dominated
by the backward classes.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Netiher 1 nor 2
33. Consider the following statements :
1. Regional Rural Banks grant direct loans and
advances to marginal farmers and rural artisans.
2. NABARD is responsible for laying down policies
and to oversee the operations of the RRBs.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
34. Consider the following statements :
1. National project for Cattle and Buffalo Breeding
(NPCBB) was started for genetic improvement.
2. National Project for Cattle and Buffalo Breeding
(NPCBB) was launched in 2000.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
35. Consider the following statements about National
Watershed Development project for rainfed areas
launched in India?
1. National Watershed Development Project for rainfed
areas was launched in 1990-91.
2. National Watershed Development Project for rainfed
areas was launched throughout the country.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
Agriculture E-59
36. Consider the following statements :
1. In the Eleventh Five Year Plan, the average
foodgrains production was more than 200 million
tonnes.
2. The main reason for the increase in the production of
the coarse cereals in 2000s is mainly due to increase
in demand of coarse cereals as a nutri-food.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
37. Consider the following statements :
1. India is the 4th largest producer of Natural Rubber
in the world.
2. India in the world, shares more than 8.0% in the
Natural Rubber Production.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
38. Consider the following statements :
1. India is the 6th largest producer of coffee.
2. India’s share in Global Area under coffee is about
2%.
3. India contributes about 4% to world coffee
production as well as in the International trade.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) 1 and 2 (d) 1, 2 and 3
39. Consider the following statements :
1. The farm power availability in India is much lower
than that of Korea.
2. India is meeting 80% of its urea requirement through
indigenous production.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
40. Consider the following:
1. Uneconomic & Fragmented Holdings
2. Inefficient Labor Force
3. No use of HYV seeds
Which among the above is/ are the reasons for low
productivity in Indian Agriculture?
(a) Only 1 (b) Only 1 & 2
(c) Only 2 & 3 (d) 1, 2 & 3
41. Public Distribution System (PDS) means distribution
of essential commodities to a large number of people
through a network of Fair Price Shops on a recurring
basis. The Commodities distributed under PDS are:
(1) Wheat (2) Rice
(3) Sugar (4) Pulses
(5) Kerosene
Select the correct option:
(a) 1,2 and 4 (b) 1, 2, 3 and 4
(c) 1, 2, 3 and 5 (d) All of the above
42. The government has powers under the Essential
Commodities Act, 1955 (EC Act) to declare a commodity
as an essential commodity to ensure its availability to
people at fair price. The Commodities covered under the
Act include:
1. Paper
2. Hank Yarn
3. Fertilizers
4. Petroleum and Petroleum Products
5. Cotton and Jute seeds
(a) 1, 2 and 3 (b) 1, 3 and 4
(c) 3, 4 and 5 (d) 2, 3, 4 and 5
43. Consider the following statements:
1. 14 major dairying states account for more than 90%
of India’s Milk Production
2. National Dairy Plan was launched to improve the
quality of Milch animals in these 14 states
Which among the above statements is / are correct?
(a) Only 1 is correct
(b) Only 2 is correct
(c) Both 1 and 2 are correct
(d) Neither 1 nor 2 is correct
44. Consider the following statements:
1. Among Fruits, Largest Area under cultivation in
India is that of Banana
2. Among Fruits, Largest Production is India is that of
Mango
Which among the above is / are correct statements?
(a) Only 1 is correct
(b) Only 2 is correct
(c) Both statements are correct
(d) Both statements are incorrect
45. Consider the following statements:
1. Both Coffee and Tea prefer slightly acidic Soil
2. Both Coffee and Tea show winter dormancy
Which among the above statements is / are correct?
(a) Only 1 is correct
(b) Only 2 is correct
(c) Both 1 and 2 are correct
(d) Neither 1 nor 2 is / are correct
46. Consider the following statements:
1. Most of the wool produced in India is not enough to
fulfill demand of the country
2. Most of the wool produced in India is NOT of
apparel grade
Which among the above statements is are correct ?
(a) Only 1 is correct
(b) Only 2 is correct
(c) Both 1 and 2 are correct
(d) Neither 1 nor 2 is correct
47. Consider the following statements:
1. All kinds of Development Banks in India appeared
Post-Independence
2. NABARD is the only agricultural Development
Bank in India
Which among the above statements is / are correct?
(a) Only 1 is correct
(b) Only 2 is correct
(c) Both 1 and 2 are correct
(d) Neither 1 nor 2 is correct
E-60 Agriculture
48. Consider the following statements:
1. Price Stabilization Fund Scheme was launched for
Coffee, Tea, Rubber and Tobacco growers in the
country
2. In this scheme Government procures the commodities
when the prices fell below a certain level to support
the growers
Which among the above statements is/ are correct ?
(a) Only 1 is correct
(b) Only 2 is correct
(c) Both 1 and 2 are correct
(d) Neither 1 nor 2 is correct
49. Consider the following:
1. Prevent Black marketing
2. Trade and earn revenue
3. Become the sole controller of food grain supply
Which among the above is/ are the primary objective
of the government to buy food grains directly from the
farmers?
(a) Only 1 (b) Only 1 & 3
(c) Only 2 & 3 (d) 1, 2 & 3
50. Public Distribution System (PDS) is operated under the
responsibility of the:
1. Central Government
2. State Governments
(a) Only 1 (b) Only 2
(c) Both 1 and 2 (d) Neither 1 nor 2
51. Arrange the following in the descending order of the
largest agricultural imports of India:
1. Pulses
2. Wood and Wood Products
3. Edible Vegtable Oils
(a) 1-2-3 (b) 1-3-2
(c) 2-1-3 (d) 3-2-1
52. Vegetable Oil has been India’s largest non-oil import
commodity. In this context please consider the following
reasons.
1. The Food grain are grown more in India because of
the remunerative support prices
2. The Oil seed cultivation in India is mostly dependent
upon the Rain fed Areas
3. The import of Vegetable oil has been cost effective
Which among the above statements hold correct ?
(a) 1 & 2
(b) 2 & 3
(c) 1 & 3 II. To enhance investment in agriculture and allied
(d) All are correct statements
53. Which among the following gives a justification about
the fact that “ Green Revolution has not been green as it
made out to be” ?
1. It confined only to wheat
2. It confined to selected areas only
3. It helped only big farmers
Choose the correct options:
(a) Only 1 (b) 1 & 2
(c) 1, 2 & 3 (d) 2 & 3
54. In the context of food and nutritional security of India,
enhancing the ‘Seed Replacement Rates’ of various crops
helps in achieving the food production targets of the
future. But what is/ are the constraint/ constraints in
its wider/greater implementation?
1. There is no National Seeds Policy in place.
2. There is no participation of private sector seed
companies in the supply of quality seeds of
vegetables and planting materials of horticultural
crops.
3. There is a demand-supply gap regarding quality
seeds in case of low value and high volume crops.
Select the correct answer using the code given below.
(a) 1 and 2 (b) 3 only
(c) 2 and 3 (d) None of these
55. Which among the below are the products in which India
is 1st in the world?
I. Milk
II. Pulses
III. Spices
IV. Jute
(a) I, II & III (b) I, II & IV
(c) II, III &IV (d) All the above
56. What are the features of Indian agriculture?
I. Agriculture is the primary occupation in India as
it provides direct livelihood to 70% of its labour
force.
II. Agriculture contributes to about 10% of the total
value of India’s commodity exports.
III. Almost 30% of tea and 50% of coffee and jute
produced in the country are exported.
(a) I,II,III (b) I & II
(c) II & III (d) All the above
57. What are long term loans?
I. These are provided for a period of less than 15
months to meet out expenses of routine farming and
domestic consumptions
II. These are provided for a period of 15 months to 5
years to purchase agricultural equipments, animals
and for land improvements.
III. These are provided for a period of more than 5
years.
(a) Only II (b) Only I
(c) Only III (d) None of the above
58. What is National Food Security Mission?
I. Mission to increase the production of rice, wheat and
pulses by 10, 8 and 2 million tonnes respectively.
sectors to achieve 4% growth rate.
III. For promotion of holistic growth of horticulture
sector, including fruits, vegetables, root and tuber
crops, mushroom, spices, flowers, aromatic plants,
cashew and cocoa.
IV. Provides flexibility to states in implementation
based on a regionally differentiated approach for
promoting crop diversification and providing a focus
to the programme.
(a) II (b) III
(c) IV (d) I
Agriculture E-61
59. What is a Green Box subsidy?
I. These include direct payments to farmers to limit
production and certain government assistance to
encourage agriculture and rural development in
developing countries
II. These include government policies of Minimum
support Prices (MSP) for agricultural products or
any help directly related to production quantities (for
eg. power, fertiliser, seeds, pesticides, irrigation
etc.).
III. These include amounts spent on research, disease
control, infrastructure and food security
(a) I & III (b) Only II
(c) Only III (d) III & II
60. Which statement is correct according to the growth and
productivity of agriculture?
I. The total irrigated area increased from less than
one million hectares per annum before the green
revolution to about 2.5 million hectares per annum
during the 1970’s
II. The total gross irrigated area now is 40 million
hectares.
III. The yield per hectare of food grains has shown
remarkable increase in the pre Green Revolution
period.
(a) Only I (b) I & II
(c) I & III (d) None of the above
61. Which statement is correct regarding NAIS?
I. It is a central sector, government sponsored crop
insurance scheme, in operation since 1999.
II. It provides financial support to the farmers in the
failure of any of the crops.
III. The AICIL is the implementing agency of this
scheme.
(a) I & II (b) Only II
(c) Only III (d) All the above
62. Which of the following statement is correct?
I. ISOPOM provides flexibility to states in
implementation based on a regionally differentiated
approach for promoting crop diversification and
providing a focus to the programme.
II. This scheme is under implementation in the country
for increasing area, production and yield of these
crops from 2009-10
III. The pulses component was merged with NFSM
w.e.f. April 2013.
Which is correct?
(a) I & II (b) Only I
(c) Only II (d) All the above
63. Which of the following is correct regarding Rashtriya
Krishi Vikas Yojana?
I. RKVY was launched in 2007-08
II. Aim was to incentivize states to enhance investment
in agriculture and allied sectors to achieve 4%
growth rate.
III. The government has approved continuation of the
RKVY scheme in the 12th plan whereby the funding
will be routed into three components- production
growth, infrastructure and assets, and sub-schemes
and flexi-fund.
(a) Only I (b) Only II
(c) All the above (d) None of the above
64. Which is correct with respect to second green revolution?
I. It seeks to minimize post-harvest wastage
II. Improve storage and help Indian farmers meet the
phyto-sanitary conditions so that they can participate
productively in the global agricultural trade.
III. It is assisted by research undertaken by public
institutions such as Universities.
IV. It is directed by proprietary research and governed
by Intellectual Property Rights.
(a) I & II (b) I, II & III
(c) I, II & IV (d) All the above
65. Which of the following is correct statement?
I. Agriculture is the primary occupation in India as it
provides direct livelihood to 59% of its labour force
II. In India, 75% of below the poverty line (BPL)
population lives in rural areas, and is directly or
indirectly dependent on agriculture.
III. Agriculture contributes to more than 13.7% (2013)
of GDP, although this share has progressively
declined from 57% in 1950-51.
IV. In developed countries, like the UK and USA, the
share of agriculture in GDP is only around 2%.
(a) I & II (b) I & III
(c) I, II & III (d) All the above
66. What are the factors that have a definite impact on
investment in agriculture?
I. Size of holdings
II. The pattern of ownership
III. The method of inheritance and security of tenure
(a) Only I (b) I & II
(c) All the above (d) None of the above
67. Which of the following statement is correct according to
Zamindari System?
I. The Zamindari System prevailed in Bengal, Bihar,
Orissa.
II. It was introduced by the East India Company
and under it a class of revenue collectors, called
zamindars, was created.
III. Revenue was ‘settled’ by the government with
zamindars, either permanently or temporarily.
IV. Revenue was ‘settled’ by the.
(a) I, II & IV (b) I & II
(c) I & III (d) I, II & III
68. Which statement is correct regarding Ryotwari system?
I. System was introduced in North India in terms
of which the village community was jointly and
severally responsible for payment of rent.
I. Zamindars acted as intermediaries between the
cultivators and the government.
II. Revenue was ‘settled’ by the government with
zamindars, either permanently or temporarily.
(a) I & II (b) Only III
(c) Only II (d) None of the above
E-62 Agriculture
69. What were the objectives of Land reforms?
I. to increase production by ensuring security of tenure
to the cultivator;
II. to increase the purchasing power of the rural
population and thereby boost the demand for
industrial products; and
III. to achieve social justice along with economic growth
through a single set of measures rather than through
different, and sometimes contradictory, measures.
(a) I & II (b) I, II & III
(c) I & III (d) None of the above
70. Which of the following sentences are correct?
I. Second Green Revolution is also called Gene
Revolution.
II. Cowpea and Millets are called Orphan crops.
III. Second green revolution is directed by proprietary
research.
(a) I & II (b) I, II & III
(c) I & III (d) All the above
71. What is a Blue Box subsidy?
I. These include direct payments to farmers to limit
production and certain government assistance to
encourage agriculture and rural development in
developing countries
II. These include government policies of Minimum
support Prices (MSP) for agricultural products or any
help directly related to production quantities (for eg.
power, fertiliser, seeds, pesticides, irrigation etc.).
III. These include amounts spent on research, disease
control, infrastructure and food security
(a) I & III (b) Only I
(c) Only III (d) III & II
72. What is Co-operative tenant farming?
I. Where the society holds the land and leases it to
individual members.
II. Where land is irrevocably surrendered to the
collective.
III. Where the farmers pool their land and reap the
economies of scale, although the ownership
continues to remain with the individual farmer.
(a) I & II (b) Only I
(c) Only III (d) None of the above
73. Which of the statement is correct regarding Land
Development Banks?
I. It provides long-term rural credit for land
improvement, soil conservation and other
investments of a capital nature.
II. LDBs have now been renamed as State Co-operative
Agricultural and Rural Development Banks
(SCARDBs)
III. They raise their funds through long-term debentures
offering state government guarantee, and refinancing
from NABARD.
(a) I & II (b) II & III
(c) Only II (d) All the above
74. Which of the following statements are correct in
accordance to Kisan Credit Cards?
I. NABARD formulated a model scheme for issue of
Kisan Credit Cards (KCCs) to farmers so that they
may use them to readily purchase agricultural inputs
such as seeds, fertilizers, pesticides, etc.
II. These are operated by only commercial banks.
III. The scheme has helped in augmenting the flow
of short-term crop loans for seasonal agricultural
operations of farmers.
IV. From January 31, 2006, the scheme has been
extended to all types of loan requirements of
borrowers of State Cooperative Agriculture Rural
Development Banks (SCARDBs).
(a) I & II (b) Only IV
(c) I, III & IV (d) All the above
75. Which of the statement is true?
I. Co-operative farming had been advocated by
Mahatma Gandhi as far back as in 1942.
II. The phenomenon of Green Revolution in India led
to an increase in yields due to improved agronomic
technology.
III. The third Green Revolution is called Gene
Revolution
IV. The first phase of green revolution included
introduction of high-yielding varieties of crops and
application of modern agricultural techniques
(a) I, II & III (b) I & III
(c) II & III (d) I, II & IV
76. What are short term loans?
I. These are provided for a period of less than 15
months to meet out expenses of routine farming
and domestic consumptions.
II. These are provided for a period of 15 months to 5
years to purchase agricultural equipments, animals
and for land improvements.
III. These are provided for a period of more than 5
years.
(a) Only II (b) Only I
(c) Only III (d) None of the above
77. Which statement is correct with regard to 2nd Five year
plan?
I. Industrial sector was given more importance in this
plan.
II. Agricultural Expenditure was only 20% of the actual
plan expenditure.
III. The agricultural growth, however, was high at
3.15%.
(a) Only I (b) Only II
(c) I & II (d) All the above
78. What is procurement price?
I. It is that price at which government purchases the
crop after harvesting, while MSP is the minimum
price at which government declares it will buy the
crop.
II. It is that price at which people purchases the crop
after harvesting, while MSP is the maximum price
at which government declares it will buy the crop.
III. It is the price at which people purchase the product
from the government
(a) Only I (b) II & III
(c) Only III (d) None of the above
Agriculture E-63
79. What are Co-operative Credit Societies?
I. They are apex institution for providing credit facility
to agricultural and rural areas.
II. These are the most important source of rural credit.
III. They are finance rural credit directly through
Regional Rural Banks (RRBs).
(a) I & II (b) Only III
(c) Only II (d) None of the above
80. Which of the statement is correct regarding White
revolution?
I. It occurred in India in 1970.
II. Prof. Verghese Kuerin was the father of White
Revolution in India.
III. It works through a network of co-operative
societies which are owned and managed by the milk
producers.
(a) I & II (b) I & III
(c) Only I (d) All the above
81. What is Co-operative collective farming?
I. Where the society holds the land and leases it to
individual members.
II. Where land is irrevocably surrendered to the collective.
III. Where the farmers pool their land and reap the
economies of scale, although the ownership
continues to remain with the individual farmer.
(a) I & II (b) Only II
(c) Only III (d) None of the above
82. What is NABARD?
I. They are apex institution for providing credit facility
to agricultural and rural areas.
II. These are the most important source of rural credit.
III. They provide finance rural credit directly through
Regional Rural Banks (RRBs).
(a) I & II (b) Only I
(c) Only II (d) None of the above
83. NABARD took over the function of which all institutes?
I. Agricultural Credit Development (ACD)
II. Rural Planning and Credit Cell (RPCC) of RBI
III. Agricultural Refinance Development Corporation
(ARDC)
IV. State Co-operative Agricultural and Rural
Development Banks (SCARDBs).
(a) I, II & III (b) I & II
(c) Only IV (d) All the above
84. What are the functions of NABARD?
I. It is associated with policy, planning, operation and
even monitoring levels for providing agricultural
credit.
II. Its primary task is to function as refinancing
institution for all types of lending for agricultural
and rural development.
III. In addition to this, it provides term credit to state
co-operative banks, regional rural banks, land
development banks and state governments (only
for share capital contribution to co-operative credit
societies).
(a) Only I (b) I & II
(c) II & III (d) All the above
85. What is Co-operative joint farming?
I. Where the society holds the land and leases it to
individual members
II. Where land is irrevocably surrendered to the
collective;
III. Where the farmers pool their land and reap the
economies of scale, although the ownership
continues to remain with the individual farmer.
(a) I & II (b) Only II
(c) Only III (d) None of the above
86. What are the primary defects in the system of agricultural
marketing in India?
I. Inadequate warehouses
II. Lack of grading and standardization
III. Inadequate transport facilities
IV. Presence of a large number of middlemen
(a) I & II (b) I, II & III
(c) Only IV (d) All the above
87. What are the main objectives of an agriculture price
policy?
I. To ensure that the producer gets a minimum
remunerative price.
II. To maintain a reasonable terms of trade between
agricultural sectors.
III. To maintain the general price level and protect the
non-producing consumer from violent fluctuations
in price of food grains.
(a) Only I (b) I & II
(c) All the above (d) None of the above
88. What are medium term loans?
I. These are provided for a period of less than 15
months to meet out expenses of routine farming and
domestic consumptions
II. These are provided for a period of 15 months to 5
years to purchase agricultural equipments, animals
and for land improvements.
III. These are provided for a period of more than 5
years.
(a) Only II (b) Only I
(c) Only III (d) None of the above
89. What is correct statement with regard to buffer stocking?
I. It is the practice of holding large stocks by
government agencies like Food Corporation of
India (FCI) and releasing the stocks in the market to
counter price rise
II. The buffer stock also helps to maintain the Public
Distribution System (PDS).
(a) Only I (b) Only II
(c) Both I & II (d) None of the above
90. What is the WTO Agreement on Agriculture (AoA)?
I. It permitted the developed countries to continue to
provide farm subsidies, but under certain restrictions.
II. It permitted the developing countries to continue to
provide farm subsidies, but under certain restrictions.
III. It does not permit the developed countries to
continue to provide farm subsidies.
(a) Only III (b) Only I
(c) Only II (d) None of the above
E-64 Agriculture
91. What is Rashtriya Krishi Vikas Yojana?
I. Mission to increase the production of rice, wheat and
pulses by 10, 8 and 2 million tonnes respectively.
II. To enhance investment in agriculture and allied
sectors to achieve 4% growth rate.
III. For promotion of holistic growth of horticulture
sector, including fruits, vegetables, root and tuber
crops, mushroom, spices, flowers, aromatic plants,
cashew and cocoa.
IV. Provides flexibility to states in implementation
based on a regionally differentiated approach for
promoting crop diversification and providing a focus
to the programme.
(a) II (b) III
(c) IV (d) I
92. What are the land reforms taken after Independence?
I. Abolition of intermediaries like zamindars, jagirdars,
etc., which resulted in several states promulgating
laws for putting an end to ‘absentee landlordism’.
II. Imposition of ceiling laws which lay down the
maximum land that can be owned by a land holder
III. Consolidation of holding was introduced as a
measure of improving farming efficiency
(a) I & II (b) I & III
(c) Only I (d) All the above
93. What is an AmberBox subsidy?
I. There include direct payments to farmers to limit
production and certain government assistance to
encourage agriculture and rural development in
developing countries.
II. These include government policies of Minimum
support Prices (MSP) for agricultural products or
any help directly related to production quantities (for
eg. power, fertiliser, seeds, pesticides, irrigation
etc.).
III. There include amounts spent on research, disease
control, infrastructure and food security.
(a) I & III (b) Only I
(c) Only II (d) III & II
94. Which statement is correct regarding public distribution
system?
I. Public Distribution System (PDS) was conceived
as a primary social welfare and poverty alleviation
programme of the government to ensure price
stabilization in the grain market.
II. Government’s objective of providing reasonable
prices for basic food commodities like food grains,
sugar, edible oil and kerosene is achieved.
III. It is the second largest system in the world.
IV. More than 50 per cent of grain to the Public
Distribution System is provided by the Punjab,
Haryana and western Uttar Pradesh.
(a) I & II (b) Only II
(c) Only III (d) III & IV
95. Which statement is correct regarding Food Corporation
of India?
I. The Food Corporation of India (FCI) was established
in 1975.
II. It was responsible for securing for the government
a commanding position in the food-grain trade.
III. By 1979, the corporation was operating in all states
as the sole agent of the central government in food-
grain procurement.
(a) I & III (b) Only I
(c) I & II (d) II & III
96. Which statement is correct regarding TPDS?
I. It is targeted for rich people.
II. It is targeted to poor people.
III. This system started when the procurement and issue
prices of PDS items saw a rise with the ushering in
of economic reforms in the 1990s.
(a) I & III (b) Only III
(c) II & III (d) None of the above
97. What were the measurements taken by government to
improve the condition of agriculture?
I. The ‘Land Reform’ measures and ‘Green
Revolution’ were the greatest achievements of the
Indian Government in enhancing the agricultural
production and productivity.
II. Between 1950 and 1990, there was a substantial
increase in the agricultural productivity. As a result
of Green Revolution, India became self sufficient in
food production.
III. Land Reforms resulted in abolition of zamindari
system.
IV. The proportion of GDP contributed by agriculture
changed significantly, but not the population
depending on it.
(a) I & II (b) I, II & IV
(c) Only III (d) All the above
98. Which statement is correct regarding Evergreen
Revolution?
I. The emphasis in this revolution is on sustainable
agriculture by means of organic and green
agriculture.
II. Dr. MS Swaminathan gave this concept.
III. It includes the use of integrated pest management,
nutrient supply and resource management.
(a) I & II (b) Only II
(c) Only III (d) All the above
99. What is National Horticulture Mission?
I. Mission to increase the production of rice, wheat and
pulses by 10, 8 and 2 million tonnes respectively.
II. To enhance investment in agriculture and allied
sectors to achieve 4% growth rate.
III. For promotion of holistic growth of horticulture
sector, including fruits, vegetables, root and tuber
crops, mushroom, spices, flowers, aromatic plants,
cashew and cocoa.
IV. Provides flexibility to states in implementation
based on a regionally differentiated approach for
promoting crop diversification and providing a focus
to the programme.
(a) II (b) III
(c) IV (d) I
Agriculture E-65
100. Which statement is correct regarding AICIL?
I. It was incorporated in 2002 and is under the
administrative control of Ministry of Finance,
Government of India, and under the operational
supervision of Ministry of Agriculture, Government
of India.
II. It seeks to provide insurance coverage and financial
support to the farmers in the failure of any of the
notified crop.
III. It encourages the farmers to adopt progressive
farming practices, high value in-puts and higher
technology; to help stabilize farm incomes,
particularly in disaster years.
(a) I & II (b) II & III
(c) Only III (d) All the above
101. Match the following
List I List II
(Five Year Plan) (Emphasis)
A. First 1. Food security and women
empowerment
B. Second 2. Heavy industries
C. Fifth 3. Agriculture and community
development
D. Ninth 4. Removal of poverty
Codes :
A B C D
(a) 1 2 4 3
(b) 1 4 2 3
(c) 3 2 4 1
(d) 3 4 2 1
102. Match the following states with Land Tenure System:
States Land Tenure System
I. Bengal, Bihar a. Ryotwari System
II. North India b. Zamindari system
III. Madras, Bombay c. Mahalwari system
(a) I – b, II – c, III – a (b) I – a, II – b, III – c
(c) I – c, II – b, III – a (d) None of the above
103. Match the followingtotal institutional credit to agriculture:
Banks Percentage
I. Commercial bank a. 28%
II. RRB’s b. 61%
III. Co-operative banks c. 11%
(a) I – b, II – c, III – a (b) I – a, II – b, III – c
(c) I – c, II – a, III – b (d) I – b, II –a, III – c
104. In the context of food and nutritional security of India,
enhancing the ‘Seed Replacement Rates’ of various crops
helps in achieving the food production targets of the
future. But what is/are the constraint/ constraints in its
wider/greater implementation? [CSAT 2014 - I]
1. There is no National Seeds Policy in place.
2. There is no participation of private sector seed
companies in the supply of quality seeds of
vegetables and planting materials of horticultural
crops.
3. There is a demand-supply gap regarding quality
seeds in case of low value and high volume crops.
Select the correct answer using the code given below.
(a) 1 and 2 (b) 3 only
(c) 2 and 3 (d) None
E-66 Agriculture
EXERCISE-1
1. (d) G. B. Pant University of Agriculture and Technology
(GBPUA&T, Pant Nagar,Uttara Khand) is the first
agricultural university of India. It was inaugurated
by Jawahar Lal Nehru on 17 November 1960.
2. (d) A Kisan Credit Card is a credit card to provide
affordable credit for farmers. It was started by
the Government of India, Reserve Bank of India
(RBI), and National Bank for Agricultural and
Rural Development (NABARD) in 1998–99 to
help farmers access timely and adequate credit.
The credit is available to farmers in most of the
banks like commercial banks cooperative banks
and regional rural banks. However in day to day
operations NABARD is not included.
3. (d) Sustainable farming system and Integrated watershed
systems are the objective of the National Watershed
Development project for rainfed areas of India. The
scheme of National Watershed Development Project
for Rainfed Areas(NWDPRA) was launched in
1990–91 in 25 States and 2 Union Territories based on
twin concepts of integrated watershed management
and sustainable farming systems. Its objective
are conservation, development and sustainable
management of natural resources, enhancement of
agricultural production in a sustainable manner,
restoration of ecological balance and creation of
sustained employment opportunities for the rural
community.
4. (c) The Market Intervention Scheme (MIS)is an
adhoc scheme under which horticultural commodities
and other agricultural commodities falls which are
perishable in nature and are not covered under the
minimum price support scheme.
5. (b) The price at which the Government purchases
foodgrains for maintaining the public distribution
system and for building up buffer stocks are known
as procurement prices.
6. (d) Finance commission
7. (b) In Order to help the farmers in getting remunerative
prices for their produce with a view to encourage
higher investment and as also to increase production
and productivity of a commodity, the government
declares Minimum Support Price (MSPs) for 25
notified agricultural commodities for each Kharif &
Rabi crop season.National Agricultural cooperative
Marketing Federation of India Ltd (NAFED) is one
of the Central Nodal Agencies which implements
PSS.
8. (d) Agriculture(crops) and allied sectors are like
forestry, logging and fishing. Food processing is
not included in the Agriculture and allied services of
Indian Economy.
9. (d) Tenth five year plan by 2 million tons by the end of the Eleventh Plan
10. (d) The importance of agriculture in Indian Economy
is indicated by its contribution to national income,
industrial development and supply of foodgrains. It
contributes around 13.7% to GDP , supplies raw
material for development of industries along with
supplying food grains for livelihood.
11. (b) A Kisan Credit Card is a credit card to provide
affordable credit for farmers. It was started by the
Reserve Bank of India (RBI), and National Bank for
Agricultural and Rural Development (NABARD) in
1998–99 to help farmers access timely and adequate
credit.
12. (b) The Tribal Cooperative Marketing Development
Federation of India Limited (TRIFED) started
functioning in 1988 under the Administrative
control of the Ministry of Tribal Affairs, Govt. of
India. FCS is food and supplies department. RRB
is regional rural bank . All the above three are not
apex bodies at national level. However National
Agricultural cooperative Marketing Federation of
India Ltd. (NAFED) is one of the Central Nodal
Agencies and apex body which implements PSS.
13. (b) Indian Farmer Fertilizer cooperative Ltd (IFFCO)
is the co-operative society responsible for the
production of fertilizers. Indian Farmers Fertiliser
Co-operative Limited (IFFCO) was registered on
November 3, 1967 as a Multi-unit Co-operative
Society.
14. (d) Bihar is the first state to impose agricultural income
tax in India. Agricultural income tax is levied on
the income from Agriculture. At present agriculture
is subjected to two direct taxes and they are
Agricultural Income tax and Land Tax. They are
levied by the state governments. Bihar was the first
state in India to levy a tax on agricultural income in
1938.
15. (c) The growth performance of the agriculture sector
has been fluctuating across the plan periods. It
witnessed a growth rate of 4.8 per cent during the
Eighth plan period (1992–97).
16. (b) National seed policy was based on the
recommendation of M.V. Rao committee in
2002. The Policy was meant to “strengthen the
seed industry’’ in view of the liberalisation in the
farm sector under the World Trade Organisation.
The policy seeks to provide intellectual property
protection to stimulate investment in research and
development of new plant varieties.
17. (c) The National Development Council (NDC) on
29th May, 2007 adopted a resolution to launch a
Food Security Mission comprising rice, wheat
and pulses to increase the production of rice by 10
million tons, wheat by 8 million tons and pulses
Agriculture E-67
(2011–12). Accordingly, a centrally sponsored
Scheme, ‘National Food Security Mission’, had
been launched from the rabi season 2007–08 to
operationalize the above mentioned resolution.
18. (b) The Bonded Labour System (Abolition) Act, 1976
was enacted to provide for the abolition of bonded
labour system with a view to prevent the economic
and physical exploitation of the weaker sections of
the society. It freed all the bonded labourers from
bondage with simultaneous liquidation of their debts.
It made the practice of bondage a cognisable offence
punishable by law. The Act is being administered
and implemented by the Ministry of Labour and the
State governments concerned.
19. (c) The Food corporation of India (FCI) was set up
in 1965. Its objectives are Effective price support
operations for safeguarding the interests of the
farmers. Distribution of food grains throughout
the country for public distribution system and
maintaining satisfactory level of operational and
buffer stocks of foodgrains to ensure National Food
Security.
20. (d) Rashtriya Krishi Vikas Yojana was launched in
August 2007 as a part of the 11th Five Year Plan
by the Government of India. Launched under the
aegis of the National Development Council, it seeks
to achieve 4% annual growth in agriculture through
development of Agriculture and its allied sectors
during the period under the 11th Five Year Plan
(2007–11).
21. (b) The statement, “Everything else can wait, but not
agriculture” is attributed to J.L. Nehru. Nehru
mentioned these words after independence . He said
this in the context of the Bengal Famine of 1942–43
and the acute food scarcity prevailing in the country
in 1947.
22. (d) The head office of the National Bank for agriculture
and Rural Development (NABARD) is located in
Mumbai. It helps farmers access timely and adequate
credit.
23. (d) Co-operative societies, Commercial Banks and
Regional Rural Banks are source of agriculture
finance in India. They provide finance under
various schemes run by central government and
state governments to purchase seeds, implements,
fertilizer, pesticides etc.
24. (b) The shelter belt method of soil conservation is most
effective in arid areas. A shelterbelt is a barrier of
trees or shrubs. The term “field shelterbelt” is used
to distinguish between rows of trees or shrubs on
agricultural fields from those planted in other ways:
around farmyards or livestock facilities (farmstead
shelterbelts). It controls soil erosion and traps the
moisture which is necessary to grow crop in such
regions.
25. (c) National Bank for Agriculture and Rural
Development (NABARD) is an apex development
bank in India having headquarters based in Mumbai.
It was established on 12 July, 1982 in sixth five year
plan by a special act by the parliament and its main
focus was to uplift rural India by increasing the
credit flow for elevation of agriculture & rural non
farm sector.
26. (a) In India, commercial banks have the highest share in
the disbursement of credit to agriculture and allied
activities.The commercial banks disburse around
60% credit followed by cooperative banks around
30% and RRB and others.
27. (b) ‘National Food Security Mission’, had been
launched from the rabi season 2007–08 to increase
the production of rice by 10 million tons, wheat by
8 million tons pulse by 2 million tons decided by
National Development Council.
28. (c) 29. (a) 30. (d) 31. (b) 32. (a) 33. (b)
34. (b) 35. (b) 36. (d) 37. (b) 38. (c) 39. (b)
40. (c)
41. (d) RADP was launched by the government as a pilot
scheme under RKVY, focusing on small and
marginal farmers and farming systems. It targets
integrated farming, on- farm water management,
storage marketing and value addition of farm
produce in order to enhance farmers’ income in
rainfed areas.
EXERCISE-2
1. (d) 2. (d) 3. (c)
4. (a) According to The National Food for Work Programme,
food subsidy should be better targeted through targeted
public distribution system and specific programmes for
the poor like Food for Work Programme. The National
Food for Work Programme was launched on 14
November 2004 in 150 of the most backward districts
of India with the objective of generating supplementary
wage employment. The Planning commission is not a
constitutional body.
5. (d) 6. (b) 7. (a) 8. (c) 9. (d) 10. (d)
11. (b) 12. (c) 13. (d) 14. (b) 15. (d) 16. (a)
17. (a) 18. (c) 19. (d) 20. (d)
21. (b) Rapid rate of increase of population and practice of
dividing land equally among the heirs are responsible
for the decrease of per capita holding of cultivated land
in India.
22. (b) 23. (b) 24. (c)
25. (c) The decision to partially decontrol the sugar sector
was taken by the Cabinet Committee on Economic
Affairs (CCEA). This gives millers the freedom to
sell in the open market and remove their obligation
to supply the sweetener at subsidised rates to ration
shops. The Rangarajan Committee has recommended
total decontrol of the sugar industry by doing away
with the levy sugar obligation, release mechanism
and freeing of export-import.
26. (d) In the year 1999 the National Agricultural Insurance
Scheme was introduced by replacing comprehensive
crop Insurance Scheme. NAIS covers all food
crops (cereals and pulses), oilseeds, horticultural
and commercial crops. It covers all farmers, both
E-68 Agriculture
loanees and non-loanees, under the scheme. Growth
rate of primary sector reached above 8% with
green revolution. Both the given statements are not
correct.
27. (a) Rural Infrastructure Development Fund (RIDF) was
instituted in NABARD with an announcement in the
Union Budget 1995-96 with the sole objective of
giving low cost fund support to State governments
and state owned corporations for quick completion
of ongoing projects relating to medium and minor
irrigation, soil conservation, watershed management
and other forms of rural infrastructure.
28. (c) CWC is a Warehousing Agency in India, established
in 1957. It provides logistics support to the agricultural
sector. CWC is operating 464 Warehouses across
the country with a storage capacity of 10.54 million
tonnes providing warehousing services for a wide
range of products ranging from agricultural produce
to sophisticated industrial products.
29. (c) The growth in agriculture and allied sectors is a
necessary condition for inclusive growth in India.
Agriculture including allied activities accounted for
about 55% employment in the country according to
census 2011.
30. (c) National cooperation marketing federation of India
limited NAFED promotes cooperative marketing,
promotes the inter-state trade as well as export of
certain agricultural commodities to many foreign
countries. It is responsible in stabilizing prices of
commodities and thus responsible for the movement
of the essential commodities from surplus areas to
scarcity areas.
31. (d) Agricultural income tax is levied on the income from
Agriculture. At present agriculture is subjected to
two direct taxes and they are agricultural Income
tax and Land Tax. They are levied by the state
governments. Not all states levy agricultural income
tax.
32. (c) Agriculture labourers in India are mainly dominated
by the backward classes and more than 85%
agriculture workers are mainly casual labourers.
33. (c) National Bank for Agriculture and Rural
Development (NABARD) is an apex development
bank in India . It was established on 12 July 1982 in
sixth five year plan and its main focus was to uplift
rural India by increasing the credit flow for elevation
of agriculture and rural non-farm sector and laying
down policies and to oversee the operations of the
RRBs. Moreover Regional Rural Banks grant direct
loans and advances to marginal farmers and rural
artisans. So both statements are correct.
34. (c) Government of India has initiated a major
programme ‘National Project for Cattle and Buffalo
Breeding’ (NPCBB) from October 2000. The
NPCBB envisages genetic upgradation on priority
basis with a focus on development and conservation
of important indigenous breeds.
35. (a) The scheme of National Watershed Development
Project for Rainfed Areas(NWDPRA) was launched
in 1990-91 in 25 States and 2 Union Territories
based on twin concepts of integrated watershed
management and sustainable farming systems.
At present, this scheme is being implemented as
a programme of Centrally Sponsored Scheme of
Macro Management of Agriculture in 28 States and
2 Union Territories.
36. (c) In the Eleventh Five Year Plan, the average
foodgrains production was more than 200 million
tonnes, and during 2000s production of the coarse
cereals increased mainly due to increase in demand
of coarse cereals as a nutri-food.
37. (c) India is the fourth largest producer, of natural
rubber and fifth largest consumer of natural rubber
and synthetic rubber together in the world. India in
the world, shares more than 8.0% in the Natural
Rubber Production.
38. (d) India is the 6th largest producer of coffee in the
world having a share of around 2% in terms of
global area. India contributes about 4% to world
coffee production as well as in the International
trade.
39. (c) The farm power availability in India is much lower
than that of Korea. India is meeting 85% of the urea
fertilizer through indigenous production. However,
we are deficient in phosphatic and potassic resources
and around 90% is imported.
40. (a)
41. (c) The commodities distributed under PDS are as
follows :- • Wheat • Rice • Sugar • Kerosene
42. (d) There are seven broad categories of essential
commodities covered by the Act. These are (1)
Drugs; (2) Fertilizer, inorganic, organic or mixed;
(3) Foodstuffs, including edible oilseeds and oils; (4)
Hank yarn made wholly from cotton; (5) Petroleum
and petroleum products; (6) Raw jute and jute
textile; (7) (i) seeds of food-crops and seeds of fruits
and vegetables; (ii) seeds of cattle fodder; and (iii)
jute seeds. Recently cotton seed was also included in
the list.
43. (a) 44. (d) 45. (a) 46. (c) 47. (d) 48. (a)
49. (a) 50. (c) 51. (d) 52. (a) 53. (b) 54. (b)
55. (d) 56. (c)
57. (c) These are provided for a period of more than 5 years.
This type of loan is taken by farmers to purchase
land and expensive agricultural equipments and for
repayment of old loans.
58. (d) NFSM was launched in 2007-08 to increase the
production of rice, wheat and pulses by 10, 8 and
2 million tonnes respectively, by the end of 11th
plan through productivity enhancement and area
enhancement, enhancing farm level economy
and creating employment opportunities. This has
been extended to the 12th plan too with additional
production targets.
Agriculture E-69
59. (c) Green Box subsidies include amounts spent on
research, disease control, infrastructure and food
security. These also include direct payments made
to farmers such as income support that do not
stimulate production. These are not considered trade
distorting and are encouraged.
60. (a) The total irrigated area increased from less than
one million hectares per annum before the green
revolution to about 2.5 million hectares per annum
during the 1970’s. The total gross irrigated area
now is 80 million hectares.
61. (d) National Agricultural Insurance Scheme is a central
sector, government sponsored crop insurance
scheme, in operation since 1999. This scheme aims
at tackling the issue of production risk faced by the
agricultural sector. It provides financial support to
the farmers in the failure of any of the crops. The
AICIL is the implementing agency of this scheme.
NAIS has been further modified as MNAIS with the
aim of further helping the farm sector.
62. (b) ISOPOM provides flexibility to states in
implementation based on a regionally differentiated
approach for promoting crop diversification and
providing a focus to the programme. This scheme is
under implementation in the country for increasing
area, production and yield of these crops from 2004-
05. The pulses component was merged with NFSM
w.e.f. April 2010.
63. (c) RKVY was launched in 2007-08 for the 11th plan
to incentivize states to enhance investment in
agriculture and allied sectors to achieve 4% growth
rate. The government has approved continuation
of the RKVY scheme in the 12th plan whereby
the funding will be routed into three components-
production growth, infrastructure and assets, and
sub-schemes and flexi-fund.
64. (c) The second Green Revolution seeks to minimize
post-harvest wastage, improve storage and help
Indian farmers meet the phyto-sanitary conditions so
that they can participate productively in the global
agricultural trade. The first Green Revolution was
assisted by research undertaken by public institutions
such as Universities. However, the second Green
Revolution (appropriately called Gene Revolution,
because of the predominance of Biotechnology) will
be directed by proprietary research and governed by
Intellectual Property Rights.
65. (d)
66. (c) Factors like the size of holdings, the pattern of
ownership, the method of inheritance and security
of tenure have a definite impact on investment in
agriculture.
67. (d) The Zamindari System prevailed in Bengal, Bihar,
Orissa and North Madras. It was introduced by
the East India Company and under it a class of
revenue collectors, called zamindars, was created.
These zamindars acted as intermediaries between
the cultivators and the government. Revenue was
‘settled’ by the government with zamindars, either
permanently or temporarily.
68. (d) Ryotwari System was prevalent in parts of Madras,
Bombay province and Assam. Under this system,
the cultivator paid the revenues directly to the state
without an intermediary.
69. (b) 70. (d)
71. (b) Blue Box subsidies include direct payments to
farmers to limit production and certain government
assistance to encourage agriculture and rural
development in developing countries. Blue Box
subsidies are seen as being trade distorting.
72. (b) In Co-operative tenant farming, the society holds
the land and leases it to individual members.
73. (d) Land Development Banks (LDBs) provide long-
term rural credit for land improvement, soil
conservation and other investments of a capital
nature. LDBs have now been renamed as State
Co-operative Agricultural and Rural Development
Banks (SCARDBs). They raise their funds through
long-term debentures offering state government
guarantee, and refinancing from NABARD.
74. (c) NABARD formulated a model scheme for issue of
Kisan Credit Cards (KCCs) to farmers so that they
may use them to readily purchase agricultural inputs
such as seeds, fertilizers, pesticides, etc. These
are operated by commercial banks, RRBs and co-
operative banks.
75. (d)
76. (b) These are provided for a period of less than 15
months to meet out expenses of routine farming and
domestic consumptions.
77. (d) Industrial sector was given more importance in this
plan, Agricultural Expenditure was only 20% of the
actual plan expenditure, The agricultural growth,
however, was high at 3.15%.
78. (a) Procurement price is that price at which government
purchases the crop after harvesting, while MSP is
the minimum price at which government declares
it will buy the crop. Since 1968-69, the MSP is
usually the procurement price.
79. (c) These are the most important source of rural credit.
80. (d)
81. (b) Co-operative collective farming, where land is
irrevocably surrendered to the collective
82. (b) NABARD is the apex institution for providing
credit facility to agricultural and rural areas. It
came into existence on July 12, 1982 and took over
the functions of the erstwhile Agricultural Credit
Development (ACD), Rural Planning and Credit
Cell (RPCC) of RBI and the Agricultural Refinance
Development Corporation (ARDC).
83. (a)
84. (d) Its primary task is to function as refinancing
institution for all types of lending for agricultural and
rural development. In addition to this, it provides
term credit to state co-operative banks, regional
rural banks, land development banks and state
governments (only for share capital contribution to
co-operative credit societies).
E-70 Agriculture
85. (c) Co-operative joint farming, where the farmers
pool their land and reap the economies of scale,
although the ownership continues to remain with the
individual farmer.
86. (d) 87. (c)
88. (a) These are provided for a period of 15 months to 5
years to purchase agricultural equipments, animals
and for land improvements.
89. (c) Buffer stocking, which is the practice of holding
large stocks by government agencies like Food
Corporation of India (FCI) and releasing the stocks
in the market to counter price rise. The buffer stock
also helps to maintain the Public Distribution System
(PDS).
90. (b) The WTO Agreement on Agriculture (AoA), 1995
permitted the developed countries to continue to
provide farm subsidies, but under certain restrictions
91. (a) RKVY was launched in 2007-08 for the 11th plan
to incentivize states to enhance investment in
agriculture and allied sectors to achieve 4% growth
rate. The government has approved continuation
of the RKVY scheme in the 12th plan whereby
the funding will be routed into three components-
production growth, infrastructure and assets, and
sub-schemes and flexi-fund.
92. (d)
93. (c) Amber Box subsidies include all agricultural
subsidies that do not fall into either blue or green
boxes. These include government policies of
Minimum support Prices (MSP) for agricultural
products or any help directly related to production
quantities (for eg. power, fertiliser, seeds, pesticides,
irrigation etc.).
94. (a) Public Distribution System (PDS) was conceived
as a primary social welfare and poverty alleviation
programme of the government to ensure price
stabilization in the grain market. Government’s
objective of providing reasonable prices for basic
food commodities like food grains, sugar, edible
oil and kerosene is achieved through the Public
Distribution System of India, the largest PDS of the
world.
95. (d) The Food Corporation of India (FCI) was established
in 1965, as the public sector marketing agency
responsible for implementing government price
policy through procurement and public distribution
operations. It was responsible for securing for the
government a commanding position in the food-grain
trade. By 1979, the corporation was operating in all
states as the sole agent of the central government in
food-grain procurement.
96. (c) Targeted PDS (TPDS) means targeting the PDS to
the poor. This system started when the procurement
and issue prices of PDS items saw a rise with the
ushering in of economic reforms in the 1990s.
97. (d)
98. (d) The emphasis in this revolution is on sustainable
agriculture by means of organic and green
agriculture. Dr. MS Swaminathan gave this concept.
It includes the use of integrated pest management,
nutrient supply and resource management.
99. (b) NHM was launched in 2005-06 for promotion of
holistic growth of horticulture sector, including
fruits, vegetables, root and tuber crops, mushroom,
spices, flowers, aromatic plants, cashew and cocoa.
100. (d) Agriculture Insurance Company of India Limitedwas
incorporated in 2002 and is under the administrative
control of Ministry of Finance, Government of
India, and under the operational supervision of
Ministry of Agriculture, Government of India. It
seeks to provide insurance coverage and financial
support to the farmers in the failure of any of the
notified crop.
101. (c) 1. First Five Year Plan (1951-56)- Agriculture and
community development
2. Second Five Year Plan (1956-61)- Heavy Industry
3. Fifth Five Year Plan (1974-79)- Removal of
Poverty
4. Ninth Five Year Plan (1997-2002)- Food Security
and woman empowerment.
102. (a) 103. (a)
104. (b) We have a National Seed policy made in 2002. So 1
is not a constraint. The private sector produces high-
priced seeds but in lower volume. It supplies nearly
the entire hybrid seeds required for vegetables. So 2
is not a constraint. In the case of low value and high
volume crops such as wheat and rice, farmers tend
to use their own preserved seeds as there is demand
and supply gap. So 3 is a constraint.
 FISCAL AND MONETARY
4
POLICY

Introduction
Fiscal Policy deals with the taxation and expenditure decisions of the goverment covered in the annual budget. Monetary Policy
deals with the supply of money in the economy and the rate of interest. In India, the goverment deals with fiscal policy, while
the Central bank (RBI) is resoponsible for monetary policy.

Fiscal policy
Fiscal policy or budgetary policy refers to the use by
the government of the various instruments such as
taxation, expenditure and borrowing in order to achieve
the objectives of balanced economic development, full
employment or to establish a welfare state. In the context of
economic liberalization, the major themes of the fiscal policy
comprises:
(i) a systematic effort to simplify tax structure and tax laws
(ii) a deliberate move to a regime of reasonable direct tax
rates and better administration and enforcement.
The budget or the annual financial statement of the government
gives expression to its fiscal policy. Under Article 112 of the
Indian Constitution, the President shall cause to be laid, before
both the Houses of Parliament a financial statement at the
commencement of every financial year. The General Budget is
presented in Lok Sabha by the Minister of Finance.
E-72 Fiscal and Monetary Policy

Union budget or Annual financial statement is a statement
of estimated receipts and expenditures of the Government of
India. It has to be placed before Parliament for every financial
year, i.e. April 1 to March 31 & being presented at 11 a.m.
on the last working day of February. The annual financial
statement gives the following details:
(a) An outline of the results of the last financial year
compared with the previous budget estimates.
(b) Government forecasts of receipts and payments for the
next year.
(c) Proposed changes in taxes and expenditure allocations.
For instance, the Government can change the proportion
of revenue collected from direct taxes and indirect taxes
or it might increase public expenditure on defence and
decrease that of social services.
The budget shows the receipts and payments of the
Government under three heads:
(i) Consolidated fund
It consists of all revenues and loans received by the
government. Article 114(3) of the Constitution declares
that no money can be taken out of Consolidated Fund on
India without the approval of the Lok Sabha.
(ii) Contingency fund
It comprises of the sum placed at the disposal of the
President to meet unforeseen expenditure.
(iii) Public Account
It consists of receipts and payments, which are in the
form of deposit account with the Government, such as
provident funds, small savings, etc.
There are two parts of budget, i.e. Revenue Account and
Capital Account.
Revenue Account contains all current receipts, such as taxation,
(central excise, custom duty, corporation tax) dividends of
public sector units (PSU’s) and expenditure of the Government.
Capital Account consists of all capital receipts and expenditure
such as domestic and foreign loans, loan repayment, foreign, etc.
Expenditure
Total expenditure of the government can be classified into
two categories- Developmental or Non-developmental.
Developmental expenditure includes government spending
with the aim of creating economic and social infrastructure
like transport, roads, communication, hospitals, school, etc.
Non-developmental does not directly contribute to
development of economy, for example expenditure for loan
repayment, interest payable on internal and external loans,
defence expenditure, subsidies, etc. In the Indian budget
management, this classification is not used.
In India, the public expenditure is of two types – Plan and Non-plan.
Plan Expenditures
Expenditure on central plans such as agriculture, rural
development, irrigation, transport, communications, environment
and welfare schemes are considered plan expenditure.
Non-plan Expenditures
Non-plan expenditure is further divided into Revenue
expenditure, which includes interest payments, subsidies,
defence expenditure and Capital expenditure, which includes
loans to PSUs, states, foreign governments.
In short, all asset creating and productive expenditure is
part of plan expenditure, and all non- productive, consumptive
and non- asset building expenditure is part of non- plan
expenditure.

Public Expenditure

Non–Plan (Expenditures Plan (Expenditures

not envisaged in envisaged in
5 year plan documents) 5 year plan documents)

Central Assistance
Central Palns for Plans of States
Revenue Capital & UTs.

Police Social Services

Interest Pensions Loans to public
Payments Enterprises Transport & others
Broadcasting Agriculture
Education Technology &
Loans to States Environment
Industries & UTs & Foreign
Agricultural Defence Revenue Governments. Rural Development
Subsidies
Expenditure
Grants to States &,
UTs & Foreign
Governments
Fiscal and Monetary Policy E-73
On the recommendations of the Sukhomoy Chakravarti
Committee, from the financial year 1987-88, Indian budget
started being classified as plan and non-plan expenditure,
instead of developmental and non-developmental.
Deficit
It means shortage. The gap between Revenue and Expenditure
is called Deficit.
Types of Deficit
Revenue deficit means the excess of current revenue expenditure
over current revenue receipts. Revenue deficit indicates that
the government cannot meet its current expenditure from its
current revenue.
Revenue Deficit= Revenue expenditure – Revenue receipts
Budget deficit is the overall deficit, i.e. the excess of total
expenditure over total revenues. It includes both capital and
revenue items in receipts and expenditure. Traditionally,
deficit financing in Indian budgets had meant filling this gap.
Budget Deficit= Total expenditure – Total receipts
Fiscal deficit is budget deficit plus borrowings and other
liabilities. Previously, when budgetary deficit was the prime
consideration, borrowings from the market and receipts from
national savings, provident funds, etc. were being treated as
capital receipts. To this extent, government’s actual deficit
was being understood. In other words, fiscal deficit indicates
the total borrowing requirements of the government from all
sources, whereas budgetary deficit only indicated government’s
borrowing from RBI.
Fiscal deficit = Revenue receipts (net tax revenue and
non tax revenue capital receipts (only
recoveries of loans and other receipts) –
Total expenditure (Plan and non-plan)
or
Fiscal deficit = Budget deficit + Government’s market
borrowing and liabilities.
The fiscal deficit situation shows whether the government is
spending beyond its income. India has, unfortunately, been a
country prone to constant and high fiscal deficit situations. A
high fiscal deficit implies high indebtedness of the government
and a deficit above 3% in the Indian context means an alarming
situation for the government finances.
In India, a high fiscal deficit is mainly due to high revenue
deficit which implies that it is mainly due to the government’s
day to day expenditure being more than its day to day income,
such that it has to borrow to meet its daily requirements which,
by definition, is unhealthy and dangerous, because borrowing
is good only if it is for productive purposes. Hence, the FRBM
Act, 2004 laid down that the government’s revenue deficit
should be brought down to zero and its fiscal deficit should not
be allowed to exceed 3% of the GDP by 2008-09, but this has
still not been achieved.
A high fiscal deficit is also inflationary because it is mainly
due to the government’s high non plan expenditure which
is unproductive. Besides, a high fiscal deficit imposes huge
burden by way of repayment of interest and principal. As
such, the Kelkar panel in 2012 on fiscal consolidation
recommended a series of measures like disinvestment, raising
diesel prices, auction of spectrum, pruning some plan schemes
and rationalising of subsidies.
Primary Deficit = Fiscal Deficit–Interest Payments.
India started using this term since 1997-98. Primary deficit is
considered a very useful tool in helping bring more transparency
in the government’s pattern of expenditure. It shows the current
state of government finances. If interest payments are deducted
from fiscal deficit, then it will obviously show a lesser deficit
for that year as the interest payments are on account of loans
taken in the past and not in the present year.
Monetised deficit refers to that part of deficit for which the
government borrows from the RBI. To meet the government’s
such requirements, the RBI prints fresh currency, as a result
of which the economy gets monetised. This term was adopted
by India in 1997-98.
Budget 2015-16
Tax revenue (income and 9,19,842 crores
corporate taxes)
Non-tax revenue (customs, 2,21,733 crores
excise duties and service
taxes)
Total Revenue Receipts 11,41575 crores
Fiscal Deficit 3.9% (555649 Cr.)
Revenue Deficit 2.8% (394472 Cr.)
Primary Deficit 0.7% (99504 Cr.)
Non-Planned expenditure 13,12,200 crores
Planned expenditure 4,65,277 crores
Total Expenditure 17,77,477 crores
Taxes
Taxes are the main source of government revenues. The pri-
mary purpose of taxation is the mobilisation of resources and
channelising the same for productive investment. Taxation can
also be used as a measure to promote equity and reduce dispar-
ities or to encourage or discourage consumption of particular
items. Taxation is in the nature of a compulsory levy and there
is no quid pro quo between the amount paid and the services
provided by the government.
Taxes are broadly divided into two - direct and indirect.
Taxes like income tax and property tax are direct taxes, while
excise duty and sales tax are examples of indirect taxes. The
difference between the two is that in the case of direct taxes
the burden or ‘incidence’ has to be borne by the taxpayers
themselves whereas in the case of an indirect tax, the burden
can be shifted to another person. For example, a trader who is
the assessee in the case of sales tax shifts the burden on to the
purchasers by recovering the sales tax from them.
Another difference between indirect and direct taxes is that
the rich and the poor will have to pay the same rate of indirect
tax while a direct tax can be made progressive by prescribing
different rates of tax for different income levels.
E-74 Fiscal and Monetary Policy
Income Corpora Wealth Commodities Minimum
Tax the Tax Tax Transaction Tax Alternate Tax
DIRECT
TYPES
TAX
Classification
Proportional Progressive Regressive
Taxation Taxation
Taxes can also be categorized as progressive, regressive and
proportional taxes.
(1) Progressive Tax
Progressive tax means rates of tax increase for increasing
values or volumes on which the tax is levied.
Income tax is a progressive tax as it has exemptions for
very small incomes, low rates for the first slab of taxable
income, and higher rates for the largest incomes.
Indirect taxes can be progressive if there are exemptions or
low tax rates for goods heavily consumed by the poor, and
higher rates on luxury items, mostly consumed by the rich.
India has adopted this system for income tax. This is pro-
poor way of taxation and is popular in the whole world.
(2) Regressive tax
Regressive tax is one where the proportion of tax paid falls
as income rises.
The most regressive tax is a poll tax, levied at a fixed rate
per person regardless of income. A tax system can be made
regressive by having indirect taxes levied at relatively high
rates on goods heavily consumed by the poor.
(3) Proportional Tax
Proportional tax is one by which the revenue collected
rises proportionally with income. A tax system could be
made approximately proportional by having a uniform rate
of income tax with very few exemptions, and indirect taxes
levied at similar rates on as many goods and services as
possible.
At some level, progressive and regressive taxes have to
be made proportional, otherwise there will be no limit to
increase or decrease as the case may be.
Indian Tax Structure
(A) Direct taxes
Income Tax
It is the tax levied directly on the income of the people by the
Central Government.
Excise Custom Service
Duties VAT GST
Duties Tax
INDIRECT
Taxation
Corporation tax
It is the tax on income (profit) of the companies. In 1996, gover
introduced Minimum Alternate Tax (MAT) on companies
which escaped the corporation tax net by using the provisions
of exemptions, deductions incentives, depreciation and so on.
(B) Indirect Taxes
Central excise duty
The commodities which are produced within the country levied
by central excise duty. However, commodities on which state
governments impose excise duties (e.g. liquor, drugs) are
exempted from the central excise duty. In recent years large
number of goods has come under excise duty. Moreover, the
rates of these duties have also been increasing.
Customs duty
It is the tax imposed on commodities imported into India
(import duty) or those exported from India (export duty). Since
imposing duties on exports reduced the competitive position
of the country, the government withdrew export duties. In
recent times; there has been considerable increase in revenue
from import duties because of heavy imports of iron and steel,
petroleum products, chemicals, etc. In the new requirements
under WTO, import duty will be the only means to curb inputs.
Custom duty had been the target revenue generator since
independence. But in recent years the excise duty has overtaken
the custom duty as the largest revenue earner.
Service tax
It is a tax imposed on the person, who avails any specified
service. It was introduced in 1994-95 to address the
asymmetric and distortionary treatment of goods and services
in tax framework and to widen the tax net. The number of
services liable for taxation was raised from 3 in 1994-95 to 119
in 2011-12. However, this concept of a list of services liable
for taxation was changed by the Budget 2012. In this budget,
the government revamped the taxation provisions for services
Fiscal and Monetary Policy E-75
by introducing a new system of taxation of services in India.
In the new system all services, except those specified in the
negative list, are subject to taxation.
Value Added Tax (VAT)
It was introduced in France to overcome the cascading effect
of several taxes-from raw material to the final product in
the process of production. In VAT, the tax on all inputs can
be deducted from the excise paid on the output so taxes are
levied on the value added to each stage in the production
process. VAT system of taxation is adopted in more than 150
countries including Australia and Canada. The main advantage
of VAT over any other form of indirect tax is that it shifts
the tax base towards the point of final consumption from the
first point of sale. It thus ensures the “tax neutrality” of the
production decisions. VAT is introduced in India in 2005. The
basic features of the tax include 2 rates of 4% for comman
consumption commodities and inputs and 12.5% for the
others. Some essential items are exempted and precious metals
are taxed at 1%.
Goods and Services Tax*
The introduction of the GST would be a significant step in the
field of indirect tax reforms in India. By subsuming a large
number of central and state taxes into a single tax, it would
mitigate cascading or double taxation in a major way and pave
the way for a common national market. From the consumer’s
point of view, the biggest advantage would be in terms of a
reduction in the overall tax burden on goods, which is currently
estimated at 25%- 30%. Introduction of the GST is also
expected to make Indian products competitive in domestic and
international markets. Studies show that this would instantly
spur economic growth. Because of its transparent character, it
is expected that the GST would be easier to administer.
The broad features of the proposed GST model are as follows:
(i) GST would be applicable on supply of goods or services
as against the present concept of tax on the manufacture
or on sale of goods or on provision of services.
(ii) GST would be a destination-based tax as against the
present concept of origin-based tax.
(iii) It would be a dual GST with the Centre and the states
simultaneously levying it on a common base. The GST
to be levied by the Centre would be called Central GST
(CGST) and that to be levied by the states would be
called State GST (SGST).
(iv) An integrated GST (1GST) would be levied on inter-state
supply (including stock transfers) of goods or services.
This would be collected by the Centre so that the credit
chain is not disrupted.
(v) Import of goods or services would be treated as inter-
state supplies and would be subject to IGST in addition
to the applicable customs duties.
* Source: Department of Revenue and and NCAER
Working Paper No. 103 titled ‘Moving to Goods and
Services Tax in India-Impact on India’s growth and
International Trade’, 2009.
(vi) A non-vatable additional tax, not exceeding 1% on inter-
state supply of goods would be levied by the Centre and
retained by the originating state at least for a period of
two years.
(vii) CGST, SGST, and IGST would be levied at rates to be
recommended by the Goods and Services Tax Council
(GSTC) which will be chaired by the Union Finance
Minister and will have Finance Ministers of states as its
members.
(viii) GST would apply to all goods and services except alcohol
for human consumption.
(ix) GST on petroleum products would be applicable from a
date to be recommended by the GST Council.
(x) Tobacco and tobacco products would be subject to the
CST. In addition, the Centre could continue to levy
Central excise duty.
(xi) A common threshold exemption would apply to both
CGST and SGST Taxpayers with a turnover below it
would be exempt from GST. Compounding option (i.e.to
pay tax at a flat rate on turnover without credits) would
be available to small taxpayers below a certain threshold.
However, a taxable person falling within the limit of
threshold or compounding could opt to pay tax at the
normal rate in order to be part of the input tax credit
chain.
(xii) The list of exempted goods and services would be kept
to a minimum and it would be harmonized for the Centre
and states as far as possible.
(xiii) Exports would be zero-rated.
(xiv) Credit of CGST paid on inputs may be used only for
paying CGST on the output and the credit of SGST paid
on inputs may be used only for paying SGST. In other
words, the two streams of input tax credit (ITC) cannot
be cross utilized, except in specified circumstances of
inter-state supplies, for payment of IGST.
Over the past four decades, the value added tax (VAT) has
been an important instrument of indirect taxation, with 130
countries having adopted it, resulting in one-fifth of the world’s
tax revenue. Tax reform in many of the developing countries
has focused on moving to VAT.Federal countries like Canada,
New Zealand, and Australia have successfully adopted the
GST into their structure. Implementation of a comprehensive
GST in India is expected, ceteris paribus, to lead to efficient
allocation of factors of production thus bringing about gains in
GDP and exports. This would translate into enhanced economic
welfare and higher returns to the factors of production, viz.
land, labour, and capital. However, in the near term, as GST
replaces a number of state-level and Central taxes, revenue
gains may not be significant.
2015-16 Budget Estimate- Gross Tax receipts are estimated
to be ` 14,49,490 crore. Devolution to the States is estimated
to be ` 5,23,958 crore. Share of Central Government will be
j` 9,19,842 crore.
E-76 Fiscal and Monetary Policy

There are three techniques of deficit financing

9% s
om
Cust

ve x
Re on-ta
Borrowings

10 nue
24%

%
N
Creation Of Issue Of New Accumulated
cise New Money Currency Cash Balance
n Ex
Unio es 10%
Duti
Income tax Servi External aid and borrowings
14% ta
l & oth ce Tax
pi er Ta A developing country often resorts to foreign aid if it finds that
a xes
tc % 9%
e b 4 domestic sources are not large enough. But a country going for
-d pt Corporation tax
on ei
N ec 20% foreign aid has to take two precautions:
R
(i) Keeping the borrowing level low so that country does not
fall in a debt trap, and
Share of Govt. Earnings In
(ii) Keeping foreign aid strings-free.
Union Budget 2015-16
External grants and borrowings are different things. External
aids and grants may come free or with very low or even zero
DEFICIT FINANCING interest rates. However, these may come with many terms
The process of bridging the gap between the revenue and and conditions attached which are usually not good for a
expenditure is called deficit financing. In other words, Deficit country’s economy and autonomy. External borrowings means
financing refers to the ways in which the budgetary gap is taking loans from other countries. External borrowing is often
financed. preferred as it brings foreign currency which may help the
government in various ways. It is also preferred over internal
Deficit financing was first done in the USA in 1930s as a tool borrowings because if the government itself starts borrowing
to get out of the effects of the Great Depression. India tried from the banks of the country, there might not be enough left
this in 1969 and it gradually became a routine phenomenon in for other borrowers.
Indian fiscal management.
Objectives of Deficit financing Internal Borrowings
1. It is used as a tool for meeting financial needs of These are not usually preferred because they might hamper the
government, especially in times of war. investment scenario of the public and corporate sector of India.
But, it may be resorted to as and when required.
2. In under-developed countries, deficit-financing has been
considered essential for financing the plans of economic Printing currency
development.
It is usually the last resort for the government in managing its
3. It is used for the mobilisation of surplus, non- utilised and deficit. It might help the government in times of need but it
idle resources in the economy. should be undertaken only in case of extreme necessity as it has
4. It is used as an instrument of economic policy for many damaging effects on the economy. It increases inflation
removing the conditions of depression and to raise the proportionally. It may also lead to a pressure on the government
level of output and employment. for an upward revision in salaries of government employees,
which in turn will lead to an increase of government’s
Public debt
expenditure, further necessitating printing of currency and
Governments in developing countries borrow internally under more inflation. Thus, it may begin a vicious cycle. Moreover,
various attractive schemes of capital accumulation. Public debt it also has the obvious drawback in the fact that it cannot help
has three components: in case of expenditures that are to be done in foreign currency.
(i) Internal debt: It includes market loans from banks and
financial institutions, short-term borrowings on treasury Black Money
bills and other bonds and certificates issued by the
It is unaccounted money which is concealed from tax authorities.
government.
All illegal economic activities are dealt with this Black Money.
(ii) Other internal liabilities: It includes small saving Hawala market has deep roots with this black money. Black
schemes, provident fund, reserve fund of the railways, money creates parallel economy. It puts an adverse pressure
post and telegraph on which the Central Government has on equitable distribution of wealth and income in the economy.
to pay interest.
Some of the reasons for the spread of black money in India
(iii) External debt: It includes loan from foreign countries and are:
international financial institutions like the World Bank,
• The shortage and consequent black marketing during the
IMF, ADB, etc. war years and the troubled days of partition;
Fiscal and Monetary Policy E-77

• The launching of the five-year plans with large expenditure Finance Commission
on projects and the consequent enlargement of bureaucracy;
• The regime of controls over economic activity providing Under Article 280 of the Constitution, the President appoints a
scope for corrupt practices; Finance Commission every five years to determine:
• Heavy taxation and cumbersome procedures which prompt • the distribution of net proceeds of taxes to be shared
the evasion; between Centre and states;
• Rent control and other regressive laws which led to • the principles which should govern the payment by Union
concealment of actual values in real estate transaction; of grants-in-aid to states; and
• Dishonest foreign trading involving under-invoicing of • any other matter concerning financial relations between
exports and over-invoicing of imports; centre and states.
There are numerous deleterious effects of black money. It Finance Commission is a constitutional body. However, its
distorts the real picture of the economic system. It leads to recommendations, called awards, are only advisory in nature
investment of scarce resources in unproductive areas such as and not binding on Central and State governments. After the
real estate, bullion and precious stones. It acts against the poor 73rd and 74th amendments, Finance Commissions are required
and those with fixed incomes. Most importantly, the existence to recommend steps to supplement resources of local bodies also.
of black money distorts the value system of the society and The latest Finance Commission was set up on January 2,
affects the moral fabric of the society in the long run. 2013, under the chairmanship of Dr. Y. V. Reddy, former
There is no one solution for the evils of black money. The RBI Governor. This is the 14th Finance Commission. Other
most obvious remedy is to simplify the tax structure so that members include Prof. Abhijit Sen, Ms. Sushma Nath, Dr. M.
from a feeling of extortion, the taxpayer is made to feel a sense Govinda Rao and Dr. Sudipto Mundle. The recommendations
of participation in nation building. This requires considerable of the commission will apply on the period 2015-20.
scaling down of the rates and easy settlement of pending cases. Finance Commissions Appointed So Far:
Easing of import controls, especially of quantitative types,
Finance Commission Chairman Operational
and allowing liberal import of consumer goods subject to
Duration
payment of duty is another measure. Removal of restrictive
laws like rent control and urban land ceilings, which have only First K.C. Neogy 1952-57
encouraged the generation of black money, will obviate the Second K. Santhanam 1957-62
need for entering into concealed transactions. Third A.K. Chanda 1962-66
The Black Money and Imposition Act, 2015, which came Fourth P.V. Rajamannar 1966-69
into effect from 1 july 2015, lends 90-days compliace Fifth Mahavir Tyagi 1969-74
window. This gives the person having undisclosed foreign Sixth K.Brahmananda 1974-79
assets and income, a chance to come clean by declaring all Reddy
such assets and paying a total of 60% tax and penalty.
Seventh J.M. Shelat 1979-84
General Anti Avoidance Rules (GAAR) Eighth Y.B. Chavan 1984-89
GAAR has been introduced as a very important component of Ninth N.K.P. Salve 1989-95
Direct Tax code with the objective of preventing such deals Tenth Late Shri KV Pant 1995-2000
and transactions that are carried out to evade and avoid paying
Eleventh A.M.Khusro 2000-2005
taxes. In other words, GAAR seeks to prevent such transactions
that are carried out by way of aggressive tax planning so as to Twelfth C. Rangarajan 2005-2010
avoid paying taxes. GAAR has been prompted by practices Thirteenth Dr. Vijay L Kelkar 2010-2015
of ‘round- tripping’ whereby a company operating in India Fourteenth Yega Venugopal 2015-2020
may deliberately incorporate its office in a tax haven country, Reddy
moves its assets there and invests back in India, thereby
avoiding paying tax in India. Monetary Policy
The announcement to implement GAAR from 2012-13 caused
panic among foreign investors and led to massive outflow of Monetary policy refers to the set of measures adopted by the
foreign funds, which led the government to set up Shome Central bank for monetary management.
committee to review GAAR. The Committee recommended, Monetary Policy Objectives
among other things, postponement of GAAR and also • Stability of external value Fluctuation in exchange rate
recommended that it should not be imposed on investments of a currency affects foreign trade and investment. It is,
from Mauritius and Singapore. It also recommended that therefore, important that the rate of exchange is maintained
GAAR should not be imposed if the tax liabilities are less without violent fluctuations.
than 3 crores. It also suggested doing away with the arbitrary
powers given to tax authorities in India. • Maintenance of domestic price level Fluctuation in
prices affects investment decisions. It also leads to
E-78 Fiscal and Monetary Policy
increasing income disparities. However, monetary policy
alone cannot ensure the maintenance of domestic prices,
as several other factors such as erratic monsoons, changes
in tastes, fluctuation in world prices, etc. affect domestic
prices.
• Reducing the impact of business cycles (slumps and
booms) by manipulation of credit and interest policy.
However, economists are not of the same opinion on
whether business cycles are primarily caused by monetary
factors.
Indian Monetary Policy
Planned economic development adopted by India required an
active monetary policy. The two stated aims of this policy
were:
• boost economic development.
• control inflationary pressure.
The Reserve Bank of India is the nodal agency for
implementing the monetary policy. RBI has defined its
monetary policy in terms of “adequate financing of economic
growth and at the same time ensuring reasonable price
stability”. The agreement on Monetary Policy framework
between the Government and the RBI dated february 20, 2015
defines the price stability objective explicitly in terms of the
target for inflation- as measured by the consumer price index-
combined (CPI-C) in near to medium term, i.e.
(a) below 6% by january 2016, and
(b) 4% for the financial year 2016-17 and all subsequent years.
RBI instruments to achieve a stable monetary policy
includes:
Bank Rate It is the rate at which RBI rediscounts the bills of
exchange. In practice, it is the rate at which RBI lends to other
commercial banks. It thus acts as a signal to the economy on
the direction of the monetary policy. Bank rate had a limited
impact in the period before economic reforms (1991) when
RBI would determine the interest rate structure. However, with
the delegating of this power to the commercial banks (except
interest rates in priority sectors) the importance of bank rate
has been revived. RBI uses changes in Bank Rate to regulate
fluctuations in exchange rate and domestic inflation. Now-a-
days the Prime Lending Rate (PLR) is decided by commercial
banks with reference to bank rate and the deposit position of
each bank. At the moment, this rate is 7.75%.
Cash Reserve Ratio (CRR)
Every commercial bank is required to keep a certain percentage
of its demand and time liabilities (deposits) with the RBI
(either as cash or book balance). The RBI varies this ratio to
change the liquidity of market. RBI is empowered to fix the
CRR at a rate ranging between 3% per cent and 15%. Like
the Bank Rate, CRR is also subject to frequent changes as RBI
intervenes from time to time to correct monetary or exchange
rate imbalances. This ratio, currently, is 4%.
Statutory Liquidity Ratio (SLR)
Statutory liquidity ratio refers to the amount that the
commercial banks require to maintain in the form of cash,
or gold or govt. approved securities before providing credit
to the customers. Here by approved securities we mean bond
and shares of different companies. Statutory liquid ratio is
determined and maintained by RBI in order to control the
expansion of bank credit. It is determined as percentage total
demand and percentage of time liabilities. Time liabilities refer
to liabilities, which the commercial banks are liable to pay to
the customers on demand or pay within one month’s time, due
to completion of maturity period. The maximum limit of SLR
is 40%. At present, the SLR is 21.5%.
If any Indian bank fails to maintain the required level of SLR,
then it becomes liable to pay penalty to RBI. The defaulter
bank pays penal interest at the rate of 3% per annum above
the bank rate on the shortfall amount for that particular day.
If the defaulter bank continues to default on the next working
day then the rate of penal interest can be increased to 5% per
annum above the bank rate. This restriction is imposed by RBI
on banks to make funds available to customers on demand as
soon as possible. Gold and Government securities (Gilts) are
included along with cash because they are highly liquid and
safe assets.
RBI can increase the SLR to contain inflation, suck liquidity
from the market, and to safeguard the customers’ money.
Open Market Operations
This refers to the RBI buying and selling eligible securities to
regulate money supply. Traditionally RBI was not resorting to
this method. However, after the large inflow of foreign funds
since 1991, RBI has had to step in to sterilize the flow to avoid
excess liquidity.
Repo and Reverse Repo
Repo (Repurchase Option) and Reverse Repo are instruments
used by RBI in day-to-day liquidity management. Repo rate is
the rate at which RBI lends to commercial banks and Reverse
Repo is the rate at which RBI borrows from commercial
banks. In inflationary situations, RBI can hike the Reverse
Repo rate and absorb the excess liquidity in the market.
Similarly, in case there is a requirement to increase liquidity
into the system, RBI can reduce the Repo rate which will lead
to release of money into the market. RBI occasionally resorts
to the Repo rate to fine-tune the liquidity position, without
resorting to major policy instruments such as changes in
CRR and Bank Rate. However, markets are bound to react to
frequent changes in the Repo rates and this will be reflected to
frequent in corresponding changes in the deposit and lending
rates of commercial banks.
l Margin Requirement- refers to difference between the
securities offered and amount borrowed by the banks.
l Rationing of Credit - RBI controls the credit granted/
allocated by commercial banks.
l Moral suasion - Psychological means and informal
means of selective credit control.
l Direct Action - Refers to the step taken by the RBI
against banks don’t fulfil conditions and requirements.
Fiscal and Monetary Policy E-79
CREDIT CONTROL MEASURES
Quantitative
Bank Open Market Cash Statutory
Rate Policy Operations Reserve liquidity
Ratio Ratio
Capital Account Convertibility (CAC)
A currency is said to be convertible when it can be freely
exchanged for another currency at market rates. Transaction
of current account includes dealing with payments relating to
foreign trade, travel and other services. Capital account deals
with transaction in financial assets. While India has made the
Indian rupee fully convertible on current account, it is yet
to accept capital account convertibility as a goal. Broadly,
capital account convertibility would mean freedom for firms
and residents to freely buy into overseas assets such as equity,
bonds, property, and acquire ownership of overseas firms
besides free repatriation of proceeds by foreign investors.
India is reluctant to increase the pace capital account
convertibility by taking experience of Mexico. It was one of
the largest recipients of foreign private capital ($29 billion in
1993). But, with the devaluation of its currency and the collapse
of the exchange rate, much of the capital fled the country. This
catastrophic collapse was due to capital account convertibility,
which encouraged even Mexican residents to convert their
capital into dollars, precipitating the crisis. Similar situation
arose in the late 1997 in South East Asian countries also where
their local currencies were devaluated by 58% in one month.
There is a difference in concept between ‘Full Currency
Convertibility’ and a ‘Fully Open Capital Account’. Currency
convertibility refers to the absence of any restriction on the
holding of foreign currencies by residents and of the national
currency by foreigners, and on free conversion between
currencies. It does not preclude restrictions on the type and
quantity of non-currency assets that residents can hold abroad
or foreigners can hold in the country. An Open Capital
Account, on the other hand, is the absence of restrictions
on non-currency asset holdings, and can exist without free
conversion of the currency.
Qualitative
Margin Rationing Moral Direct
Requirements of Credit Suasion Action
While India made the rupee fully convertible under current
account, it was felt that the economy was not yet ready for
capital account convertibility. The countries which went in
for hasty CAC in the 1980s had to face financial crisis. The
thinking was that trade and domestic liberalization process
should be completed before CAC can be thought of. Many
economists feel that CAC will only help the drain of Indian
capital, which will get invested abroad. The present policy is
to go slow on CAC.
The RBI appointed the Committee on Capital Account
Convertibility (CAC) with S.S Tarapore as chairman. The
Committee submitted its report in 1997 setting a three-phase
time-table (1997-98, 1998-99, 1999-2000) to achieve CAC.
Committee, recommended that capital account convertibility
would be greatly beneficial for India by making available
large funds (which would promote economic growth) and
improved access to world financial markets, bringing about
an improvement of the country’s financial system in the
global context, besides allowing Indians to acquire and hold
international securities and assets.
Before attaining full convertibility, the CAC recommended,
India was to fulfill certain important preconditions:
Fiscal consolidation: Reduction in gross fiscal deficit from
4.5% of GDP in 1997-98 to 3.5 % in 1999-2000.
Mandated inflation rate: The mandated rate of inflation for 3
years should be an average of 3 to 5 %.
Based on the recommendations of the Committee, the Foreign
Exchange Regulation Act (FERA) was repealed and replaced
with Foreign Exchange Management Act (FEMA) in June
2000. FERA was considered a very rigid regulation and
promoted conservation of foreign exchange. FEMA in turn
encouraged the formation of a foreign exchange market and
facilitated trade.
E-80 Fiscal and Monetary Policy
Exercise - 1
1. The process of budget making after re-evaluating every
item of expenditure in every financial year is known as-
(a) Performance Budgeting
(b) Deficit Budgeting
(c) Zero Based Budgeting
(d) Fresh Budgeting
2. Which of the following is not viewed as a national debt?
(a) Provident Fund
(b) Life Insurance Policies
(c) National Saving Certificate
(d) Long-term Government Bonds
3. Tarapore Committee submitted its report on “Full
Convertibility on Rupee” in-
(a) Current account stage
(b) Capital account
(c) Both in current as well as in capital account
(d) Special Drawing Rights (SDRs)
4. CENVAT is related to-
(a) Sales Tax (b) Excise Duty
(c) Custom Duty (d) Service Tax
5. Plan expenditure in India is met by-
(a) Internal debt and other resources
(b) Assistance from Aid India Club
(c) Assistance from IMF
(d) Assistance from OECD countries
6. High fiscal deficit is cause for concern for any economy.
What does it denote?
(a) It is a measure of the borrowing of an economy
(b) It is total expenditure less total receipts excluding
borrowings
(c) It reflects the decrease in tax collections for the year
(d) it means the lack of liquidity and earnings for the
economy
7. With reference to the Finance Commission of India,
which of the following statements is correct ?
(a) It encourages the inflow of foreign capital for
infrastructure development
(b) It facilitates the proper distribution of finances
among the Public Sector Undertakings
(c) It ensures transparency in financial administration
(d) None of the statements (a), (b) and (c) given above
is correct in his context
8. Which one at the following is responsi­ble for the
preparation and presentation of Union Budget to the
Parliament?
(a) Department of Revenue
(b) Department of Economic Affairs
(c) Department of Financial Services
(d) Department of Expenditure
9. In India, the tax proceeds of which one of the following
as a percentage of gross tax revenue has significantly
declined in the last five years?
(a) Service tax (b) Personal income tax
(c) Excise duty (d) Corporation tax
10. Fiscal deficit means:
(a) Total receipts minus expenditure
(b) Total receipts minus interest payments on external
debt
(c) Revenue receipts minus ex-penditure
(d) Revenue receipts minus defense expenditure
11. Value-added tax is
(a) ad valorem tax on domestic final consumption collected
at all stages between production and the point of final
sale
(b) ad valorem tax on final consumption collected at
manufacturing level
(c) tax on final consumption collected at the consumption
(d) special tax levied by states on products from other
states
12. States’ debt does not include:
(a) loos from State Bank of India
(b) loans from the Central government
(c) provident fund
(d) treasury bills issued to inter-national financial
institutions
13. An instrument of qualitative credit control is
(a) Open market operations
(b) variable reserve ratio
(c) Bank rate
(d) Credit rationing
14. Budget deficit is:
(a) excess of total expenditure including loans net of
lending over revenue receipts
(b) difference between revenue receipts and revenue
expenditure
(c) difference between all receipts and all expenditure
(d) fiscal deficit less interest payments
15. Current account in the Balance of Payment comprise is
___?
(a) difference of total exports and imports in one year
(b) invisible account like tourism, shipping, insurance,
etc.
(c) transactions like net external assistance, NRI deposits,
etc.
(d) trade balance plus invisible balance
16. Fiscal stability means that, other things remaining
constant
(a) debt-GDP ratio declines over time
(b) both debt and GDP decrease over time
(c) debt and GDP increase at the same rate
(d) debt increases but GDP remains the same
17. Which is incorrect about convertibility?
(a) Exchange rate should be based on forces of demand
and supply.
(b) Exchange rate should show the strength of the
economy.
(c) Discourage black market transactions.
(d) RBI would become a direct player.
Fiscal and Monetary Policy E-81
18. ____ is not a non-Plan expenditure?
(a) Interest payment
(b) Subsidies
(c) Central assistance for states and UT plans
(d) Defense expenditure
19. Which one of the following statements regarding the levying,
collecting, and distribution of Income Tax is correct?
(a) The Union levies, collects, and distributes the
proceeds of income tax between itself and the states.
(b) The Union levies, collects, and keeps all the
proceeds of income tax itself.
(c) The Union levies and collects the tax but all the
proceeds are distributed among the states
(d) Only the surcharge levied on income tax is shared
between the Union and the states.
20. The diagram shows a relationship between inflation and
unemployment for an economy.
Which of the following policies would move the economy
from A to B?
(a) Reduce interest rate and increase income tax rates
(b) Reduce interest rates and decrease income tax rates
(c) Increase interest rates and decrease income tax rates
(d) Increase interest rates and increase Income tax rates
21. If a government budgets for a surplus and there is an
unexpected increase in the level of economic activity,
which of the following is likely to occur?
(a) There will be an increase in tax revenues and an
increase in the budget surplus
(b) There will be an increase in tax revenues and a
decrease in the budget
(c) There will be a decrease in tax revenues and an
increase in the budget surplus
(d) There will be a decrease in tax revenues and a
decrease in the budget surplus
22. In India, deficit financing is used for raising resources for
(a) economic development
(b) redemption of public debt
(c) adjusting the balance of payments
(d) reducing the foreign debt
23. Which one of the following is the correct statement?
Service tax is a/an:
(a) direct tax levied by the Central Government.
(b) indirect tax levied by the Central Government.
(c) direct tax levied by the State Government.
(d) indirect tax levied by the State Government.
24. The banks are required to maintain a certain ratio between
their cash in hand and total assets. This is called:
(a) SBR (Statutory Bank Ratio)
(b) SLR (Statutory Liquid Ratio)
(c) CBR (Central Liquid Reserve)
(d) CLR (Central Liquid Reserve)
25. The sales tax you pay while purchasing a toothpaste is a
(a) tax imposed by the Central Government
(b) tax imposed by the Central Government but collected
by the State Government
(c) tax imposed by the State Government but collected
by the Central Government
(d) tax imposed and collected by the State Government
26. According to the provisions of the Fiscal Responsibility
and Budget Management
Act., 2003 and FRBM Rules, 2004, the Government is
under obligation to present three statements before the
parliament along with the Annual Budget. Which one of
the following is not one of them?
(a) Macroeconomic Framework Statement
(b) Fiscal Policy Strategy Statement
(c) Medium-term Fiscal Policy Statement
(d) Statement showing Short term Fiscal Policy
27. As per the Economic Survey 2007-2008, which one
of the following is the largest source of revenue of the
Government of India?
(a) Excise Duty (b) Personal income Tax
(c) Corporation Tax (d) Customs Duties
28. Fiscal Policy in India is formulated by
(a) the Reserve Bank of India
(b) the Planning Commission
(c) the Finance Ministry
(d) the Securities and Exchange Board of India
29. Corporation tax is imposed by
(a) State Government
(b) Central Government
(c) Local Government
(d) State as well as Central Government
30. Convertibility of rupee implies [CSAT 2015-I]
(a) being able to convert rupee notes into gold
(b) allowing the value of rupee to be fixed by market
forces
(c) freely permitting the conversion of rupee to other
currencies and vice versa
(d) developing an international market for currencies in
India
31. When the Reserve Bank of India reduces the Statutory
Liquidity Ratio by 50 basis points, which of the following
is likely to happen? [CSAT 2015-I]
(a) India’s GDP growth rate increases drastically
(b) Foreign Institutional Investors may bring more
capital into our country
(c) Scheduled Commercial Banks may cut their lending
rates
(d) It may drastically reduce the liquidity to the banking
system
E-82 Fiscal and Monetary Policy
Exercise - 2
Statement Based MCQ
1. After 1947, development and non-development
expenditures have increased, the increase in the former
being more. Nondevelopment expenditure involves
1. interest payments 2. subsidies
3. defence 4. irrigation
(a) 1 and 2 (b) 1 only
(c) 1, 2 and 3 (d) 2, 3 and 4
2. Consider the following statements in respect of Financial
Commission:
1. It is mandatory to appoint a Finance Commission
every five years.
2. Finance Commission lays down the principles
governing grant-in-aid to states.
3. Finance Minister is the ex-officio Chairperson of the
Finance Commission.
4. The award given by the Finance Commission is
binding on Central and State governments.
Which of the above statements are correct?
(a) 1, 2, 3 and 4 (b) 1, 2 and 4
(c) 1, 2 and 3 (d) 1, 3 and 4
3. Increase in net RBI credit for Central Government
represents-
1. Budgetary Deficit 2. Revenue Deficit
3. Fiscal Deficit 4. Monetised Deficit
Choose the right option
(a) 1 only (b) 1 and 2
(c) 3 only (d) 4 only
4. Which of the following is the main aim of Indian Monetary
Policy?
1. Control inflationary pressure
2. Boost economic development
(a) 1 only (b) 2 only
(c) 1 and 2 (d) Neither 1 nor 2
5. With reference to the Indian Public Finance, consider the
following statements.
1. External liabilities reported in the Union Budget are
based on historical exchange rates.
2. The continued high borrowing has kept the real
interest rates high in the economy.
3. The upward trend in the ratio of Fiscal Deficit to
GDP in recent years has an adverse effect on private
investments.
4. Interest payments is the single largest component
of the non-plan revenue expenditure of the Union
Government.
Which of these statements are correct?
(a) 1, 2 and 3 (b) 1 and 4
(c) 2, 3 and 4 (d) 1, 2, 3 and 4
6. Which of the following is /are among the noticeable
features of the recommendations of the Thirteenth Finance
Commission?
1. A design for the Goods and Services Tax, and a
compensation package linked to adherence to the
proposed design.
2. A design for the creation of lakhs of jobs in the next
ten years in consonance with India’s demographic
dividend.
3. Devolution of a specified share of central taxes to
local bodies as grants.
Select the correct answer using the codes given below
(a) 1 only (b) 2 and 3
(c) 1 and 3 (d) 1, 2 and 3
7. Which statements about indirect taxes in India are true?
1. Yield from indirect taxes is more than that from direct
taxes.
2. Indirect taxes have grown faster than direct taxes after
1947.
3. Indirect taxes are ultimately paid for by persons who
do not actually pay taxes to the government.
4. Increase in indirect taxes is good in a developing
country.
(a) 1, 2 and 4 (b) 1 and 2
(c) 2 only (d) 1, 2 and 3
8. Which are the pre-requisites required by the Indian
economy to implement convertibility of rupee on trade
account as suggested by the Rangarajan Committee?
1. There should be comfortable foreign exchange resources
2. Low rate of inflation.
3. Mechanism by which the government can pass on the
changes in the price of imported goods to the consumers
4. SLR and CRR must be low.
(a) 1 and 2 (b) 1, 2 and 3
(c) 1 and 4 (d) All of the above
9. Consider the following statements
Full convertibility of the rupee may mean
1. Its free float with the international currencies.
2. Its direct exchange with any other international
currency at any prescribed place inside and outside
the country.
3. It acts just like any other international currency.
Which of these statements are correct?
(a) 1 and 2 (b) 1 and 3
(c) 2 and 3 (d) 1, 2 and 3
10. Which of the following is/are type of Budget?
1. Capital budget 2. Revenue budget
(a) 1 only (b) 1 and 2
(c) 2 only (d) Neither 1 nor 2
11. Which of the following are among the non-plan expenditures
of the Government of India?
1. Defence expenditure
2. Subsidies
3. All expenditures linked with the previous plan periods
4. Interest payment
Codes:
(a) 1 and 2 (b) 1 and 3
(c) 2 and 4 (d) 1, 2, 3 and 4
12. Consider the following statements:
The Indian rupee is fully convertible:
1. in respect of Current Account of Balance of payment
2. in respect of Capital Account of Balance of payment
3. into gold
Which of these statements is/are correct ?
(a) 1 alone (b) 3 alone
(c) 1 and 2 (d) 1, 2 and 3
Fiscal and Monetary Policy E-83
13. With reference to Union Budget, which of the following
is/are covered under Non-Plan Expenditure?
1. Defence expenditure
2. Interest payments
3. Salaries and pensions
4. Subsidies
Select the correct answer using the code given below.
(a) 1 only (b) 2 and 3 only
(c) 1, 2, 3 and 4 (d) None
14. Which of the following are included in the category of
direct tax in India?
1. Corporation tax 2. Tax on income
3. Wealth tax 4. Customs duty
5. Excise duty
Select the correct answer using the codes given below
(a) 1, 2 and 3 (b) 1, 2, 4 and 5
(c) 2 and 3 (d) 1, 3, 4 and 5
15. Which of the following refers to that part of deficit for
which the government borrows from the RBI?
1. Primary deficit 2. Secondary deficit
3. Regulatory deficit 4. Monetised deficit
(a) 1 only (b) 1 and 2
(c) 3 only (d) 4 only
16. Which of the following statements is/are correct in terms
of Direct and Indirect taxes?
1. Excise duty and sales tax are examples of indirect
taxes
2. Taxes like income tax and property tax are direct taxes
3. There is no difference between Direct and Indirect tax
Select the correct answer using the code given below:
(a) 1 only (b) 2 only
(c) 1 and 2 (d) 1, 2 and 3
17. Which of the following refers to the freedom for firms and
residents to freely buy into overseas assets?
1. Capital Account Consumption
2. Capital Across Convertibility
3. Capital Account Continuity
4. Capital Account Convertibility
(a) 1 only (b) 1 and 2
(c) 3 only (d) 4 only
18. Which of the following refers to the RBI buying and selling
eligible securities to regulate money supply?
1. Repo and Reverse Repo
2. Open Market Operations
3. Response and Reverse Repo
4. Relative Market Operations
(a) 1 and 2 (b) 2 only
(c) 3 only (d) 1, 2 and 4
19. Which of the following is/are the major Objectives of
Deficit financing?
1. Used as an instrument of economic policy
2. It is used as a tool for meeting financial needs of
government
3. Used for the mobilization of surplus, non- utilized and
idle resources in the economy
(a) 1 only (b) 1 and 2
(c) 3 only (d) 1, 2 and 3
20. Which of the following statements is incorrect in regards
to Black money?
1. Hawala market has deep roots with this black money
2. It is unaccounted money which is concealed from tax
authorities
3. All legal economic activities are dealt with this Black
Money
4. It puts an adverse pressure on equitable distribution of
wealth and income in the economy
(a) 1 only (b) 1 and 2
(c) 3 only (d) 1, 2 and 4
21. Which of the following is the tax imposed on commodities
imported into India (import duty) or those exported from
India (export duty)?
1. Customs duty 2. Central excise duty
3. Incorporate duty
(a) 1 only (b) 2 only
(c) 3 only (d) 2 and 3
22. Which among the following statements is incorrect in
regards to Statutory liquid ratio?
1. Statutory liquid ratio refers to the amount that the
commercial banks require to maintain in the form
of cash, or gold or govt. approved securities before
providing credit to the customers
2. Statutory liquid ratio is determined and maintained by
RBI in order to control the expansion of bank credit
3. At present, the SLR is 4%
4. It is determined as percentage total demand and
percentage of time liabilities
(a) 1 only (b) 1 and 2
(c) 3 only (d) None of the above
23. Which of the following statements is/are correct in regards
to Revenue budget?
1. It consists of all capital receipts and expenditure
such as domestic and foreign loans, loan repayment,
foreign and etc
2. It consists of all current receipts, such as taxation,
dividends of public sector units (PSU’s) and
expenditure of the government
(a) 1 only (b) 2 only
(c) 1 and 2 (d) Neither 1 nor 2
24. With reference to ‘Central excise duty’, which of the
following statements is/are correct?
1. Commodities on which state governments impose
excise duties are exempted from the central excise
duty
2. In recent years large number of goods has come under
excise duty. Moreover, the rates of these duties have
also been increasing
3. Commodities which are produced within the country
levied by central excise duty
(a) 1 only (b) 1 and 2
(c) 3 only (d) 1, 2 and 3
25. Mobilization of resources and channelizing the same for
productive investment is the primary purpose of
1. Expenditure 2. VAT
3. Taxation 4. CRR
(a) 1 only (b) 2 only
(c) 3 only (d) 1, 2 and 4
E-84 Fiscal and Monetary Policy
26. Which of the following is the process of bridging the gap
between the revenue and expenditure?
1. Multiple financing 2. Bridge financing
3. Accurate financing 4. Deficit financing
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
27. In which year was Service tax introduced?
1. 1983-84 2. 1994-95
3. 1967-68 4. 2003-2004
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
28. Which of the following means rates of tax increase for
increasing values or volumes on which the tax is levied
1. Progressive tax 2. Proportional tax
3. Regressive tax 4. Indirect tax
(a) 1 only (b) 2 only
(c) 3 only (d) 1, 2 and 4
29. Which of the following is not a technique of Deficit
financing?
1. Internal Borrowings
2. Counting Currency
3. Printing Currency
4. External aid and borrowings
(a) 1 only (b) 2 only
(c) 2 and 3 (d) 1, 2, 3 and 4
30. Where was VAT introduced?
1. France 2. USA
3. Australia 4. China
(a) 1 only (b) 1 and 2
(c) 3 only (d) 1, 2 and 3
31. Which of the following taxes is the one by which the
revenue collected rises proportionally with income?
1. Regressive tax 2. Progressive tax
3. Corporate tax 4. Proportional tax
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
32. Which of the following statements is/are correct with
reference to Primary deficit?
1. India started using this term since 1997-98
2. Primary deficit is fiscal deficit minus interest payments
3. It shows the current state of government finances
(a) 1 only (b) 1 and 2
(c) 3 only (d) 1, 2 and 3
33. In the context of economic liberalization, which of the
following is/are the major themes of the fiscal policy?
1. A deliberate move to a regime of reasonable direct tax
rates and better administration and enforcement
2. A systematic effort to simplify tax structure and tax
laws
(a) 1 only (b) 2 only
(c) 1 and 2 (d) Neither 1 nor 2
34. With reference to ‘Cash Reserve Ratio’, which of the
following statements is/are correct?
1. The RBI varies Cash Reserve Ratio to change the
liquidity of market
2. CRR is subject to frequent changes as RBI intervenes
from time to time to correct monetary or exchange
rate imbalances
3. CRR currently is 4%
4. RBI is empowered to fix the CRR at a rate ranging
between three per cent and 15 per cent
(a) 1 only (b) 1 and 2
(c) 3 only (d) 1, 2, 3 and 4
35. Which of the following statements is incorrect about Repo
and Reverse Repo?
1. At present, the repo rate is 11.75%
2. At present, the reverse repo rate is 5.75%
3. Repo rate is the rate at which RBI lends to commercial
banks
4. Reverse Repo is the rate at which RBI borrows from
commercial banks
(a) 1 only (b) 1 and 2
(c) 1, 3 and 4 (d) None of the above
36. Which of the following is/are the components of Public
debt?
1. External debt
2. Other internal liabilities
3. Internal debt
(a) 1 only (b) 1 and 2
(c) 3 only (d) 1, 2 and 3
37. Choose the correct one from the below expressions
1. Fiscal deficit = Budget deficit – Government’s market
borrowing and liabilities
2. Fiscal deficit = Budget deficit + Government’s
market borrowing and liabilities
3. Fiscal deficit = Revenue expenditure – Budget
receipts
4. Fiscal deficit = Revenue expenditure + Budget
receipts
(a) 1 only (b) 2 only
(c) 3 only (d) None of the above
38. Regressive tax can be defined as
1. The one by which the revenue collected rises
proportionally with income
2. The rates of tax increase for increasing values or
volumes on which the tax is levied
3. The one where the proportion of tax paid falls as
income rises
(a) 1 only (b) 2 only
(c) 3 only (d) 1, 2 and 3
39. Which of the following precautions has to be taken by a
country going for foreign aid?
1. Keeping foreign aid strings-free
2. Keeping the borrowing level low so that country does
not fall in a debt trap
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
40. Which of the following is a type of the Public expenditure
in India?
1. Plan 2. Non-plan
(a) 1 only (b) 2 only
(c) 1 and 2 (d) Neither 1 nor 2
41. Choose the correct one from the following.
1. Revenue deficit = Revenue expenditure – Revenue
receipts
2. Revenue deficit = Revenue receipts – Revenue
expenditure
3. Revenue deficit = Revenue receipts – Total
expenditure
4. Revenue deficit = Revenue expenditure – Total
receipts
(a) 1 only (b) 1 and 2
(c) 3 only (d) 1, 2, 3 and 4
Fiscal and Monetary Policy E-85
42. Annual financial statement has to be placed before
parliament for every financial year i.e.
1. January 1 to December 31
2. March 31 to April 1
3. April 1 to March 31
(a) 1 only (b) 2 only
(c) 3 only (d) None of the above
43. Consider the following:
1. Market borrowing
2. Treasury bills
3. Special securities issued to RBI
Which of these is/are components(s) of internal debt?
(a) 1 only (b) 1 and 2
(c) 2 only (d) 1, 2 and 3
44. Consider the following statements with regard to Statutory
Liquidity Ratio (SLR) 2. An outline of the results of the last financial year
1. To meet SLR, Commercial banks can use cash only.
2. SLR is maintained by the banks with themselves.
3. SLR restricts the banks leverage in pumping more
money into the economy.
Which of the statements given above is/are correct?
(a) 1, 2 and 3 (b) 1 and 3
(c) 2 and 3 (d) only 2
45. Which among the following is/are the nodal agency for
implementing the monetary policy?
1. State Bank of India
2. Reserve Bank of India
3. Union Bank
(a) 1 only (b) 1 and 2
(c) 2 only (d) 1, 2 and 3
46. Which of the following refers to the set of measures adopted
by the central bank?
1. Monetary policy 2. GAAR
3. Finance Commission 4. Black Money
(a) 1 only (b) 1 and 2
(c) 3 only (d) 4 only
47. Which of the following refers to the use by the government
of the various instruments such as taxation, expenditure and
borrowing in order to achieve the objectives of balanced
economic development etc?
1. Annual financial statement
2. Fiscal policy
3. Revenue budget
(a) 1 only (b) 2 only
(c) 3 only (d) 1, 2 and 3
48. Which among the following is/are the main objective of
Monetary Policy?
1. Maintenance of domestic price level
2. Reducing the impact of business cycles
3. Stability of external value
(a) 1 only (b) 1 and 2
(c) 3 only (d) 1, 2 and 3
49. The highest rate of income tax before 1975 was
1. 72.85 2. 97.25
3. 46.89 4. 27.14
(a) 1 only (b) 2 only
(c) 3 only (d) 3 and 4
50. In which of the following years, did govt introduce
Minimum Alternate tax on companies?
1. 1996 2. 1949
3. 1972 4. 2005
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
51. Which of the following has been introduced as a very
important component of Direct Tax code with the objective
of preventing such deals and transactions?
1. General Avoidance Rules
2. General Anti Affect Rules
3. General Anti Avoidance Rules
4. General Arm Affect Rules
(a) 1 only (b) 2 only
(c) 3 only (d) 1, 2 and 4
52. Which of the following details can be obtained by Annual
financial statement?
1. Government forecasts of receipts and payments for
the next year
compared with the previous budget estimates
3. Proposed changes in taxes and expenditure allocations
(a) 1 only (b) 1 and 2
(c) 3 only (d) 1, 2 and 3
53. Excess of total expenditure over total revenues is termed as
1. Revenue deficit 2. Fiscal deficit
3. Budget deficit 4. Overall deficit
(a) 1 only (b) 1 and 2
(c) 3 only (d) 4 only
54. Which of the following may lead to a pressure on
the government for an upward revision in salaries of
government employees?
1. Internal Borrowings
2. External aid and borrowings
3. Counting Currency
4. Printing currency
(a) 1 only (b) 1 and 2
(c) 3 only (d) 4 only
55. Which of the following is the tax on income of the
companies?
1. Corporation tax
2. Reliable tax
3. Compensatory tax
(a) 1 only (b) 2 only
(c) 3 only (d) 1, 2 and 3
56. Who among the following appoints a Finance Commission
under Article 280 of the Constitution?
1. Prime Minister 2. Finance Minister
3. President 4. Public
(a) 1 only (b) 2 only
(c) 3 only (d) 3 and 4
57. Which of the following statements is/are correct as per
Article 114(3) of the Constitution?
1. No money can be taken out of consolidated fund
without the approval of the Rajya Sabha
2. No money can be taken out of consolidated fund
without the approval of the Lok Sabha
3. Money can be taken out of consolidated fund without
any approval
Select the correct answer using the code given below:
(a) 1 only (b) 2 only
(c) 3 only (d) 1, 2 and 3
58. Which of the following statements of the government gives
expression to its fiscal policy?
1. Annual financial statement
2. Deficit financing
E-86 Fiscal and Monetary Policy
3. Open capital account
(a) 1 only (b) 1 and 2
(c) 3 only (d) 1, 2 and 3
59. Which of the following is the rate at which RBI lends to
commercial banks?
1. Corporate rate 2. Economy rate
3. Bank rate 4. Growth rate
(a) 1 only (b) 1 and 2
(c) 3 only (d) 4 only
Matching Based MCQ
DIRECTIONS (Qs. 60-67) : Match List-I with List-II and
select the correct answer using the codes given below the lists.
60. Match columns A and B wherein Column B defines Column A
Column A Column B
I. Public Account a. Consists of all revenues
and loans received by the
government
II. Consolidated fund b.  Comprises of the sum
placed at the disposal of the
President to meet unforeseen
expenditure
III. Contingency fund c.  Consists of receipts and
payments, which are in
form of deposit account
with the government, such
as provident funds, small
savings, etc
(a) I-c, II-a, III-b (b) I-a, II-b, III-c
(c) I-a, II-d, III-b (d) I-b, II-a, III-c
61. Match columns A and B wherein column B shows the tax
to GDP ratio for respective year in Column A
Column A Column B
I. 1950-51 a. 10.60%
II. 2007-08 b. 6%
III. Present c. 11.89%
(a) I-c, II-a, III-b (b) I-a, II-c, III-b
(c) I-b, II-c, III-a (d) I-b, II-a, III-b
62. Match columns A and B Column A
Column A Column B
I. Planned expenditure a. 2,21,733 Crores
II. Non-Planned b. 4,65,277
Crores expenditure
III. Tax revenue c. 13,12,200 Crores
IV. Non-tax revenue d. 9,19,842 Crores
(a) I-c, II-a, III-b, IV-d (b) I-b, II-c, III-d, IV-a
(c) I-a, II-c, III-d, IV-b (d) I-d, II-c, III-d, IV-a
63. Match columns A and B wherein Column B defines Column A
Column A Column B
External debt a. Includes small saving schemes,
I.
of the provident fund, reserve fund railways
b. Includes loan from foreign countries
II. Internal debt
and international financial institutions
Other internal c. Includes market loans from banks and
III.
liabilities financial institutions
(a) I-c, II-a, III-b (b) I-b, II-c, III-a
(c) I-a, II-d, III-b (d) I-b, II-a, III-c
64. List-I List-II
(A) Partial (1) Unified exchange rate,
convertibility applied for export and
import of goods only, visible
transaction of BoP.
(B) Convertibility (2) Currency can be
on trade account converted on all accounts.
(C) Convertibility (3) 60% of foreign exchange
on current account to be converted at market
rates and rest at official rate.
(D) Full convertibility (4) Full convertibility in
all visible and invisible
transaction of goods and
services.
(a) A-1, B-2, C-3, D-4 (b) A-3, B-1, C-4, D-2
(c) A-4, B-2, C-1, D-3 (d) A-1, B-4, C-3, D-2
65. Match columns A and B wherein Column B defines Column A
Column A Column B
Capital a. Includes interest payments,
I.
expenditure subsidies, defence expenditure
b. Includes loans to PSUs, states,
II. Plan expenditure
foreign governments
c. Includes expenditure on central
plans such as agriculture,
Revenue
III. rural development, irrigation,
expenditure
transport, communications,
environment and welfare schemes
(a) I-c, II-a, III-b (b) I-b, II-c, III-a
(c) I-a, II-d, III-b (d) I-b, II-a, III-c
66. In the context of Indian economy, which of the following is/are
the purpose/purposes of ‘Statutory Reserve Requirements’?
(CSAT 2014-I)
1. To enable the Central Bank to control the amount of
advances the banks can create
2. To make the people’s deposits with banks safe and
liquid
3. To prevent the commercial banks from making
excessive profits
4. To force the banks to have sufficient vault cash to
meet their day-to-day requirements
Select the correct answer using the code given below.
(a) 1 only (b) 1 and 2 only
(c) 2 and 3 only (d) 1, 2, 3 and 4
67. With reference to Indian economy, consider the following.
(CSAT 2015-I)
1. Bank rate 2. Open market operations
3. Public debt 4. Public revenue
Which of the above is/are component/ components of
Monetary Policy?
(a) 1 only (b) 2, 3 and 4
(c) 1 and 2 (d) 1, 3 and 4
Fiscal and Monetary Policy E-87
EXERCISE-1
1. (c) 2. (c) 3. (b) 4. (a) 5. (a) 6. (b) the form of liquid assets like cash in hand, current
7. (d) The Commission shall make recommendations as to
the following matters, namely :
(i) The distribution between the Union and the States
of the net proceeds of taxes which are to be, or may
be, divided between them under Chapter I Part XII
of the Constitution and the allocation between the
States of the respective shares of such proceeds;
(ii) The principles which should govern the grants-in-aid
of the revenues of the States out of the Consolidated
Fund of India and the sums to be paid to the States
which are in need of assistance by way of grants-
in-aid of their revenues under article 275 of the
Constitution for purposes other than those specified
in the provisions to clause (1) of that article; and
(iii) The measures needed to augment the Consolidated
Fund of a State to supplement the resources of the
Panchayats and Municipalities in the State on the
basis of the recommendations made by the Finance
Commission of the State.
8. (b) The DEA or the Department of Economic Affairs
is also responsible for preparation and presentation
to the Parliament of Central Budget and the Budgets
for the State Governments under President’s Rule
and Union Territory Administration.
9. (c) The excise duty’s share in the total tax revenue,
which was 41.3 percent in 1992-93, declined to 25.1
percent in 2006-07. The customs duty’s share in the
total tax revenue, which was 31.9 percent in 1992-
93, fell to 17.5 percent in 2006-07, as a result of
massive structuring on excise and customs.
10. (c) 11. (a) 12. (d) 13. (d) 14. (c) 15. (d)
16. (a) 17. (d) 18. (c) 19. (a) 20. (d) 21. (a)
22. (a) Deficit financing refers to the difference between
expenditure and receipts. In public finance, it means
the govt. is spending more than what it is earning.
Deficit financing is a necessary evil in a welfare
state as the states often fail to generate tax revenue
which is sufficient enough to take care of the
expenditure of the state. The basic intention behind
deficit financing is to provide the necessary impetus
to economic growth by artificial means.
23. (b) All taxes which are the personal liability of an
assessee come under direct taxes. They include
income tax, professional tax, wealth tax, securities
transaction tax, commodity transaction tax and the
like. On the other hand, the taxes which a person
can recover from some other person but the liability
of which remains of the person collecting such taxes
are indirect taxes. These are custom duty, excise,
service tax, vat, CST and the like
24. (b) SLR or the Statutory Liquidity Ratio is that ration
of total deposits which a commercial bank has to
maintain with itself at any given point of time in
balances with other banks and first class securities
which can be turned into cash (gold, cash or other
approve securities). This ratio at present is 25%.
Some assets have to be in liquid form to take care of
financial emergencies which every bank has to face.
It regulates the credit growth in India.
25. (d) Taxes on tooth paste come under GST which is
administered by State government.Sales tax is paid
to sales tax authority in the state from where the
goods are moved.
26. (d) The Act requires the government to lay before
the parliament three policy statements in each
financial year namely Medium Term Fiscal Policy
Statement; Fiscal Policy Strategy Statement and
Macroeconomic Framework Policy Statement.
27. (c) As per economic survey 2007-2008 corporation tax
is the largest source of revenue of the Government
of India.
28. (c) The Department of Economic Affairs (DEA) under
Ministry of Finance is the nodal agency of the Union
Government to formulate and monitor country’s
economic policies and programmes having a bearing
on domestic and international aspects of economic
management.
29. (d) Corporation Tax is imposed by State as well as
Central Government. Corporation tax is imposed on
the income or capital of some types of legal entities.
The taxes may also be referred to as income tax.
30. (c) Convertibility of rupee implies freely permitting
the conversion of rupee to other currencies and
vice versa. Currency Convertibility is the ease with
which a country’s currency can be converted into
gold or another currency.
31. (c) When the Reserve Bank of India reduces the
Statutory Liquidity Ratio by 50 basis points; the
Scheduled Commercial Banks may cut their lending
rates.
EXERCISE-2
1. (c) 2. (b) 3. (d)
4. (c) Planned economic development adopted by India
required an active monetary policy. The two
stated aims of this policy were to boost economic
development and control inflationary pressure
5. (c)
6. (a) A design for the Goods and Services Tax, and a
compensation package linked to adherence to the
proposed design
7. (d) 8. (b) 9. (d)
10. (a) There are two types of budgets i.e., Revenue budget
and Capital budget.
Revenue budget contains all current receipts, such as
taxation, (central excise, custom duty, corporation
E-88 Fiscal and Monetary Policy
tax) dividends of public sector units (PSU’s) and
expenditure of the government. Capital budget
consists of all capital receipts and expenditure such
as domestic and foreign loans, loan repayment,
foreign and etc.
11. (d) Non-plan expenditures include non-developmental
expenditure (interest payment, subsidies, defence
expenditure, civil administration), developmental
expenditure and expenditure incurred on projects
which remained unfinished in the earlier plans.
12. (a) In respect of capital account of balance of payment,
the Indian rupee is partially convertible after 1991.
13. (c) Non-plan expenditure covers interest payments,
subsidies (mainly on food and fertilisers), wage and
salary payments to government employees, grants to
States and Union Territories governments, pensions,
police, economic services in various sectors,
defence, loans to public enterprises, loans to States,
Union Territories and foreign governments.
14. (a) Corporation Tax, Wealth Tax and Income Tax are
in the category of direct tax.
15. (d) Monetised deficit was adopted by India in 1997-
98. It refers to that part of deficit for which the
government borrows from the RBI. To meet the
government’s such requirements, the RBI prints
fresh currency, as a result of which the economy
gets monetised
16. (c) In the case of direct taxes the burden or ‘incidence’
has to be borne by the taxpayers themselves whereas
in the case of an indirect tax, the burden can be
shifted to another person
17. (d) A currency is said to be convertible when it can
be freely exchanged for another currency at market
rates. Transaction of current account includes
dealing with payments relating to foreign trade,
travel and other services. Capital account deals with
transaction in financial assets. While India has made
the Indian rupee fully convertible on current account,
it is yet to accept capital account convertibility as a
goal. Broadly, capital account convertibility would
mean freedom for firms and residents to freely buy
into overseas assets such as equity, bonds, property,
and acquire ownership of overseas firms besides
free repatriation of proceeds by foreign investors
18. (b) Open Market Operations refers to the RBI buying
and selling eligible securities to regulate money
supply. Traditionally RBI was not resorting to this
method. However, after the large inflow of foreign
funds since 1991, RBI has had to step in to sterilize
the flow to avoid excess liquidity
19. (d) In under-developed countries, deficit-financing has
been considered essential for financing the plans
of economic development. It is used as a tool for
meeting financial needs of government, especially in
times of war. It is used for the mobilization of surplus,
non- utilized and idle resources in the economy. It
is also used as an instrument of economic policy for
removing the conditions of depression 4 to raise the
level of output and employment.
20. (c) Black money deals with all illegal economic activities
21. (a) Customs duty is the tax imposed on commodities
imported into India (import duty) or those exported
from India (export duty). Since imposing duties
on exports reduced the competitive position of the
country, the government withdrew export duties
22. (c) At present, the SLR is 21.5%
23. (b) Revenue budget contains information about taxation
such as central excise, custom duty, corporation tax
etc
24. (d) The commodities which are produced within the
country levied by central excise duty. However,
commodities on which state governments impose
excise duties (e.g., liquor, drugs) are exempted
from the central excise duty
25. (c) Taxation is used for mobilizing and channelizing
resources for productive investment. It can also
be used as a measure to promote equity and
reduce disparities or to encourage or discourage
consumption of particular items
26. (d) The process of bridging the gap between the revenue
and expenditure is called deficit financing. In other
words, Deficit financing refers to the ways in which
the budgetary gap is financed
27. (b) Service tax was introduced in 1994-95 to address
the asymmetric and distortionary treatment of goods
and services in tax framework and to widen the tax
net
28. (a) Income tax is a progressive tax as it has exemptions
for very small incomes, low rates for the first slab
of taxable income, and higher rates for the largest
incomes
29. (b) There are three techniques of Deficit financing:
Printing Currency, Internal Borrowings and
External aid and borrowings. Counting Currency is
not a technique of Deficit financing
30. (a) It was introduced in France to overcome the
cascading effect of several taxes-from raw material
to the final product in the process of production
31. (d) Proportional tax is one by which the revenue
collected rises proportionally with income. A tax
system could be made approximately proportional
by having a uniform rate of income tax with very
few exemptions, and indirect taxes levied at similar
rates on as many goods and services as possible
32. (d) Primary deficit is fiscal deficit minus interest
payments. India started using this term since
1997- 98. Primary deficit is considered a very
useful tool in helping bring more transparency in
the government’s pattern of expenditure. It shows
the current state of government finances. If interest
payments are deducted from fiscal deficit, then it
will obviously show a lesser deficit for that year as
the interest payments are on account of loans taken
in the past and not in the present year
33. (c) Fiscal policy comprises of several major themes
34. (d) Every commercial bank is required to keep a
certain percentage of its demand and time liabilities
(deposits) with the RBI (either as cash or book
Fiscal and Monetary Policy E-89
balance). The RBI varies this ratio to change the
liquidity of market. RBI is empowered to fix the
CRR at a rate ranging between three per cent and
15 per cent. Like the Bank Rate, CRR is also
subject to frequent changes as RBI intervenes from
time to time to correct monetary or exchange rate
imbalances. This ratio, currently, is 4%
35. (a) At present, the repo rate is 6.75%
36. (d) Public debt has three components - Internal debt,
Other internal liabilities and External debt
37. (b) Fiscal deficit is budget deficit plus borrowings and
other liabilities.
Fiscal deficit = Budget deficit + Government’s
market borrowing and liabilities.
The fiscal deficit situation shows whether the
government is spending beyond its income. India
has, unfortunately, been a country prone to constant
and high fiscal deficit situations. A high fiscal deficit
implies high indebtedness of the government and
a deficit above 3% in the Indian context means an
alarming situation for the government finances
38. (c) Regressive tax is one where the proportion of tax
paid falls as income rises. The most regressive tax is
a poll tax, levied at a fixed rate per person regardless
of income. A tax system can be made regressive by
having indirect taxes levied at relatively high rates
on goods heavily consumed by the poor
39. (c) A country going for foreign aid has to take several
precautions. However two major precautions are:
Keeping the borrowing level low so that country
does not fall in a debt trap; and Keeping foreign aid
strings-free
40. (c)
41. (a) Revenue deficit means the excess of current revenue
expenditure over current revenue receipts. Revenue
deficit indicates that the government cannot meet its
current expenditure from its current revenue.
Revenue deficit= Revenue expenditure – Revenue
receipts
42. (c)
43. (d) Treasury Bills are money market instruments to
finance the short term financial requirements of
the Government of India. These are discounted
securities and are issued at a discount to face value.
44. (c) SLR used by bankers indicates the minimum
percentage of deposits that the banks have to
maintain in the form of gold, cash or other approved
securities.
45. (c) The Reserve Bank of India is the nodal agency for
implementing the monetary policy. RBI has defined
its monetary policy in terms of “adequate financing
of economic growth and at the same time ensuring
reasonable price stability”.
46. (a) Monetary policy refers to the set of measures
adopted by the central bank (RBI) for monetary
management
47. (b) It is used to achieve the objectives of balanced
economic development, full employment or to
establish a welfare state Economics takes care of
various needs and wants of life
48. (d) Objectives of Monetary Policy are:
Stability of external value: Fluctuation in exchange
rate of a currency affects foreign trade and
investment. It is, therefore, important that the rate of
exchange is maintained without violent fluctuations.
Maintenance of domestic price level: Fluctuation in
prices affects investment decisions. It also leads to
increasing income disparities. However, monetary
policy alone cannot ensure the maintenance of
domestic prices, as several other factors such as
erratic monsoons, changes in tastes, fluctuation in
world prices etc., affect domestic prices.
Reducing the impact of business cycles (slumps
and booms) by manipulation of credit and interest
policy. However, economists are not of the same
opinion on whether business cycles are primarily
caused by monetary factors.
49. (b) The highest rate of income tax was 97.25, before
1975. Moderate rates of income tax encourage
savings, faster growth and motivate voluntary
compliance to tax regime. Over the years, the rates
have been brought down
50. (a) In 1996, govt introduced minimum Alternate tax
(MAT) on companies which escaped the corporation
tax net by using the provisions of exemptions,
deductions incentives, deprecation and so on
51. (c) General Anti Avoidance Rules (GAAR) has been
introduced as a very important component of Direct
Tax code with the objective of preventing such deals
and transactions that are carried out to evade and
avoid paying taxes. In other words, GAAR seeks
to prevent such transactions that are carried out by
way of aggressive tax planning so as to avoid paying
taxes
52. (d) Annual financial statement gives various information
for the current, last and next year
53. (c) Budget deficit is the overall deficit i.e., the excess
of total expenditure over total revenues. It includes
both capital and revenue items in receipts and
expenditure. Traditionally, deficit financing in
Indian budgets had meant filling this gap
54. (d) Printing currency is usually the last resort for the
government in managing its deficit. It might help
the government in times of need but it should be
undertaken only in case of extreme necessity as
it has many damaging effects on the economy. It
increases inflation proportionally. It may also lead to
a pressure on the government for an upward revision
in salaries of government employees, which in turn
will lead to an increase of government’s expenditure,
further necessitating printing of currency and more
inflation
55. (a) Corporation tax is the tax on income/profit of the
organizations. In India, at one time, corporation tax
was quite high
56. (c) Under Article 280 of the Constitution, the President
appoints a Finance Commission every five years
E-90 Fiscal and Monetary Policy
57. (b) Lok Sabha approval is mandatory in order to take
out money from the Consolidated fund
58. (a) Fiscal policy is expressed by the budget
59. (c) Bank rate is an instrument of monetary policy which
is the rate at which RBI lends to commercial banks
60. (a) The budget shows the receipts and payments of the
government under three heads. All revenues and
loans received by the government comes under
Consolidated fund, sum placed at the disposal of the
President to meet unforeseen expenditure falls under
Contingency fund and receipts & payments which
are in form of deposit account with the government
comprises Public Account
61. (c) The tax to GDP ratio (centre and states together)
was 6 percent in 1950-51, rose to 11.89 in 2007-08
and is currently around 10.60%
62. (b) A summary of the expected Income and Expenditure
data of the Union Budget 2015-16 is given in the
Table. It shows a revenue deficit of 2.8 percent and
fiscal deficit of 3.9 percent
Fiscal and Monetary Policy
Budget 2015-16(Revenue Receipts)
Tax revenue (income and 9,19,842 Crores
corporate taxes)
Non-tax revenue (customs, excise 2,21,733 Crores
duties and service taxes)
Total 11,41,575 Crores
Expenditure
Non-Planned expenditure 13,12,200 crores
Planned expenditure 4,65,277 crores
Total 17,77,477 crores
63. (b) Internal debt, Other internal liabilities and External
debt are three components of Public debt wherein
Internal debt includes market loans from banks
and financial institutions, short-term borrowings
on treasury bills and other bonds and certificates
issued by the government. External debt includes
loan from foreign countries and international
financial institutions like the World Bank, IMF,
ADB, etc. Other internal liabilities includes small
saving schemes, provident fund, reserve fund of the
railways, post and telegraph on which the central
government has to pay interest
64. (b)
65. (b) All asset creating and productive expenditure is
part of plan expenditure, and all non- productive,
consumptive and non- asset building expenditure is
part of non- plan expenditure. Non-plan expenditure
is further divided into revenue expenditure and capital
expenditure
66. (b) Because Reserve Requirements are designed as
“precautionary measures” and not to stop banks from
“excessive” profit. This eliminates (c) and (d).
67. (c) The RBI implements the monetary policy through
open market operations, bank rate policy, reserve
system, credit control policy, moral persuasion and
through many other instruments.
 MONEY SUPPLY AND
5
INDIAN FINANCIAL SYSTEM

Introduction
A well established financial system plays very important role in economic development of any country. A financial system
consists of financial institutions, financial markets, financial instruments and financial services. This system provides a frame-
work by which savings and surplus funds are mobilized in a productive manner.
A financial system server as a link between savers and investors
It promotes the capital formation by bringing together supply of savings and demand for funds.
This system provides detailed information about the players in the market such as individuals, corporate houses, government
agencies etc.
It also provides a mechanism for controlling risks involved in managing savings and allocating funds.
It covers the whole gamut of demand for and supply of funds for productive purposes. The financial system promotes eco-
nomic development through mobilising savings and channelising these to investment avenues.
The Indian financial system consists of both short term and long term finances.

Indian Financial System

Introduction Capital Money Supply Insurance Micro

Sector
Money Market Inflation Indian Banking Finance
Market System
Securities Financial LIC GI C IRDA
Institution Inflation
Call Money Gilt in India Evolution Commodity
Market Edged SEBI Types of RBI Futures
Corporate DFI Inflation
Treasury Bill Market
Securities Objectives
Market Calculation
ICICI Function NBFIs
Commercial Bill Of Inflation of RBI
IDBI
Market Impact of Composition Exim
Collateral Loan Inflation Bank
Market Control of RRB NHB
Certificate of Inflation Private SIDBI
Banks
Deposit and Deflation NABARD
Co-operative
Commercial paper Bank
Markets Checking SCB
Money Market Deflation Banking Systems in India
Instruments Banking Sector Reforms
E-92 Money Supply and Indian Financial System
MONEY MARKET
Money market refers to the short term (6-12 months)
borrowings and lending, whereas
Capital market refers to longer term lending/ borrowing.
Money market refers to that mechanism whereby borrowers
manage to obtain short term loan- able funds on the one hand,
and lenders succeed in getting credit worthy borrowers for
their money on the other. In this way, any institution or person
who is willing to provide short-period monetary debt becomes
a part of the money market.
Under Indian money market, the Reserve Bank of India
occupies the central position because it regulates and controls
the credit supply of the country.
Ordinarily, the Indian money market is divided into two parts:
1. The Unorganised sector.
2. The Organised sector.
Unorganised Sector
The Unorganised sector is formed of the unregulated non-bank
financial intermediaries, indigenous bankers, and moneylenders.
Organised Sector
The organised sector includes the State Bank of India and
its associated banks, 19 nationalised banks, Regional Rural
Banks, Co-operative Banks, Non-governmental sectors and
other banks, whereas the unorganised sector includes the
money-lenders and indigenous bankers.
Organised sector includes Reserve bank of India, Private banks,
public sector banks, developmental banks and other non banking
financial companies (NBFCs) such as life insurance corporation
of India (LIC), Unit trust of India (UTI), the International
Finance Corporation, IDBI and the co-operative sector.
The organised sector of Indian money market can be further
classified into the following sub-markets:
1. Call Money Market
The most important component of organised money market
is the call money market. It deals in call loans or call money
granted for one day. Since the participants in the call money
market are mostly banks, it is also called interbank call money
market.
The banks with temporary deficit of funds form the demand
side and the banks with temporary excess of funds form the
supply side of the call money market.
The main features of Indian call money market are as follows:
(i) Call money market provides the institutional arrangement
for making the temporary surplus of some banks available
to other banks which are temporary in short of funds.
(ii) Mainly the banks participate in the call money market.
The State Bank of India is always on the lenders’ side of
the market.
(iii) The call money market operates through brokers who
always keep in touch with banks and establish a link
between the borrowing and lending banks.
(iv) The call money market is highly sensitive and competitive
market. As such, it acts as the best indicator of the
liquidity position of the organised money market.
(v) The rate of interest in the call money market is highly
unstable. It quickly rises under the pressures of excess
demand for funds and quickly falls under the pressures of
excess supply of funds.
(vi) The call money market plays a vital role in removing
the day-to-day fluctuations in the reserve position of the
individual banks and improving the functioning of the
banking system in the country.
2. Treasury Bill Market
The Treasury bill market deals in treasury bills which are
the short-term (i.e. 91, 182 and 364 days) liability of the
Government of India. Theoretically, these bills are issued to
meet the short-term financial requirements of the government.
But, in reality, they have become a permanent source of funds
to the government. Every year, a portion of treasury bills are
converted into long-term bonds. Treasury bills are of two types:
(i) Ad hoc (ii) Regular
(i) Ad hoc : Ad hoc treasury bills are issued to the state
governments, semi-government departments and foreign
central banks. They are not sold to the banks and the
general public, and are not marketable.
(ii) Regular : The regular treasury bills are sold to the banks
and public and are freely marketable. Both types of ad
hoc and regular treasury bills are sold by Reserve Bank of
India on behalf of the Central Government.
The Treasury bill market in India is underdeveloped as
compared to the Treasury bill markets in the U.S.A. and the
U.K. In the U.S.A. and the U.K., the treasury bills are the
most important money market instrument:
(a) Treasury bills provide a risk-free, profitable and highly
liquid investment outlet for short-term, surpluses of
various financial institutions;
(b) Treasury bills from an important source of raising fund
for the government; and
(c) For the central bank the treasury bills are the main
instrument of open market operations.
On the contrary, the Indian Treasury bill market has no
dealers except the Reserve Bank of India. Besides the Reserve
Bank, some treasury bills are held by commercial banks, state
government and semi-government bodies.
But, these treasury bills are not popular with the non-bank
financial institutions, corporations, and individuals mainly
because of absence of a developed Treasury bill market.
3. Commercial Bill Market
Commercial bill market deals in commercial bills issued by
the firms engaged in business. These bills are generally of
three months maturity. A commercial bill is a promise to pay
a specified amount in a specified period by the buyer of goods
to the seller of the goods.
Money Supply and Indian Financial System E-93

The seller, who has sold his goods on credit draws the bill
and sends it to the buyer for acceptance. After the buyer or
his bank writes the word ‘accepted’ on the bill, it becomes a
marketable instrument and is sent to the seller.
The seller can now sell the bill (i.e. get it discounted) to his
bank for cash. In times of financial crisis, the bank can sell
the bills to other banks or get them rediscounted from the
Reserved Bank.
In India, the bill market is undeveloped as compared to the
same in advanced countries like the U.K. There is absence
of specialised institutions like acceptance houses and discount
houses, particularly dealing in acceptance and discounting
business.
4. Collateral Loan Market
Collateral loan market deals with collateral loans i.e. loans
backed by security. In the Indian collateral loan market, the
commercial banks provide short- term loans against government
securities, shares and debentures of the government, etc.
5. Certificate of Deposit and
Commercial Paper Markets
Certificate of Deposit (CD) and Commercial Paper (CP)
markets deal with certificates of deposit and commercial
papers. These two instruments (CD and CP) were introduced
by Reserve Bank of India in March 1989 in order to widen the
range of money market instruments and give investors greater
flexibility in the deployment of their short-term surplus funds.
6. Money Market Instruments
Chakravarthy committee and Narasimhan committee
recommended certain money market instruments to reform
Indian money market. Some of these are:
• 182 days treasury bills which are sold through fortnightly
auctions. They carry attractive rates of interest and
practically no risk and are therefore popular with
commercial banks.
• 364 days treasury bills were also introduced in 1992.
• Dated government securities with maturities up to 10
years have also been introduced primarily to develop a
secondary market.
• Money market mutual funds have been permitted to be
floated by commercial banks.
• Repurchase options (repos) and reverse repos have been
introduced in order to even out sharp fluctuations in the
money market. Repos provide an opportunity for RBI
to repurchase government securities from commercial
banks. Reverse repos are government securities sold
through auction at fixed cut-off rate of interest.
• Liquidity Adjustment Facility (LAF) refers to RBI’s policy
of using Repos and Reverse Repos to adjust liquidity on a
day-to-day basis.

CAPITAL MARKET
Capital market deals with long-term finance (more than The main players in Indian capital markets are:
365 days) funds. It includes all facilities and institutional • Banks, indigenous and commercial.
arrangements available for borrowing and lending of term • Insurance companies
funds (including medium-term). • Development Finance Institutions (DFI),
The difference between money market and capital market is • Non-Banking Finance Companies, (NBFCs)
not so much in the institutions involved as in their term of • Non-Banking Financial Institutions.
borrowing or lending. Long-term funds are raised either by
The capital market may be divided into
borrowing from certain institutions or by issuing securities.
(i) the securities market; and (ii) the financial institutions.
Capital Market
Securities Market
Main Players Securities Financial The securities market is further divided into the gilt-edged
Market Institutions market and the corporate securities market.

Gilt Edged Securities (G-sec)

Gilt Edged Corporate IFCI
Securities
Indian capital market consists of market for gilt-edged securities
Securities
ICICI guaranteed by the government (Central or state). These
securities are issued by local authorities (like city corporations,
Primary Secondary IDBI municipalities and port trusts) and autonomous government
Market Market undertaking like the state electricity boards, development banks,
etc. The RBI plays a dominant role in the gilt-edged market
Stock Exchange Over the through its open market operations. Mostly financial institutions
(23) Counter Exchange that have statutory obligations to keep a certain portion of their
investments in government securities buy these. RBI trades in
National Regional G-sec as part of its open market operations.
(21)
Corporate Securities
NSE BSE
ISE Others It refers to the stocks, shares, debentures, etc. of companies
(15) (6) which are traded in stock market forming primary market. For
E-94 Money Supply and Indian Financial System
inducing the public to invest their savings in new issues, services
of specialised institutions (underwriters and stock brokers) are
required. This kind of underwriting (guaranteeing purchase of
a new issue at a fixed price) was non-existent in India until
the establishment of the ICICI in 1951. Other institutions like
the LIC, IDBI, UTI, IFCI and GIC, commercial banks, stock
brokers and investment funds soon became the participants in
the new issues market.
Secondary market, deals in securities already issued by
companies. The main purpose of such a market is to provide
liquidity (easy convertibility into cash) to such securities.
The secondary market has two segments: stock exchange and
over -the-counter exchange.
Stock Exchange
A stock exchange is an organised market, i.e association of
persons or firms to regulate and supervise all transactions,
rules, regulations and standard practices to govern all market
transactions, authorised stock brokers and an exchange floor
where stock broker or their authorised agents meet during
fixed business hours to buy and sell securities. The stock
exchange is an institution for orderly buying and selling of
listed securities. Listed securities are those that appear on the
approved list of a stock exchange. (A particular security is
listed or quoted when it is incorporated in the register of the
stock exchange so that it can be bought / sold there.) There are
23 stock exchanges in the country out of which 20 (including
Bombay Stock Exchange) are regional and two national.
NSE
National Stock Exchange (NSE) was set up in 1984. NSE grew
rapidly to become India’s biggest exchange. The NSE share
index is known as Nifty. There is a 50 share index, S and P
CNX 50 (Nifty fifty), S & P CNX 500 (500 share index). Nifty
junior is the second-tier index of 50 stocks. The NSE became
the first stock exchange in India to admit overseas shareholders.
BSE
Bombay Stock Exchange (BSE), India’s oldest stock exchange
formally came into being in 1887 and was a regional exchange
till 2002 when it became a national exchange. It became a
corporate entity, BSE Ltd. in 2005.
The BSE has four indices. Sensex or sensitive Index has 30
stocks. BSE-200 is a 200 stock share index (including the Sensex
stocks). Dollex is its dollar version. BSE-500 is a 500-stock
index which was developed in 1999 and represents several major
industries, with special emphasis on IT sector. The National
Index of 100 stocks quoted on a national level gives a wider
representation of the stock market. It includes the Sensex stocks.
Over the Counter Exchange of India (OTCEI) was set up
in 1989, but began to trade only in 1992. The OTCEI deals
in securities that are not listed on a stock exchange. These
unlisted securities are basically securities of small companies
(with paid -up capital between 30 lakh and 25 crore) and
have a limited market. Their prices are determined through
direct negotiations between stock brokers and not by bidding
as in stock exchanges. With the prevalence of screen-based
trading, the relevance of regional stock exchanges has
diminished.
ISE
Interconnected Stock Exchange of India (ISE) is a
collaboration of India’s 15 regional stock exchanges (RSEs),
and was set up in 1998. The RSEs were provided more power
and reach through this. It is a web based exchange.
Indo Next is a new stock exchange, set up to promote liquidity
to stocks of small and medium enterprises (SMEs) was
launched in 2005 jointly by the BSE and FISE (Federation
of Indian Stock Exchanges, representing 18 regional stock
exchanges). It is better known as BSE Indo Next.
Approved Stock Exchanges in India
1. Bhuvneshwar Stock Exchange, Bhuvneshwar.
2. Calcutta Stock Exchange, Calcutta.
3. Cochin Stock Exchange, Cochin.
4. Delhi Stock Exchange, Delhi.
5. Guwahati Stock Exchange, Guwahati.
6. Hyderabad Stock Exchange, Hyderabad.
7. Jaipur Stock Exchange, Jaipur.
8. Canara Stock Exchange, Mangalore.
9. Ludhiana Stock Exchange, Ludhiana.
10. Chennai Stock Exchange, Chennai.
11. M.P. Stock Exchange, Indore.
12. Magadh Stock Exchange, Patna.
13. Pune Stock Exchange, Pune.
14. U.P. Stock Exchange, Kanpur.
15. Vadodara Stock Exchange, Vadodara.
16. Koyambtour Stock Exchange, Coimbatore.
17. Merrut Stock Exchange, Meerut.
18. Mumbai Stock Exchange, Mumbai.
19. Over the Counter Exchange of India, Mumbai.
20. National Stock Exchange, Mumbai.
21. Ahmedabad Stock Exchange, Ahmedabad.
22. Bangalore Stock Exchange, Bangalore.
23. Capital Stock Exchange, Kerala Ltd., Tiruvananthapuram,
Kerala
On July 9, 2007 SEBI has withdrawn units approval from
Saurashtra Stock Exchange, Rajkot due to its passive working.
Hence the number of approved stock exchanges has reduced to 23.
Securities and Exchange Board of India (SEBI):
The SEBI was set up in 1988 in place of the Controller
of Capital Issue who was a functionary of the Ministry of
Finance. It was made a statutory body in 1992. It is the main
regulatory institution of the Indian capital market.
SEBI is managed by six members - one chairman (nominated
by Central Government), two members (officers of central
ministries) one member (from RBI) and remaining two
members are nominated by Central Government. The office
of SEBI is situated at Mumbai with its regional offices at
Kolkata, Delhi and Chennai. In 1988 the initial capital of
SEBI was 7.5 crore which was provided by its promoters
(IDBI, ICICI, IFCI). This amount was invested and with it’s
interest amount day-to-day expenses of SEBI are met.
The SEBI is authorised to:
• oversee the working of stock exchanges;
• regulate merchant banks and mutual funds;
• register and regulate intermediaries such as stock brokers;
• curb fraudulent and unfair trade practices including
insider trading;
• promote the development of a healthy capital market.
Money Supply and Indian Financial System E-95
Development Finance Institutions (DFIs)
The Industrial Finance Corporation of India (IFCI):
The IFCI was the first DFI to be established in 1948 under
an Act of Parliament. It was originally a shareholders’
Corporation, but in 1993 it was converted into a company under
the Companies Act. It grants loans and advances to industrial
concerns, repayable normally within 25 years; guarantees
loans raised by industrial units; subscribes to and underwrites
the issue of stocks and shares by industrial concerns; and
extends guarantees for deferred payments by importers. It was
converted into a public limited company in 1993 to provide it
more operational freedom. However, huge NPAs have made
IFCI a sick financial institution.
Industrial Credit and Investment Corporation of India (ICICI):
The ICICI was established in 1955 for promoting and
MONEY SUPPLY
Money supply is the stock of liquid assets held by the public,
which can be freely exchanged for goods and services. The
money supply includes notes and coins to bank deposits. It
includes all economic units (households, firms and institutions)
but excludes the producers of money (such as the government
and the banking system as this is not in circulation). As it
excludes the money held by the government in its treasuries
and the money with the banking system, money supply is bound
to be smaller than the total stock of money in the country’s
economic system.
The four concepts of money used in calculating money
supply are known as the money stock measures or measures
of monetary aggregates. These are
1. M1 → Money with the Public (currency notes and coins)
+ Demand deposits of banks (on current and saving
bank accounts) + Other demand deposits with RBI. It
is highly liquid and banks will not be able to run their
lending programmes on this basis.
2. M2 → M1 + Saving bank deposits with Post-offices.
3. M3 → M1 + Term deposits with the bank.
4. M4 → M3 + All deposits of Post-offices.
INFLATION
Inflation is an increase in price of goods. It can be seen as
a devaluation of the worth of money. A crucial feature of
inflation is that price rises are sustained. Once only increase
in the rate of, say, value-added tax, will immediately put up
prices, but this does not represent inflation, unless the indirect
effects of the VAT rise have repercussions of prices in periods
after the direct effects.
Accounts of the causes of inflation are numerous. The most
popular arguments are that it is caused by excess demand in
the economy (demand-pull inflation), that it is caused by high
costs (cost-push inflation) and that it results from excessive
modernising industrial enterprises; encouraging private
capital participation (both domestic and external) and help to
develop capital markets. Its main aim was to give term loans
in rupee and foreign exchange, underwrite issue of shares and
debentures and directly subscribe to these issues. Among all
the DFIs, ICICI had the most spectacular growth. In a ‘reverse
merger’, ICICI was merged with the ICICI Bank in March
2002 and became the first ‘universal bank’ in the country.
Industrial Development Bank of India (IDBI)
The IDBI was established under an Act of Parliament in
1964 for providing direct term finance to large industrial
units and assisting small and medium units through banks
and State Finance Corporations (SFCs). It was converted
into a company by the 2003 Act and became a universal bank
like ICICI through reverse merger with the IDBI Bank.
M1 measure represents the most liquid form of money among
four money stock measures adopted by RBI. As we move
from M1 to M4, the liquidity gets reduced. In other words,
M4 possesses the lowest liquidity among all these measures.
The reduction in liquidity indicates the shifting from ‘medium
of exchange’ to ‘store of value’. All these four money stock
measures are not of equal importance. Their relative importance
varies from the point of view of monetary policy
Generally, in developed countries, the bank deposits are the
most important component in money supply, while due to
less banking habits in under-developed countries people want
to keep their money in the most liquid form i.e., currency.
M3 is the most important component among all money stock
measures and is generally termed as ‘Broad money’.
In economics, the money supply or money stock is the
total amount of monetary assets available in an economy at a
specific time. There are several ways to define ‘money’ but
standard measures usually include currency in circulation
and demand deposits.
Money supply data are usually recorded and published by
the government or the central bank of the country. Public
and private sector analyst have long monitored changes in
money supply because of its possible effect on the price level
inflation, exchange rate and the business cycle.
increases in the money supply (monetarism). Inflation affects
all segments of the economy. It hurts persons having fixed
incomes, as they can purchase less number of goods in the
same amount of money. It affects those like retired persons
who depend on interest income on their savings. It upsets
macro-economic decision making, as the uncertainty regarding
future costs can affect projections.
It may appear that inflation benefits borrowers, as it leads to
a fall in the real cost of capital. But this is only a temporary
phase and the interest rate is bound to go up to compensate for
the inflation.
E-96 Money Supply and Indian Financial System
Inflation In India
In India inflation is a structural as well as a monetary
phenomenon. In the short term, localised demand-supply
imbalances in wage goods, often due to seasonal variations
in production- coupled with market rigidities and regulatory
failures have supported inflation that have resulted in a
more widespread impact on the consumers than the initial
inflationary impulse. In the medium to long-term, the
movement and outcome of monetary aggregates such as the
money supply and interest rates of the financial systems have
influenced aggregate demand and consequently changes in
price levels in the economy. The latter considerations and
the influence of global commodity prices on the domestic
prices have become more important with the opening and
growing integration of the Indian economy with the rest of
the world.
Types of Inflation
1. Demand Pull Inflation occurs when excessive demand
for commodities increases their prices. This is the
conventional inflationary situation of ‘too much money
chasing too few goods’. The main demand-pull factors in
India are:
(i) Mounting government expenditure
(ii) Deficit financing and increase in money supply
(iii) Role of black money
(iv) Rapid population growth.
2. Cost Push Inflation occurs when wages and other costs
rise and the producers are successful in passing on the
higher costs to the consumers in the shape of higher
prices. The main cost -push factors in India are :
(i) Fluctuations in output and supply in both agriculture
and industry sectors. Fluctuations in output of food
grains have been a major factor responsible for rise
in food-grain prices as well as general price. In the
same way, the supply of manufactured goods also
did not increase adequately in last few years. Power
breakdowns, strikes and lock-outs and shortage of
transport facilities have been the major constraints
responsible for lowering production of manufactured
goods. With ever-rising demand for manufactured
goods, the producers are in a position to hike the
prices of their products
(ii) Problem of hoarding by traders and black
marketeers.
(iii) Taxation which gives the traders an opportunity to
raise the prices of goods, the proportion of which is
often more than the levy of taxes.
(iv) Administered Prices.
(v) Hike in Oil Prices.
3. Stagflation is a situation when high rates of inflation
coexist with high rate of unemployment (a combination of
stagnation and inflation).
4. Hyperinflation refers to a situation of runaway inflation
reaching even up to 100 percent per annum. It also refers
to rapid inflation in which prices increase so fast that
money loses its importance as a medium of exchange.
Calculation of Inflation
Changes in price level are measured by the following:
• Wholesale Price Index
• Consumer Price Index
• Gross Domestic Product (GDP) Deflator
The Wholesale Price Index (WPI) is a weighted average
of indices covering 676 commodities, which are traded in
primary, manufacturing and fuel and power-sectors. WPI is
thus a measure of inflation on an economy-wide scale. Services
do not figure in this, as there is usually no wholesale price
for services. The weightage for primary articles is only 20
percent. A revised WPI with 1993-94 as the base year has been
adopted. WPI figures are available on weekly basis with a gap
of about two weeks, and are, therefore, useful in continuous
monitoring of prices for policy making.
Consumer Price Index (CPI) is the retail price average of a
basket of goods and services directly consumed by the people.
It is computed separately for the following three groups:
(i) Industrial workers - 260 commodities
(ii) Urban Non-Manual Employees-180 commodities.
(iii) Agricultural labourers - 60 commodities
These indices, however, did not cover all the segments of the
population and thus, did not reflect the correct picture of the
price behaviour of the whole country.
A result, there was a strong need for compiling a CPI for
entire urban and rural population of the country to measure
the inflation in Indian economy based on CPI. Thus, now
Central Statistics Office (CSO) of the Ministry of Statistics
and Programme Implementation has started compiling a new
series of CPI:
(a) CPI for the entire urban population viz CPI (Urban); 225
commodities.
(b) CPI for the entire rural population viz CPI (Rural) 250
commodities.
(c) Consolidated CPI for Urban + Rural will also be
compiled based on above two CPIs
These reflect the changes in the price level of various goods
and services consumed by the Urban and rural population.
These new indices are now compiled at State / UT and all
India levels.
The CPI inflation series is wider in scope than the one based on
the wholesale price index (WPI), as it has both rural and urban
figures, besides state-wise data. The new series, with 2010 as
the base year, also includes services, which is not the case with
the WPI series.
A comparison of this new series with WPI is given below:
WPI CPI - New Series
wef Feb 2012
Base Year 2004-05 2010
Elemenetary Items 676 200 (Weighted items)
Weightage of Food products 243 49.71
(%)
Weightage of Energy products 14..91 9.49
(%)
Weightage of Miscellaneous Services 26.31
Items (%) not
included
Money Supply and Indian Financial System E-97
GDP deflator, which distinguishes between physical growth
in output and price rise, and gives an accurate picture of the
over-all price level.
The GDP Deflator is arrived at by dividing GDP at current
prices by GDP at constant prices in terms of base year prices
(1993-94 in India). This indicates as to how much of the
growth in GDP in a year is due to price rise and how much
due to increase in output. GDP deflator is now available only
annually with a gap of one year.
Theoretically, the growth in physical output in an economy has
to be matched by a corresponding growth in monetary flows.
Any mismatch between the two gets reflected in the growth
rate and price changes. Monetary policy aims at managing the
balance between growth in real flows and growth in monetary
flows.
Causes of Inflation
The inflation occurs due to two main factors:
(a) Increase in demand for goods and services.
(b) Decrease in the supply of goods & services
(a) Factors causing an Increase in demand for goods &
services:
(i) Increase in public expenditure
(ii) Increase in private expenditure
(iii) Increase in exports
(iv) Reduction in taxation
(v) Rapid growth of population
(vi) Black money
(vii) Deficit financing
(viii) Cheap money policy
(ix) Increase in consumer spending
(x) Department of Tax internal debts.
(b) Factors causing Decrease in supply of goods and
services:
(i) Shortage of supplies of factors
(ii) Industrial disputes
(iii) Natural calamities
(iv) Loop-sided Production
(v) Hoarding by consumers
(vi) Hoarding by traders
(vii) Operation of Law of Diminishing Returns.
Impact of Inflation
1. Inflation is the most regressive form of taxation as it
affects the poor and vulnerable sections of the society
the most. Such a situation leads to increasing income
disparities.
2. Inflation dampens exports by making our products
expensive and, conversely, makes imports attractive.
Such a situation may warrant formal or informal
devaluation of the currency in order to make our exports
competitive.
3. Inflation leads to recession, as people with fixed incomes
set apart an increasing share of their income to meet
the growing costs of essential commodities, leaving
very little for expenditure on non-essential terms. The
production of such items has to be reduced, leading to
shutdowns and recession.
Policy Measure to Control Inflation
The issue of inflation is addressed from both demand and
supply sides. Demand management implies putting a check
on the demand of the public for goods and services. Demand
management is achieved by measures such as postponing
public expenditure, reducing excess liquidity either through
taxes or saving schemes and restrictions on ad hoc treasury
bills. While such measures help contain the money supply,
there is a danger that these will contract the economy and lead
to an increase in unemployment. Rationalisation of excise and
import duties of essential commodities leads to higher burden
on poor.
RBI assists in controlling inflation through monetary measures
such as quantitative and selective credit controls and by
manipulating the Cash Reserve Ratio (CRR) and the Statutory
Liquidity Ratio (SLR). These are the monetary policies adopted
by government.
On the supply side, the mechanism of Public Distribution
System (PDS) ensures availability of essential commodities
for the vulnerable sections of society. This helps maintain
price levels. Fixation of maximum prices helps to eliminate
the incentive for hoarding and speculative activity in food-
grains. Control over private trade in food-grains and adoption
of Open General Licence (OGL) to ease the imports of sugar,
pulses, etc., in case of shortages are also some of the common
measures undertaken. Coupled with this is the open market
sale of rice and wheat resorted to by FCI from its buffer stock
in times of price rise.
Inflation and Price Control in the Post-reform Period
One of the major achievements of economic reforms of
1991 was the removal of restrictions on production and
prices. The direction was to move from a regulated to a
market-related environment. Contrary to expectations, the
removal of restrictions did not lead to a spurt in prices.
However, inflationary pressure remained moderately high
caused, paradoxically, by the very success of the reform
process, which brought in large foreign investment leading
an increase in money supply. Foreign inflows need to be
‘sterillised’ by the RBI by withdrawing from circulation
an equivalent amount of rupee either through open market
operation or through regulating bank credit. At the same
time, it was important to maintain the correct exchange
rate for the rupee so that its appreciation does not make
our exports uncompetitive. Following are some of the fiscal
policies adopted by government.
• Release of buffer stock of food grains to maintain the price
level;
• Import of some essential commodities like edible oils;
• Strict fiscal and monetary discipline
• Compensating farmers for the loss on account of withdreawal
offertilizer subsidy, through upward revision of procurement
prices.
• To maintain price stability, the Central Issue Price for rice
ans wheat has not been revised sonce july 2002. There has
been a continuous reduction in the import duty on edible oils.
E-98 Money Supply and Indian Financial System
Inflation and Price Control in the Post-reform
Period
One of the major achievements of economic reforms of 1991
was the removal of restrictions on production and prices.
The direction was to move from a regulated to a market-
related environment. Contrary to expectations, the removal
of restrictions did not lead to a spurt in prices. However,
inflationary pressure remained moderately high caused,
paradoxically, by the very success of the reform process, which
brought in large foreign investment, leading an increase in
money supply. Foreign inflows need to be ‘sterilised’ by the RBI
by withdrawing from circulation an equivalent amount of rupee
either through open market operation or through regulating
bank credit. At the same time, it was important to maintain
the correct exchange rate for the rupee so that its appreciation
does not make our exports uncompetitive. Following are some
of the fiscal policies adopted by government.
• Release of buffer stock of food grains to maintain the
price level;
• Import of some essential commodities like edible oils;
• Strict fiscal and monetary discipline
• Compensating farmers for the loss on account of
withdrawal of fertilizer subsidy, through upward revision
of procurement prices.
• To maintain price stability, the Central Issue Price for
rice and wheat has not been revised since July 2002.
There has been a continuous reduction in the import duty
on edible oils.
Public Goods, Merit Goods and Subsidies
Subsidies are a major burden on the national budget. There
are inevitable leakages in subsidies and much of it does not
reach the intended beneficiaries. In many cases, the benefits
are taken by the undeserving. Most of our agricultural and
food subsidies suffer from this drawback. In order to assist
proper targeting of subsidies, goods are classified into three
categories:
(i) Public goods: It includes national defence, police, general
administration, etc. These services are available to all and
the enjoyment by one is not at the expense of another. No
price can be put on these services.
INDIAN BANKING
Reserve Bank of India was nationalised on January 1, 1949.
For the co-ordinated regulation of Indian banking, the Indian
Banking Act was passed in March 1949. By Act, the Reserve
Bank of India was granted extended powers for the inspection
of non-scheduled banks. For extending banking facilities in
the rural areas the Imperial Bank of India was partially
nationalised on July 1, 1955 and it was named as the State
Bank of India. Along with SBI other 8 (at present 7) banks
were converted as its associate banks which form what is
named as the State Bank Group. They are as follows-
1. The State Bank of Bikaner and Jaipur (In the beginning
the State Bank of Bikaner and the State Bank of Jaipur
were separate. But they were merged and named as the
State Bank of Bikaner and Jaipur).
2. The State Bank of Hyderabad
3. The State Bank of Indore
(ii) Merit goods: It includes primary education, immunisation,
public health programme, etc. Not only individual beneficiary
but society at large benefits by making these goods available.
Providing subsidy for these goods is essential.
(iii) Non-merit goods: In non merit goods the benefit goes
directly to the individual while the costs are borne by the
society. Pollution caused by automobile emission is an
example of non-merit goods.
Deflation
“Deflation is that state in which the value of money rises and
the price of goods and services falls.”
The state of deflation may appear in the economy due to
following reasons-
(i) When the Government withdraws money from
circulation.
(ii) When Government imposes heavy direct taxes or takes
heavy loans from the public (voluntary or compulsory
or both).
(iii) When the Central Bank sells the securities in open
market (which reduces the quantity of money in
circulation).
(iv) When Central Bank controls the credit money and
adopts various measures such as increase in CRR,
credit rationing and direct action.
(v) When the Central Bank increases the Bank rate (which
curtails the quantity of credit in the economy).
(vi) When state of over-production (excess supply over
demand) takes place in the economy.
Measures of Checking Deflation
(i) Increasing money supply.
(ii) Promote credit creation by the banks.
(iii) Curtailment in taxes so as to increase the purchasing
power of the people.
(iv) Increasing the public expenditure and the employment
opportunities in the economy.
(v) Increasing the money supply in circulation by repayment
of old public debts.
(vi) Providing of economic subsidy by the Government to
the industrial sector of the economy.
4. The State Bank of Mysore
5. The State Bank of Saurashtra
6. The State Bank of Patiala
7. The State Bank of Travancore
In order to have more control over the banks, 14 large
commercial banks, whose reserves were more than 50 crores
each, were nationalised on 19th July, 1969. The nationalised
banks are as follows:
1. The Central Bank of India
2. Bank of India
3. Punjab National Bank
4. Canara Bank
5. United Commercial Bank
6. Syndicate Bank
7. Bank of Baroda
8. United Bank of India
Money Supply and Indian Financial System E-99

9. Union Bank of India 1. Andhra Bank

10. Dena Bank 2. Punjab and Sindh Bank
11. Allahabad Bank 3. New Bank of India
12. Indian Bank 4. Vijaya Bank
13. Indian Overseas Bank 5. Corporation Bank
14. Bank of Maharashtra 6. Oriental Bank of Commerce
After one decade, on April 15, 1980, those 6 private sector On 4th September, 1993 the Government merged the New Bank
banks whose reserves were more than 200 crores each were of India with Punjab National Bank and as a result of this the
nationalised. These banks are as: total number of nationalised bank got reduced from 20 to 19.
Evolution of the Indian Banking Industry

Trigger Phases Major

Events Changes

Beginning of institutional  Birth of joint stock banking

banking with 3 joint stock companies
banks  Introduction of deposit banking
Phase 1 and bank branches
Pre Nationalisation Phase  Presidency banks and other joint
stock banks formed setting the
foundation of modern banking
Nationalisation of Imperial system.
Band and 20 other scheduled
commercial banks  State Bank of India formed out of
imperial bank
 20 SCBs nationalised in two
Phase 2
Era of Nationalisation phases
and Consolidation  Directed credit programmes on
the rise
Acceptance of  Introduction of social banking
recommedations of the
Narasimham Committee  Major changes in prudential
regulations
 Interest rates deregulated
Phase 3  Statutory presumption of
Introduction of Indian
resources eased more private
Financial & Banking Sector
Reforms and Partial sector players came in
Liberalisation strengthened the system as a
Hike in
whole
the FDI celling for
banking sector and declaration
of roadmap for  FDI ceiling for the banking sector
liberalisation increased to 74% from 49 %
Phase 4  Roadmap for inclusion of foreign
Period of increased
banks declared
Liberalisation
 More liberal branch licensing
policy followed.
Phase 4
Continues-more
liberalisation expected
With the change of the Indian economy to a higher growth As certain rigidities and weaknesses were found to have
trajectory, the provision of adequate and timely availability developed in the banking system during the late eighties,
of bank credit to the productive sectors of the economy has the Government felt that these had to be addressed to enable
acquired importance. As public sector banks still own about 71 the financial system to play its role in ushering in a more
% of the assets of the banking system, they continue to play efficient and competitive economy. Accordingly, a high-level
an important role in responding to the changes in the economic Committee under the Chairmanship of Shri M. Narasimham
environment. As the banking regulator and supervisor and as on the Financial System (CFS), was set up on August 14, 1991
the monetary policy authority, the Reserve Bank of India (RBI) to examine all aspects relating to the structure, organisation,
continues to guide the banking system, including foreign, functions and procedures of the financial systems. Based on the
private sector and public sector banks, to meet emerging recommendations of the Committee a comprehensive reform
economic challenges. of the banking system was introduced in 1992-93.
E-100 Money Supply and Indian Financial System
Another high-level Committee, under the Chairmanship of Shri
M. Narasimham was constituted by the Government of India
in December 1997 to review the record of implementation of
financial system reforms recommended by the CFS in 1991 and
chart the reforms necessary in the years ahead. The Committee
submitted its report to the Government in April 1998.
Reserve Bank of India (RBI)
It is the Central Bank of the country. The Reserve Bank of
India was established in 1935 with a capital of 5 crore. This
capital of 5 crore was divided into 5 lakh equity shares
of 100 each. In the beginning the ownership of almost all
the share capital was with the non-government shareholders.
In order to prevent the centralisation of the equity shares in
the hands of a few people, the Reserve Bank of India was
nationalised on January 1, 1949.
The general administration and direction of RBI is managed by
a Central Board of Directors consisting of 20 members which
includes 1 Governor, 4 Deputy Governors,
1 Government official appointed by the Union Government of
India to give representation to important stratas in economic
life of the country. Besides, 4 directors are nominated by
the Union Government to represent local boards. Apart from
the central board there are 4 local boards also and their head
offices are situated in Mumbai, Chennai, Kolkata and New
Delhi. 5 members of local boards are appointed by the Union
Government for a period of 4 years. The local boards work
according to the instructions and orders given by the Central
Board of Directors, and from time to time they also tender
useful advice on important matter. The head office of Reserve
Bank of India is in Mumbai. At present, Raghuram Rajan is the
Governor of Reserve Bank of India.
Objectives of RBI
• The objectives of the RBI is to regulate the issue of bank
notes and keeping of reserves with a view of securing
monetary stability in India and generally to operate the
currency and credit system of the country to its advantage.
• The formulation, framework and institutional architecture
of monetary policy in India have evolved around these
objectives - maintaining price stability, ensuring adequae
flow of credit to sustain growth momentum and securing
financial stability.
• The responsibility for ensuring financial stability has
involved the vesting of extensive power in and operational
objectives for the RBI for regulation and supervision of
financial system and its constituents, the money, debt and
foreign exchange segments of the financial markets in
India and the payment and settlement system.
Functions of Reserve Bank
1. Issue of Notes :
The Reserve Bank has the monopoly over issuing
of notes in the country. It has the sole right to issue
currency notes of various denominations except one
rupee note. The Reserve Bank acts as the only source of
legal tender of money because even the one rupee notes
issued by Ministry of Finance are circulated through it.
The Reserve Bank has adopted the Minimum Reserve
System for the note issue. Since 1957, it maintains gold
and foreign exchange reserves of 200 crores, of which at
least 115 crores should be in gold.
2. Banker to the Government :
The second important function of the Reserve Bank is to
act as the Banker, Agent and Adviser to the Government.
It performs all the banking functions of the State and
Central Government and it also tenders useful advice
to the Government on matters related to economic and
monetary policy. It also manages the public debt for
the Government. The RBI also channelises bank credit
in favour of priority sectors. RBI has thus developed
institutions like IDBI, SIDBI, NABARD, NHB, etc.
The RBI also promotes cooperative banking and the bill
market.
3. Banker’s Bank :
The Reserve Bank performs the same function for
other banks as these banks ordinarily perform for their
customer. It regulates, penalizes and helps banks as and
when needed.
4. Controller of Credit :
The Reserve Bank undertakes the responsibility of
controlling credit created by the commercial banks.
To achieve this objective it makes extensive use of
quantitative and qualitative techniques to control and
regulate the credit effectively in the country.
5. Custodian of Foreign Reserves :
For the purpose of keeping the foreign exchange rates
stable, the Reserve Bank buys and sells foreign currencies
and also protects the country’s foreign exchange funds.
6. Other Functions :
The bank performs a number of other developmental
works. These works include the function of being a
clearing house, arranging credit for agriculture (which
has been transferred to NABARD), collecting and
publishing the economic data, (weekly, monthly and
annual reports are published by the RBI in the field of
the country’s currency and finance status), buying and
selling of Government securities and trade bills, giving
loans to the Government, buying and selling of valuable
commodities, etc. It also acts as the representative of
Government in I.M.F. and represents the membership of
India.
As mentioned abve, RBI also acts as Controller of Credit, and
in this role makes extensive use of quantitative and qualitative
techniques. These are as follows :
Quantitative Credit Control Measures
These measures ae those through which the Central bank of
Country regulates and controls the total quantum. i.e. volume
of loans and credit given by commercial banks.
• Bank Rate : It is that rate of interest at which the Central
Bank provides financial assistance to commercial banks.
When bank rate is raised, it is called “dear money policy”
which implies that commercial banks would also raise the
Money Supply and Indian Financial System E-101
rate of interest at which they would lend to various sectors
in the economy. On the other hand, when bank rate is
lowered, it is called “cheap money policy” Generally, bank
rate may be raised during period of inflation, and may be
lowered during a period os slowdown and recession.
• Cash Reserve Ratio (CRR) : It is that ratio of total
deposits of a bank which a bank has to keep in cash with
the central bank. When this ratio is raised, it is called a
policy of “credit squeeze” and when lowered, it is known
as a policy of “credit liberalisation” it may generally be
raised during inflation and lowered during a slowdown.
• Open market Operations: These are conducted by the RBI
by selling and buying government securities from banks.
Generally, the RBI may sell government securities during
inflation, so as to mop up excess funds lying with banks.
It may buy these during a period of slowdown to release
liquidity in the banking system.
Indian Banking Industry
Scheduled
Banks
Scheduled
Commercial
Banks
SBI & Public
Associates Sector
Rural
National Banks Banks (PSBs) Co-operative
(including IDBI) Banks
Foreign Banks
Regional Rural
Short term
Banks
Other Scheduled
State, district and
Commercial Banks
primary level
Cooperative Banks
Regional Rural Banks (RRBs)
RRBs were set up with the objective of developing the rural
economy by providing credit and encouraging other productive
activities in the rural areas.
Public sector banks sponsor RRBs, subscribing to the share
capital. The RRBs meet the credit needs of the weaker sections–
small and marginal farmers, artisans, small entrepreneurs, etc.
The RRBs accumulated huge losses and fared badly in their
recovery of loans; the government allowed them to grant loans
to non-priority sectors as well so as to improve their financial
position.
Private Sector Banks
These banks in India are of two kinds- Indian and foreign.
The Indian private sector banks are those which have been
• Statutory Liquidity Ratio (SLR): It is that ratio of the total
deposits of liquid funds, consisting mainly of government
securities and, to some extent, cash in hand. It mainly
serves the purpose of lending to government , and to a
lesser extent, it also prevents a panic run on the banks.
• Repo and Reverse Repo rate: Under repo rate, the RBI
undertakes to repurchase government securities from
banks,, with a commitment that it will give them back
to the banks. Thus, under Repos, the RBI lends to
commercial banks by repurchasing government securities
lying with them and therefore, repos imply injection of
liquidity in the banking system.
Composition of Banking System in
India
The Indian banking system consists of commercial banks both
in public and private sector, Regional Rural Banks (RRBs) and
co-operative banks.
Unscheduled
Banks
Scheduled
Co-operative
Banks
Urban
Co-operative
Banks
Signal
Long term Multi-state
SCARDBs &
PCARDBs
incorporated in India and so have their head offices in India.
Foreign banks, on the other hand, have been incorporated in
foreign countries and have their head offices outside India.
Co-operative Banks
These banks are so called because they have been organised
under the provisions of the co-operative society’s law of the
states.
State co-operative Banks (SCB) : In terms of organisational
set-up of the co-operative banking system, the state co-
operative bank (SCB) in each state (co-operation being a state
subject) are at the apex level; at the district level are the central
co-operative banks (CCBs); and at the village level, there are
primary agricultural credit societies (PACS).
E-102 Money Supply and Indian Financial System

Scheduled and Non-Scheduled Banks RRBs and state co-operative banks are scheduled banks. The
non-scheduled banks are those which have not been included
The Reserve Bank of India has divided the banks as scheduled
in the Second Schedule of the RBI Act, 1934. While in 1960-
and non-scheduled banks. The scheduled banks are those which
61, there were 256 non-scheduled banks, most have been now
have a paid-up capital and reserves of an aggregate value of not
amalgamated with bigger banks.
less than Rs 5 lakh. All commercial banks–Indian and foreign,
Banking System in India
Indicators 2010 2011 2012 2013
Number of 163 163 169 151
Commercial Banks
Number of Branches 88,203 94,019 102,377 109,811
Aggregate Deposits ` 44928 billion (US$660 ` 52078 billion (US$770 ` 59091 billion (US$870 ` 67504.54 billion
billion) billion) billion) (US$1.0 trillion)
Bank Credit ` 32448 billion (US$480 ` 39421 billion (US$580 ` 46119 billion (US$660 ` 52605 billion (US$780
billion) billion) billion) billion)
Deposit as percentage 78% 78% 78% 79%
to GNP (at factor cost)

Credit Deposit Ratio 74% 76% 79% 79%

Narsimhan Committee on Banking Sector
Reforms:
The major recommendations of the committee are as follows :
• Banks should be free to open or close a branch, except
in rural areas, where banking cannot depend on a bank’s
choice, Also, there should be no further branch expansions.
• Nationalisation of banks should not take place any more.
• Private and foreign banks should be set up to promote
competition.
• There should be a phased reduction of CRR and SLR
• Speedy computerization of banks.
• Setting up of special “ debt recovery tribunals”
• Setting up of Asset Reconstruction of companies for not
performing assets (NPAs).
• A board for financial supervision should be set up.
• Banks should adopt provisioning norms to keep provisions
against bad loans in their books.
• Banks should classify their assets into four categories,
namely-standard, sub-standard, doubtful and loss.
• Banks should conform to BASEL norms and have a capital
adequacy ratio (CAR) of 8% by 1998.
• Priority sector lending should be brought down from 40%
to 10%
• There should be a four-tier banking structure (international,
national, regional and local).
Non performing assets:
As per recommendations of the Narasimham Committee, it
has been decided that credit facilities granted by banks will be
classified into performing and non-performing assets (NPA).
NPA is a loan (whether term loan, cash credit, overdraft, or
bills discounted), which is in default for more than six months.
In case of such assets, the income should be shown only on
receipt and not in the bank’s book on a due basis.

INSURANCE SECTOR
The Insurance sector was nationalised in two stages.
Life Insurance Corporation of India
(LIC)
The LIC was established on first of September 1956 after
nationalising the existing private insurance companies. LIC has
a strong social security scheme which is funded by the Social
Security Fund (SSF) set up and administrated by it since 1989-
90. The LIC runs three schemes supported by SSF - Janashree
Bima Yojana, Krishi Shramik Samajik Suraksha Yojana and
Shiksha Sahayog Yojana. These schemes benefit persons and
families below the poverty line.
General Insurance Corporation of
India (GIC)
The GIC was formed in November 1972 upon the nationalisation
of general insurance business. The 107 private companies
operating in the field were grouped together into four :
(i) National Insurance Company,
(ii) United India Insurance Company,
(iii) Oriental Insurance Company, and
(iv) New India Assurance Company,
with GIC as the holding company. These companies can
compete among themselves for all types of general insurance
except aviation insurance and crop insurance which are the
monopoly of GIC.
Money Supply and Indian Financial System E-103
Insurance Regulatory and
Development Authority
IRDA is a multimember nodal agency and is vested with
regulatory powers in respect of the insurance sector similar
to those vested in SEBI in respect of the capital markets and
of RBI for the banking sector. The IRDA Act, 1999 cleared
the way for private sector entry into the insurance business.
The IRDA has powers to lay down prudential norms and
investment guidelines. It has ended the monopoly of LIC/
GIC in the insurance sector, by permitting private players to
enter, as recommended by Malhotra Committee.
COMMODITY FUTURES MARKET
India has a long history of commodity futures trading. A
commodity includes all types of goods. Futures trading is
organised in such goods or commodities as is permitted by the
government. A commodity exchange which is an association or
a company or any corporate body organizing future trading in
commodities
A future contract is a type of ‘forward contract’ which means
a contract for the delivery of goods that is not a ready delivery
contract. A ready delivery contract provides delivery of goods
and payment of price either immediately or within a period not
exceeding 11 days. The ready delivery contracts are known as
“spot” or “cash” contracts.
All contracts in commodities providing delivery of goods and
payment of price after 11 days are forward contracts which may
be either “specific delivery contracts” or “ futures contracts”.
There are four commodity exchanges working in the country.
They are NMCE (National Multi Commodity Exchange) -
the oldest commodity exchange in the country which became
operational in 2002, MCX (Multi Commodity Exchange),
NCDEX (National commodity and Derivatives Exchange)
and ICEX (Indian Commodity Exchange). ICEX is the
latest commodity exchange which becomes operational since
November 27, 2009. India bulls of private sector and MMT
of the public sector are the main promoter companies of this
exchange.
NON-BANKING FINANCIAL INSTITUTIONS (NBFIS)
NBFIs work in similar ways as banks, but there are certain
differences
According to the Economic Survey, there are four Institutions,
namely:
(i) Export Import Bank of India (EXIM Bank),
(ii) National Bank for Agriculture and Rural Development
(NABARD),
(iii) National Housing Bank (NHB) and
(iv) Small Industries Development Bank of India (SIDBI).
These institutions are regulated by the RBI as all-India FIs. The
outstanding of total resources mobilized at any point of time
by an FI, including funds mobilized under the ‘umbrella limit’,
as prescribed by the RBI, should not exceed 10 times its net
owned funds as per its latest audited balance sheet. However,
Some of the functions of the authority include:
• To protect the interest of and secure fair treatment to
policy holders.
• To bring about speedy and orderly growth of the
insurance industry.
• To ensure speedy settlement of genuine claims and to
prevent frauds and malpractices.
• Promote fairness, transparency and orderly conduct in
financial markets dealing with insurance.
The MCX recorded the highest turnover in terms of value
of trade during 2009, followed by National Commodity and
Derivatives Exchange Ltd. (NCDEX) and National Multi-
Commodity Exchange of India Ltd. (NMCE) respectively.
Forwards Market Commission (FMC)
FMC is a statutory body set up by the Forwards Contracts
(Regulation) Act, 1952. It functions under the administrative
control of Department of Consumer Affairs, Ministry of
Consumer Affairs, Food and Public Distribution. The
Commission is a Regulatory body set up to ensure financial
integrity, market integrity and protection and promotion of the
interest of consumers.
Foreign Portfolio Investments
The government has allowed Foreign Institutional Investors
(FIIs) to invest in Indian stock markets since September 1992.
These FIIs are foreign pension funds, mutual funds, investment
trusts, asset management companies (AMCs) and portfolio
managers. FIIs have generally been actively participating in
the Portfolio Investment Scheme, although there are charges
that they have brought greater volatility to the Indian stock
market. Net FII inflow at end of 2012 stood at US $ 31.01
billion (as per the economic Survey 2012-13). 1759 FIIs are
currently registered with SEBI.
in view of the difficulties expressed by the NHB and EXIM
Bank, their aggregate borrowing limit has been enhanced to 11
times of their net owned funds (NOF) for one year (for NHB
up to 30 September, 2012 and for EXIM Bank up to 31 March,
2012, subject to review.)
Export-Import Bank of India (EXIM
Bank)
EXIM bank in India was established on January 1, 1982 for
financing, facilitating and promoting foreign trade in India.
Besides, EXIM Bank also discharges duties of co-ordinating
the activities of various financial institutions, providing
finances for export and imports of goods and services. Besides
India, this bank also manages finances to third world countries
E-104 Money Supply and Indian Financial System
for export and import of goods and services. The Government
of India wholly owns EXIM Bank of India.
National Housing Bank (NHB)
National Housing Bank was established in July 1988 as wholly
owned subsidiary of RBI. NHB is the apex banking institution
providing finances for houses. The statutory mandate of
NHB covers promotional, developmental and regulatory
aspects of housing finance with focus on developing a sound
housing finance system. NHB amended its Act called NHB
(Amendment) Act, 2000 which came into force on June 12,
2000. NHB has made a number of efforts to promote the
supply of real resources like land and building material.
NHB has been permitted to mobilise resources by issuing
bonds and debentures. NHB can obtains short term loan for
18 months period from RBI and obtain long-term loan from
National Housing Credit Fund constituted by RBI. It can also
obtain loans from various financial institutions of India and
abroad. It can also obtain loans in foreign currencies. Besides,
NHB can accept long term deposits from Central Government
and other institutions.
A major activity of NHB includes extending financial assistance
to eligible institutions in the housing sector by way of refinance
and direct finance. The NHB is the regulator and supervisor of
Housing Finance Companies (HFCs) in the country.
Small Industries Development Bank
of India (SIDBI)
Small Industries Development Bank of India (SIDBI) was
established as wholly owned subsidiary of IDBI under the
Small Industries Development Bank of India Act, 1989 as the
principal financial institution for promotion, financing and
development of industries in the small scale sector. SIDBI
started its operations from April 2, 1990. It oversees the activity
of agencies which provide finances to small enterprises. It’s
headquarter is situated at Lucknow. 5 Regional and 21 Branch
Offices have also been started in different parts of the country.
All duties related to small enterprises which were performed
by IDBI, have been shifted to SIDBI. SIDBI provides
assistance to the small scale industrial sector in the country
through other institutions like State Financial Corporations
(SFC), Commercial Banks, and State Industrial Development
Corporations, etc. Besides share capital, SIDBI can increase
its resources by taking loans from the Government of India and
RBI. SIDBI can also obtain loans from Indian Capital market.
It is also free to obtain loans in foreign currencies from foreign
institutions. SIDBI will provide loans (both in Indian and
Foreign Currencies) under its ‘Single Window Service’.
While IDBI continues to be the single largest shareholder of
SIDBI, the State Bank of India and LIC follow as the next two
large share holders in that order.
National Bank for Agriculture and
Rural Development (NABARD)
It is an apex depevlomental bank in India. Setting up of
NABARAD was recommended by the committee to review
arrangements for institutional credit for agriculture and rural
development, set up by the RBI, under the chairmanship of Shri
B.Sivaraman. It was established in 1982 and its main focus has
been on the upliftment of rural India by increasing credit flow
into agriculture and rural non-farm sector. It has been entrusted
with matters concerning policy, planning and operations in the
field of credit for agriculture and other economic activities
in rural areas in India. NABARAD is active in developing
financial inclusion policy and is a member of the Alliance for
Financial Inclusion.
Micro Finance
Financial Inclusion is the delivery of financial services at
an affordable cost to vast sections of the disadvantaged and
low income groups. It is crucial to innovate and provide
means to include the financially disadvantaged by ensuring
access to financial services, and timely and adequate credit.
Financial inclusion can be described as the provision of
affordable financial services, like access to payments and
remittance facilities, savings, loans and insurance services
by the formal financial system to those who are excluded.
The Self-Help Group (SHG)-bank linkage programme
continued to be the main micro-finance model by which
the formal banking system reaches micro-enterpreneurs
(including farmers). Launched in 1992 as a pilot project,
it has since proved its efficacy as a mainstream programme
for banking by the poor who mainly comprise the marginal
farmers, landless labourers, artisans and craftsmen and
others engaged in small businesses like hawking and vending
in the rural areas. The main advantages of the programme are
timely repayment of loans to banks, reduction in transaction
costs both to the poor and the banks, doorstep “saving and
credit” facility for poor and exploitation of the untapped
business potential of the rural areas.
Money Supply and Indian Financial System E-105
Exercise - 1
1. Demand management to control inflation may lead to:
(a) increase in government expenditure
(b) increase in unemployment due to contraction of the
economy
(c) expansion of credit
(d) creation of excess liquidity
2. Which of the following is not a function of the Securities
and Exchange Board of India (SEBI)?
(a) Supervising the working of the Stock Exchanges
(b) Underwriting new capital issues
(c) Regulating merchant banks and mutual funds
(d) promoting the development of a healthy capital
market
3. It is said that, in order to control inflation, foreign inflow
needs to be sterlised. Sterlisation here refers to:
(a) ensuring that black money is accounted.
(b) compliance with import-export regulations
(c) ensuring that counterfeit currency does not enter
circulation
(d) withdrawing equivalent local currency to maintain a
desirable rate of exchange
4. The first public sector bank in India which obtained
license for Internet Banking from RBI is-
(a) Punjab National Bank (d) Foreign direct investment
(b) Oriental Bank of Commerce
(c) Corporation Bank
(d) State Bank of India
5. Which of the following markets are independently
regulated by Forward Market Commission?
(a) Mutual Funds
(b) Commodity Futures Market
(c) Stock Market
(d) Foreign Exchange Markets
6. Inflation, in theory, occurs:
(a) when the price of essential commodities outstrips
income
(b) when money supply grows at a higher rate than
GDP in real terms
(c) when the exchange rate of a currency falls
(d) when fiscal deficit exceeds balance of payment
deficit
7. Among the supply side measures to contain inflation is:
(a) postponing public expenditure
(b) mopping up excess liquidity through taxation
(c) credit control measures of RBI
(d) maintaining price levels through an effective PDS
8. Which of the following is not true of the Regional Rural
Banks (RRBs)?
(a) They provide direct loans to small and marginal
farmers;
(b) They are co-sponsored by Reserve Bank of India;
(c) They also perform other banking operations;
(d) State Governments are share-holders in RRBs.
9. Bank rate refers to:
(a) the rate at which banks lend to its prime borrowers
(b) the maximum rate that banks can pay for deposit
(c) the rate at which banks rediscount bills with RBI
(d) the rate of interest charged on inter-bank transactions
10. Open market operation of RBI refers to:
(a) buying and selling of shares
(b) auctioning of foreign exchange
(c) trading in securities
(d) transaction in gold
11. According to the Chakravarthy Committee, one of the
principal causes affecting price stability in India is:
(a) existence of black money
(b) violent fluctuation in agricultural production
(c) India’s precarious balance of payment position
(d) fiscal deficit
12. International capital flows have been uncertain and
volatile, causing exchange rate and balance of payment
crisis among developing countries. Among the various
sources of external capital available to India which source
should you consider as the most preferable?
(a) Foreign institutional investment
(b) Portfolio investment
(c) External commercial borrowing
13. Which of the following was described as the biggest ever
cash purchase of the shares of a bank in India?
(a) Purchase of Nedungadi Bank shares by Punjab
National Bank
(b) Amalgamation of Global Trust Bank with Oriental
Bank of Commerce
(c) Merger of Centurion Bank of Punjab with HDFC
Bank
(d) Purchase of State Bank of India shares from RBI by
the Central Government
14. To know whether the rich are getting richer and the poor
getting poorer, it is necessary to compare
(a) the wholesale price index over different periods of
time for different regions
(b) the distribution of income of an idential set of
income recipients in different period of time
(c) the distribution of income of different sets of income
recipients at a point of time
(d) the availability of foodgrains among two sets of
people, one rich and the other poor, over different
period of time
15. Which of the following statements correctly expresses the
difference between preference shares and equity shares?
(a) equity shareholders have no voting right but
preference shareholders have voting rights
(b) preference shareholders have no have voting rights
but equity shareholders have voting rights
(c) preference shareholders have no right to profit
whereas equity shareholders have a right to profit
(d) preference shareholders get exemption from taxes
while equity shareholders do not get any exemption
E-106 Money Supply and Indian Financial System

16. Which one of the following governmental steps has (a) Self Regulatory Organisations
proved relatively effective in controlling the double digit (b) Small Revenue Operators
rate of inflation in the Indian economy during recent (c) Securities Roll-back Operators
years? (d) Securities Regulatory Organisations
(a) enhanced rate of production of all consumer goods 23. Debentures and Equity differ in?
(b) streamlined public distribution system (a) Debentures are bonds confirming that money has
(c) pursuing an export oriented strategy
been borrowed; equity is a shareholder’s voting
(d) containing budgetary deficit and unproductive
rights in proportion to his shareholding
expenditure
(b) An equity shareholder cannot withdraw his
17. Which one of the following is not a feature of “Value
investment but debenture holder can withdraw his
Added Tax” ?
money.
(a) It is multi-point destination-based system of taxation.
(c) Equity shares have greater risk compared to
(b) It is a tax levied on value addition at each stage of
debentures which have fixed interest on the amount
transaction in the production distribution chain.
paid.
(c) It is a tax on the final consumption of goods or
(d) Both have the right to vote irrespective of the size of
services and must ultimately be borne by the
their holdings. Debentures are of lower value than
consumer.
equity
(d) It is basically a subject of the central government
24. How do we define the terms bull and bear with regard to
and the state governments are only a facilitator for
stock markets?
its successful implementation.
(a) A bull is an optimistic operator who first buys and
18. Which one of the following statements is an appropriate
then sells shares in expectation of the price going
description of deflation?
up; a bear is a pessimistic market operator who sells
(a) It is a sudden fall in the value of a currency against
the shares in expectation of buying them back at a
other currencies
lower price.
(b) It is a persistent recession in both the financial and
(b) There is nothing significantly different as both
real sectors of economy
operate in the capital market.
(c) It is a persistent fall in the general price level of
(c) Bull is one who first sells a share and then buys it
goods and services
at a lower price; bear means one who first buys and
(d) It is a fall in the rate of inflation over a period of then sells it in expectation of prices going up.
time
(d) A bull is ready to buy any share; a bear only deals
19. A rapid increase in the rate of inflation is sometimes
in government securities.
attributed to the “base effect”. What is “base effect”?
25. What do you understand by the term “Jobber”?
(a) It is the impact of drastic deficiency in supply due to
(a) A stock dealer who deals directly with the public for
failure of crops
which he gets a commission
(b) It is the impact of the surge in demand due to rapid
(b) A broker who buys and sells on behalf of his clients
economic growth
(c) A stock dealer who is a member of a stock exchange
(c) It is the impact of the price levels of previous year
and deals with the public only through the medium
on the calculation of inflation rate
of brokers
(d) None of the statements (a), (b) and (c) given above
(d) A stock broker who deals only with shares and not
is correct in this context
any other form of securities
20. The basic aim of Lead Bank Scheme is that:
26. What are “Futures”?
(a) big banks should try to open offices in each district
(a) Securities or commodities sold or bought with the
(b) there should be stiff competition among the various
assumption of delivery at a later stage
nationalized banks
(b) Shares and debentures bought at a cheaper rate and
(c) individual banks should adopt particular districts for
sold later at high rates
intensive development
(c) Particular types and quantities of securities and
(d) all the banks should make intensive efforts to
com-modities bought for selling at higher prices
mobilize deposits
(d) None of these
21. The International Development Association, a lending
27. An outward shift in the demand for money, other things
agency, is administered by the:
being equal should lead to:
(a) International Bank for Reconstruction and
(a) A lower interest rate but the same quantity of money
Development (b) A higher interest rate but the same quantity of
(b) International Fund for Agricultural Development money
(c) United Nations Development Programme. (c) A higher quantity of money but lower interest rates
(d) United Nations Industrial Development Organization (d) A higher quantity of money but the same interest
22. The acronym SRO, being used in the capital market for rate
various market participants, stands for which one of the 28. A rise in ‘SENSEX’ means:
following? (a) a rise in prices of shares of all companies registered
with Bombay Stock Exchange
Money Supply and Indian Financial System E-107
(b) a rise in prices of shares of all companies registered
with National Stock Exchange
(c) an overall rise in prices of shares of group up
companies registered with Bombay Stock Exchange
(d) a rise in prices of shares of all companies belonging
to a group of companies registered with Bombay
Stock Exchange
29. Which of the following would best describe the role of a
merchant bank?
(a) To monitor the activities of publicly-list companies
(b) To act as banker and financial agent to the federal
government
(c) To provide borrowing and leading services,
primarily to the business sector
(d) To provide loans to the corporate sector through
receipts of insurance premiums
30. Which action by the Reserve Bank would stimulate the
economy in an economic downturn?
(a) Selling government securities in the cash market
(b) Buying government securities in the cash market
(c) Selling foreign currencies on the foreign exchange
market
(d) Buying foreign currencies on the foreign exchange
market
31. Which of the following could be a cause of demand
inflation?
(a) An increase in the cost of labour
(b) An increase in domestic interest rates
(c) An increase in the level of consumer spending
(d) An increase in import prices, resulting from a
depreciating dollar
32. Other things being equal, what would be the impact of an
increase in net capital inflow on the Indian currency?
(a) There would be an increase in the demand for the
American dollar and an appreciation of the currency.
(b) There would be a decrease in the demand for the
rupees (`) and a depreciation of the currency.
(c) There would be an increase in the supply of the
American dollar and an appreciation of the currency.
(d) There would be a decrease in the supply of the
American dollar and a depreciation of the currency.
33. If an exporter earns money and deposits that with RBI,
what will be the ultimate impact on country’s money
supply?
(a) Money supply will increase
(b) Money supply will decrease
(c) Money supply will remain unaltered
(d) Money supply will depend upon the current exchange
rate
34. ‘SHG Bank Linkage Programme’ is a programme which
encourages India’s banks to lend to self-help groups
(SHGs) composed mainly of poor women, this has
evolved into an important Indian tool for microfinance.
This programme was initiated by ?
(a) Reserve Bank of India (RBI)
(b) Agricultural Refinance and Development
Corporation (ARDC)
(c) National Bank for Agriculture and Rural
Development (NABARD)
(d) Non-Banking Finance Companies (NBFC)
35. Open market Operation by RBI are the part of its :
(a) Fiscal Policy (b) Credit Policy
(c) Income Policy (d) Monetary Policy
36. Which of the following statements is not correct regarding
the ‘Banking Sector’ of India?
(a) At present there are 26 Nationalized Banks in India.
(b) Foreign Banks and Regional Rural Banks do not
come under the category of Scheduled Commercial
Banks.
(c) Banks have the freedom to regulate their own
Savings Bank Deposit interest rates.
(d) Narsimham Committee is related to Banking Sector
reforms.
37. The concept of ‘Universal Banking’ was implemented in
India on the recommendations of:
(a) Abid Hussain Committee
(b) R H Khan Committee
(c) S Padmanabhan Committee
(d) Y H Malegam Committee
38. Which among 1the following is considered to be a part of
Shadow Banking in India?
(a) Business Correspondents
(b) Bankassurance Providers
(c) Non-Banking Financial Companies
(d) Private Banks
39. Which among the following is the only correct statement?
(a) Money market meets long term financing needs
(b) Recession in industrial sector in India is normally
due to fall in exports
(c) Ways and means advances given by RBI are nowhere
related to State’s revenue
(d) Exchange rate is fixed by RBI
40. Bring out the only incorrect statement:
(a) Reverse Repo operation by RBI aims at injecting/
increasing liquidity
(b) SDR refers to special drawing rights
(c) Rupee appreciation results in decrease in imports
(d) Increase in inflation rate leads to decline in real
interest rate
41. Which among the following correctly defines the Net
Interest Income?
(a) Interest earned on advances
(b) Interest earned on investments
(c) Total interest earned on advances and investment
(d) Difference between interest earned and interest paid
42. In which among the following types comes the Interest
Rate Risk?
(a) Credit risk (b) Market risk
(c) Operational risk (d) All the above categories
43. When there is an inflationary trend in the economy, what
would be trend in the pricing of the Bank Products?
(a) Increasing Trend
(b) Decreasing Trend
(c) Constant Trend
(d) There is no relevance of the inflation in pricing of
the Banking Products
E-108 Money Supply and Indian Financial System
44. From time to time, which among the following body
publishes the “Exchange Control Manual” in context
with the Foreign Exchange in India?
(a) Foreign Trade Promotion Board
(b) Department of Commerce
(c) Reserve Bank of India
(d) SEBI
45. As per Section 24 (2A) of Banking Regulation Act
1949, every banking company in India has to maintain
equivalent to an amount which shall not at the close of
the business on __________ be less than 25% of the total
of its net demand and time liabilities, which is known as
SLR.
Which among the following is the correct option?
(a) Any Day (b) Any Week
(c) Any Fortnight (d) Any Month
46. Which among the following is NOT Tier I Capital?
(a) Paid up Capital
(b) Statutory Reserves
(c) Revaluation Reserves
(d) Investment Fluctuation Reserves
47. For which of the following, the Reserve Bank of India has
stipulated a maximum Capital Adequacy Requirements in
India?
(a) Private Sector Banks
(b) Banks that Undertake Insurance Business.
(c) Local Area Banks
(d) Scheduled Commercial Banks
48. Which one of the following Public Sector Bank’s emblem
figures a dog and the words ‘faithful friendly, in it?
(a) Punjab National Bank
(b) Syndicate Bank
(c) Oriental Bank of Commerce
(d) State Bank of India
49. Which among the following is NOT an instrument of
qualitative control in India ?
(a) Regulation of the Consumer Credit
(b) Rationing of the Credit
(c) Margin Requirements
(d) Variable Costs and Reserves
50. Which among the following would most likely follow if
the Reserve Bank of India effects selling of the securities?
(a) The cash resources at the disposal of the commercial
banks increase.
(b) The cash resources at the disposal of the commercial
banks get diminished.
(c) The cash resources of the commercial banks remain
unchanged.
(d) None of the above.
51. The Laffer curve is the graphical representation of:
(a) The relationship between tax rates and absolute
revenue these rates generate for the government.
(b) The inverse relationship between the rate of
unemployment and the rate of inflation in an
economy.
(c) The inequality in income distribution.
(d) The relationship between environmental quality and
economic development.
52. Which among the following gives a precise definition of
“ Arbitrage” in Financial World?
(a) To profit from an existing discrepancy among prices,
exchange rates, and/or interest rates on Different
Markets without risk of these changing
(b) to profit from an existing discrepancy among prices,
exchange rates, and/or interest rates on Same market
without risk of these changing
(c) To profit from an existing discrepancy among
prices, exchange rates, and/or interest rates on new
techniques or products in same market.
(d) All of above
53. “A statement of estimated receipts and expenditures
called annual Financial Statement (Budget) has to be
placed before parliament for each financial year.” The
above provision has been enshrined in which among the
following articles of Constitution of India?
(a) Article 110 (b) Article 111
(c) Article 112 (d) Article 113
54. Capitalism is based upon “Laissez-faire system”. What is
“Laissez-faire system”?
(a) No governmental intervention
(b) Maximum governmental intervention
(c) Role of market forces is minimum
(d) Limited government Intervention
55. Which among the following is true about “deficit
financing”?
(a) Public expenditure in excess of public revenue
(b) Public revenue in excess of public expenditure
(c) New currency replaced by old currency
(d) None of above
56. An excise duty is a charge on which of the following?
(a) Export of goods
(b) Production of goods
(c) Production or sale of goods
(d) Consumption of good
57. “Bad money (if not limited in quantity ) drives good
money out of circulation.” The above statement is from
which among the following laws?
(a) Keynes’ law (b) Wagner’s law
(c) Gresham’s law (d) Grimm’s law
58. Which among the following is a correct definition of
currency drain?
(a) A currency drain is an export of the domestic
currency
(b) A currency drain is an increase in currency held
outside the banks.
(c) A currency drain is the currency holding by a
parallel economy
(d) None of these
59. Which among the following is a correct definition of
Fiduciary Issue of notes?
(a) The issue of currency notes without metallic
backing.
(b) The issue of currency notes with metallic backing.
(c) The issue of currency notes with partial metallic
backing.
(d) The issue of currency notes with proportional
metallic backing.
Money Supply and Indian Financial System E-109

60. Which among the following is correct about the Vostro
Account?
(a) It is an account maintained by a foreign bank with a
Bank in India in Indian Rupees.
(b) It is an account maintained by an Indian bank with a
Bank in Foreign country in Foreign Currency.
(c) It is an account maintained by a Indian Bank Branch
with a Foreign Bank in Foreign Currency.
(d) It is an account maintained by a Foreign Bank
Branch with a Indian Bank in Foreign Currency.
61. What do we call an arrangement whereby an issuing
Bank at the request of the Importer (Buyer) undertakes
to make payment to the exporter (Beneficiary) against
stipulated documents?
(a) Bill of Exchange (b) A long-term start-up capital provided to new
(b) Letter of Exchange
(c) Letter of Credit (c) Funds provided to industries at times of incurring
(d) Bill of Entry
62. The most active segment of the Money Market in India is
which one of the following?
(a) Call Money / Notice Money Market
(b) Repo / Reverse Repo
(c) Commercial Paper (CP)
(d) Certificate of Deposit (CD)
63. An increase in the Bank Rate generally indicates that the :
(a) market rate of interest is likely to fall
(b) Central Bank is no longer making loans to
commercial banks
(c) Central Bank is following an easy money policy
(d) Central Bank is following a tight money policy
64. What does venture capital mean?
(a) A short-term capital provided to industries
entrepreneurs
losses
(d) Funds provided for replacement and renovation of
industries
E-110 Money Supply and Indian Financial System
Exercise - 2
Statement Based MCQ
1. Consider the following statements :
The function of the Reserve Bank of India does not
include:
1. Open market operations
2. Monitoring revenue collection
3. Supervising non-banking finance companies
4. Review of public expenditure
Which of the statement/s given above is/are correct?
(a) 1 only (b) 2 and 4
(c) 1, 3 and 4 (d) 1, 2, 3 and 4
2. Consider the following statements with regard to
Statutory Liquidity Ratio (SLR) :
1. To meet SLR, Commercial banks can use cash only.
2. SLR is maintained by the banks with themselves.
3. SLR restricts the banks leverage in pumping more
money into the economy.
Which of the statements given above is/are correct?
(a) 1, 2 and 3 (b) 1 and 3
(c) 2 and 3 (d) only 2 (a) 2 only (b) 1 and 3
3. Consider the following statements.
1. The National Housing Bank, the apex institution of
housing finance in India, was set up as a wholly-
owned subsidiary of the Reserve Bank of India.
2. The Small Industries Development Bank of India
was established as a wholly-owned subsidiary of the
Industrial Development Bank of India.
Which of the statement given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
4. Why is the offering of “teaser loans’’ by commercial
banks a cause of economic concern ?
1. The teaser loans are considered to be an aspect of
sub-prime lending and banks may be exposed to the
risk of defaulters in future.
2. In India, the teaser loans are mostly given to
inexperienced entrepreneurs to set up manufacturing
or export units.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
5. With reference to the Indian Public Finance, consider the
following statements:
1. External liabilities reported in the Union Budget are
based on historical exchange rates
2. The continued high borrowing has kept the real
interest rates high in the economy
3. The upward trend in the ratio of Fiscal Deficit of
GDP a recent years has a adverse effect on private
investment
4. Interest payments is the single largest component
of the non-plan revenue expenditure of the Union
Government
Which of these statements are correct?
(a) 1, 2 and 3 (b) 1 and 4
(c) 2, 3 and 4 (d) 1, 2, 3 and 4
6. Consider the following statements:
1. The repo rate is the rate at which other banks borrow
from the Reserve Bank of India.
2. A value of 1 for Gini Coefficient in a country implies
that there is perfectly equal income for everyone in
its population.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
7. Consider the following statements:
1. Sensex is based on 50 of the most important stocks
available on the Bombay stock Exchange (BSE).
2. For calculating the Sensex, all the stock are assigned
proportional weightage.
3. New York Stock Exchange is the oldest stock
exchange in the world.
Which of the statements given above is/are correct?
(c) 2 and 3 (d) none
8. Name the 3 commodities in the Wholesale Price Index.
1. Primary articles
2. Fuel, power, light and lubricants
3. Manufactured products
4. Food articles and industrial raw materials
(a) 1, 2 and 3 (b) 2, 3 and 4
(c) 1, 3 and 4 (d) 1 and 3
9. Which of the following measures would result in an
increase in the money supply in the economy?
1. Purchase of government securities from the public
by the Central Bank
2. Deposit of currency in commercial banks by the
public
3. Borrowing by the government from the Central
Bank
4. Sale of government securities to the public by the
Central Bank
Select the correct answer using the codes given below :
(a) 1 only (b) 2 and 4
(c) 1 and 3 (d) 2, 3 and 4
10. A company undertakes a public issue which means that
_____ .
1. Shares of the company will be issued only through
public sector organizations like banks/central
financial institutions etc.
2. Shares of the company will be issued to general
public through the primary market.
3. means some stakeholders/promoters are leaving
the company and wish to sell their stock to general
public.
(a) 1 only (b) 2 only
(c) 3 only (d) All 1, 2 and 3
Money Supply and Indian Financial System E-111
11. What is ‘Future Trading’?
1. It is a trade between two stock exchanges wherein
it is decided to purchase stocks of each other on a
fixed price throughout the year
2. It is an agreement between two parties to buy or sell
an underlying asset in the future at a predetermined
price
3. It is an agreement between stock exchange that they
will not trade in stocks of each other in future or for
a predetermined period of time
(a) 1 only (b) 2 only
(c) 3 only (d) All 1, 2 and 3
12. Brent index is associated with :
(1) crude oil prices (2) copper future prices
(3) gold future prices (4) shipping rate index
Which of the following is true?
(a) Only 1 (b) Only 2
(c) Only 3 (d) Only 4
13. Which of the following statements is/ are correct?
1. NIFTY is based upon 50 firms in India.
2. NIFTY is governed and regulated by the Reserve
Bank of India.
3. NIFTY does not trade in mutual funds.
Select the correct answer using the codes given below :
(a) Only 1 (b) Only 2
(c) Only 3 (d) 1 and 3
14. Which of the following measures should be taken when
an economy is going through in inflationary pressures?
1. The direct taxes should be increased.
2. The interest rate should be reduced.
3. The public spending should be increased.
Select the correct answer using the codes given below:
(a) Only 1 (b) Only 2
(c) 2 and 3 (d) 1 and 2
15. Consider the following statements:
1. High growth will lead to inflation.
2. High growth will lead to deflation.
Which of the statements given above is/are correct?
(a) Only 1 (b) Only 2
(c) Both 1 and 2 (d) Neither 1 nor 2
16. Which of the following are the provisions of SARFAESI
Act which enables banks to reduce their non-performing
assets (NPAs)?
1. Enforcement of Security Interest by secured creditor
(Banks/ Financial Institutions).
2. Transfer of non- performing assets to asset
reconstruction company which will then dispose of
those assets and realise the proceeds.
3. To provide a legal framework for securitization of
assets.
4. Assisting banks in making the credibility track
record of customers under Credit Information
Bureau of India (CIBIL).
(a) 1 and 2 (b) 1, 2 and 3
(c) 2, 3 and 4 (d) 1, 2, 3 and 4
17. Recently, one of the well known market analysts made
this statement: “We expect the Reserve Bank of India to
continue to ease liquidity” Which among the following
instruments can be used by RBI to continue to ease
liquidity?
1. Cutting the frequency of Open Market Operations
2. Cutting the Cash Reserve Ratio
3. Cutting the Repo and Reverse Repo rates
Choose the correct options:
(a) Only 1 (b) Only 1 & 2
(c) Only 2 & 3 (d) 1, 2 & 3
18. Which one among the following is an appropriate
description of deflation?
(a) it is a sudden fall in the value of a currency against
other currencies
(b) It is a persistent recession in the economy
(c) It is a persistent fall in the general price level of
goods and services
(d) It is fall in the rate of inflation over a period of time
19. Consider the following statements:
1. Not all banks come under the regulation of Right to
Information Act
2. Not all banks come under the Schedule 2 of RBI
Which among the above statements is / are correct?
(a) Only 1 is correct
(b) Only 2 is correct
(c) Both 1 and 2 are correct
(d) Neither 1 nor 2 is correct
20. Consider the following statements regarding the Office of
Economic Advisor (OEA):
1. It is attached to the Ministry of Finance.
2. The weekly compilation and Publication of
Wholesale Price Indices (WPI) is done by the Office
of Economic Advisor.
Which of the statement(s) given above is/are correct?
(a) Only 1 (b) Only 2
(c) Both 1 and 2 (d) Neither 1 nor 2
21. Consider the following statements regarding Non-
Banking Finance Companies (NBFCs):
1. NBFCs can also engage in Micro-Finance Activities.
2. Housing-finance companies form a distinct sub-
group of the NBFCs.
3. The deposit insurance facility of the Deposit
Insurance and Credit Guarantee Corporation is not
available for NBFC depositors.
Which among the above statement(s) is/are not correct?
(a) Only 1 (b) 1 and 3
(c) All of there (d) None of these
22. Which among the following are the ‘Credit-Rating
Agencies’ of India?
1. CRISIL 2. CARE
3. ICRA 4. ONICRA
(a) 1 and 3 (b) 1, 2 and 3
(c) 1, 3 and 4 (d) All of them
23. Which among the following are the wholly/partly owned
subsidiaries of the Reserve Bank of India (RBI)?
1. Deposit Insurance and Credit Guarantee Corporation
(DICGC)
2. National Housing Bank (NHB)
3. National Bank for Agriculture and Rural
Development (NABARD)
4. Bharatiya Reserve Bank Note Mudran Private
Limited (BRBNMPL)
(a) 1 and 4 (b) 1, 2 and 4
(c) 2, 3 and 4 (d) All of them
E-112 Money Supply and Indian Financial System
24. Consider the following statements:
1. Increase in deposit rate results in higher savings
2. Increase in deposit rate results in fall in credit off
takes
3. Increase in deposit rate results in increase in
investment
Which among the above statements is / are correct?
(a) 1 & 2 (b) 1 & 3
(c) 1, 2, 3 (d) Only 1
25. Consider the following statements:
1. As per the Basel II accords, Banks have to maintain
a minimum 8% CRAR
2. Out of 8% Banks have to keep a Tier I Capital of
5%
3. In India, the Banks are required to keep the CAR of
9% at least.
Which among the above statements is / are correct?
(a) Only 1
(b) Only 1 & 2
(c) Only 1 & 3
(d) All are correct statements
26. Consider the following statements:
1. In Minimum Reserve System, RBI had to keep a
minimum reserve of Gold worth ` 115 Crores and
rest in Indian Rupees.
2. The Minimum Requirement of Foreign Securities
was diluted when Minimum Reserve System was
launched.
Which among the above statement is / are correct?
(a) Only 1 is correct
(b) Only 2 is correct
(c) Both of them are correct
(d) Both of them are incorrect
27. Consider the following steps:
1. Banking Department gets currency from the Issue
Department
2. Government puts the currency in circulation
3. Central Government incurs a deficit in its Budget
4. Government Sells Treasury Bills to Banking
Department of RBI
Which among the following is the correct order of the
above steps?
(a) 1 2 3 4 (b) 2 3 4 1
(c) 3 4 1 2 (d) 4 3 2 1
28. Consider the following statements:
1. In Narrow Banking, Banks just accept deposits and
provide loans.
2. In Narrow Banking, there is rarely Asset Liability
Mismatch.
Which among the above statements is / are correct?
(a) Only 1 is correct
(b) Only 2 is correct
(c) Both 1 and 2 are correct
(d) None of them is correct
29. Consider the following statements:
1. In Banks, the “Staff Security Deposits” come under
Time Liabilities
2. In Banks. “Cash certificates” come under the
Demand Liabilities
Which among the above statements is/ are correct?
(a) Only 1 is correct
(b) Only 2 is correct
(c) Both 1 and 2 are correct
(d) Neither 1 nor 2 is correct
30. Consider the following:
1. Commercial Banks 2. Central Bank of India
3. Government
Which among the above can create money?
(a) Only 1 (b) Only 1 & 2
(c) Only 3 (d) All 1 2 & 3
31. The Non-Votable charges or ‘Charged Expenditure’
included in the Union Budget include :
1. Salary and Allowances of the Presiding Officers of
the houses of Parliament.
2. Salary and Allowances of the Judges of the Supreme
Court and High Courts.
3. Salary and Allowances of the CAG.
4. Pension of the retired Judges of the Supreme Court.
5. Pension of the retired Judges of High Courts.
Select the option(s) which is/are correct?
(a) 1 and 2 (b) 1, 2 and 3
(c) 1, 2, 3 and 4 (d) All of them
32. Which of the following are among the taxes levied
exclusively by the Central Government and are
mentioned in the Union List of the Seventh Schedule of
the Constitution of India?
1. Corporation Tax
2. Taxes on advertisement in the newspapers
3. Taxes on Agricultural income
4. Taxes on consumption/sale of electricity
(a) Only 2 (b) Only 4
(c) 1 and 2 (d) 3 and 4
33. Consider the following taxes:
1. VAT paid during purchase of a tyre tube for a
vehicle
2. Service Tax paid while making payments of dinner
in a restaurant
3. Duty paid while importing machinery from abroad
which among the above are “direct taxes”?
(a) Only 1 (b) 1 & 2
(c) 1, 2 & 3 (d) None of them
34. Consider the following statements:
1. Deficit financing essentially involves public
expenditure in excess of public revenue
2. In Deficit financing, the new currency replaces the
old currency
Which among the above statements is / are correct?
(a) Only 1 is correct (b) Only 2 is correct
(c) Both are correct (d) Both are incorrect
35. Indian Currency Printing Institutions are located in which
of the following places?
(1) Nasik (2) Hoshangabad
(3) Hyderabad (4) Aurangabad
(5) Devas
Select the correct option:
(a) 1, 2 and 4 (b) 1, 2, 3 and 4
(c) 1, 2, 3 and 5 (d) All of the above
Money Supply and Indian Financial System E-113
36. Consider the following statements:
1. There is almost no speculation in the G-sec market
2. The Investors in the G-Sec Market are predominantly
the institutions
Which among the above statements is / are correct?
(a) Only 1 is correct
(b) Only 2 is correct
(c) Both 1 & 2 are correct
(d) Neither 1 nor 2 is correct
37. Consider the following:
1. Change in the Reserve Requirements
2. Taxation
3. Government Spending
Which among the above terms are closest to the Fiscal
policy ?
(a) Only 1 & 2 (b) Only 2 & 3
(c) Only 1 (d) Only 1 & 3
38. Consider the following statements in context with
Treasury Bills:
1. They are issued by Government of India on behalf
of Reserve Bank of India
2. They are mostly for Short term borrowings
3. Treasury Bills can not be purchased by any person
resident of India
Which among the above is / are correct ?
(a) All are correct (b) 2 & 3 are correct
(c) Only 2 is correct (d) Only 3 is correct
39. With reference to inflation in India, which of the following
statements is correct?
(a) Controlling the inflation in India is the responsibility
of the Government of India only
(b) The Reserve Bank of India has no role in controlling
the inflation
(c) Decreased money circulation helps in controlling
the inflation
(d) Increased money circulation helps in controlling the
inflation
40. Consider the following liquid assets:
1. Demand deposit with the banks
2. Time deposit with the banks
3. Savings deposit with the banks
4. Currency
The correct sequences of these assets in the decreasing
order of liquidity is:
(a) 1-4-3-2 (b) 4-3-2-1
(c) 2-3-1-4 (d) 4-1-3-2
41. Convertibility of rupee implies:
(a) being able to convert rupee notes into gold
(b) allowing the value of rupee to be fixed by market
forces
(c) freely permitting the conversion of rupee to other
currencies and vice versa
(d) developing an international market for currencies in
India
42. In the context of Indian economy, consider the following
pairs:
Term Most Appropriate description
1. Melt down Fall in stock prices
2. Recession Fall in growth rate
3. Slow down Fall in GDP
Which of the pairs given above is/are correctly matched?
(a) 1 only (b) 2 and 3
(c) 1 and 3 (d) 1, 2 and 3
43. The Reserve Bank of India regulates the commercial
banks in matters of:
1. liquidity of assets 2. branch expansion
3. merger of banks 4. winding-up of banks
Select the correct answer using the codes given below.
(a) 1 and 4 only (b) 2, 3 and 4 only
(c) 1, 2 and 3 only (d) 1, 2, 3 and 4
44. Which of the following grants / grant direct credit
assistance to rural households?
1. Regional Rural Banks
2. National Bank for Agriculture and Rural
Development
3. Land Development Banks
Select the correct answer using the codes given below.
(a) 1 and 2 only (b) 2 only
(c) 1 and 3 only (d) 1, 2 and 3
45. When the Reserve Bank of India reduces the Statutory
Liquidity Ratio by 50 basis points, which of the following
is likely to happen?
(a) India’s GDP growth rate increases drastically
(b) Foreign Institutional Investors may bring more
capital into our country
(c) Scheduled Commercial Banks may cut their lending
rates
(d) It may drastically reduce the liquidity to the banking
system
46. In the context of Indian economy, which of the following
is/are the purpose/purposes of ‘Statutory Reserve
Requirements’?
1. To enable the Central Bank to control the amount
of advances the banks can create
2. To make the people’s deposits with banks safe and
liquid
3. To prevent the commercial banks from making
excessive profits
4. To force the banks to have sufficient vault cash to
meet their day-to-day requirements
Select the correct answer using the code given below.
(a) 1 only (b) 1 and 2 only
(c) 2 and 3 only (d) 1, 2, 3 and 4
47. Consider the following statement regarding concept of
money:
1. M1: Money with the Public (currency notes and
coins) + Demand deposits of banks (on current and
saving bank accounts) + Other demand deposits
with RBI. It is highly liquid and banks will not be
able to run their lending programmes on this basis.
2. M2: M1 + Saving bank deposits with Post-offices.
3. M3: M2 + Term deposits with the bank.
4. M4: M3 + All deposits of Post-offices.
Which among the following is correct?
(a) 1, 2, 3, 4 (b) 1, 2, 3
(c) 1, 3, 4 (d) 1, 2, 4
48. The _____ is the total amount of monetary assets available
in an economy at a specific time.
1. Money Supply 2. Money Stock
3. Money Demand 4. Stock in Demand
Choose the correct answer from the above code:
(a) 1 and 2 (b) 3 and 4
(c) 1 and 3 (d) 2 and 4
E-114 Money Supply and Indian Financial System
49. Consider the following statement:
1. Inflation is a decrease in price of goods
2. Inflation is caused by excess demand in economy
3. Inflation results from excessive increase in the
money supply
4. Inflation effects all segments of the economy
Which among the following statement is/are incorrect?
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
50. Consider the following statement regarding inflation:
1. Inflation is beneficial for senior citizen
2. Inflation is beneficial for fixed income citizen
3. Inflation is beneficial for borrowers
Choose the person who gets the benefit of inflation.
(a) 1 only (b) 1 and 2
(c) 2 only (d) 3 only Inflation is that state in which the value of money
51. Which among the followings is the type of inflation?
1. Demand Pull Inflation
2. Cost Push Inflation
3. Stagflation
4. Hyperinflation
Choose the correct type.
(a) 1, 2, 3, 4 (b) 1, 2
(c) 3, 4 (d) 1, 4
52. What is the main cost-push factor in India?
1. Problem of hoarding by traders and black marketeers
2. Taxation which gives the traders an opportunity to
raise the prices of goods, the proportion of which is
often more than the levy of taxes
3. Administered Prices
4. Hike in Oil Prices
Choose the correct code.
(a) 1, 2, 3 (b) 1, 2, 3, 4
(c) 1, 2 (d) None of the Above
53. How is the price level measured?
1. Wholesale Price Index
2. Consumer Price Index
3. Gross Domestic Product (GDP) Deflator
4. Business Price Index
Choose the correct code.
(a) 1, 2, 3, 4 (b) 1, 2, 3
(c) 1, 2 (d) 1
54. Consider the following statement:
1. Increase in private expenditure
2. Increase in exports
3. Increase in taxation
4. Rapid growth of population
Choose the factor that does not cause an increase in
demand of goods and services.
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
55. What are the causes of inflation?
1. Increase in demand for goods & services 1. Ad hoc treasury bills are sold to the banks and public
2. Decrease in the supply of goods & services
3. Decrease in demand for goods & services 2. Regular treasury bills are not sold to the banks and
4. Increase in the supply of goods & services
Choose the correct code.
(a) 1 and 2 (b) 3 and 4
(c) 1 and 4 (d) 2 and 3
56. The definition of Wholesale Price Index (WPI) is as
follows:
1. The WPI is a weighted average of indices covering
676 commodities, which are traded in primary,
manufacturing and fuel and power-sectors.
2. It is the retail price average of a basket of goods and
services directly consumed by the people.
Choose the correct definition.
(a) 1 only (b) 2 only
(c) 1 and 2 (d) None of the Above
57. What is the difference between Inflation and Deflation?
1. Inflation is an increase in price of goods while
Deflation is that state in which the value of money
rises and the price of goods and services falls.
2. Deflation is an increase in price of goods while
rises and the price of goods and services falls.
3. Inflation is that state in which the value of money
rises and the price of goods and services falls while
deflation is an increase in price of goods.
Choose the correct difference between Inflation and
Deflation.
(a) 1 only (b) 2 only
(c) 3 only (d) 1, 2, 3
58. The state of deflation appears in the economy due to
various reason:
1. When the Government withdraws money from
circulation.
2. When Government imposes heavy direct taxes or
takes heavy loans from the public
3. When the Central Bank buys the securities in open
market
Choose the correct reason.
(a) 1 and 2 (b) 2 and 3
(c) 1 and 3 (d) 1, 2, 3
59. What are the measures of checking deflation?
1. Increasing money supply
2. Promote credit creation by the banks.
3. Curtailment in taxes so as to increase the purchasing
power of the people.
Choose the correct measure.
(a) 1 only (b) 2 only
(c) 3 only (d) 1, 2, 3
60. Which among the following is the type of organised
sector of Indian money market?
1. Call money market
2. Treasury Bill Market
3. Commercial Bill Market
4. Collateral loan market
Choose the correct code.
(a) 1 and 2 (b) 3 and 4
(c) 1, 2, 3, 4 (d) None of the Above
61. Consider the following statement:
and are freely marketable.
the general public, and are not marketable.
Choose the correct code.
(a) 1 only (b) 2 only
(c) 1 and 2 (d) None of the Above
Money Supply and Indian Financial System E-115
62. Certificate of Deposit (CD) and Commercial Paper were
introduced by a Bank in March 1989:
1. Reserve Bank of India
2. State Bank of India
3. HDFC Bank
4. ICICI Bank
Choose the name of the Bank.
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
63. Which among the following are the Nationalised Banks?
1. Bank of India
2. Punjab National Bank
3. Canara Bank
4. United Commercial Bank
Choose the code.
(a) 1 and 2 (b) 3 and 4
(c) 1 and 4 (d) 1, 2, 3, 4
64. What are the functions of RBI?
1. Issue of notes
2. Banker to the government
3. Controller of debit
4. Custodian of foreign reserves
Choose the incorrect function of RBI.
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
65. What are the reforms of Narsimham Committee on
Banking sector?
1. Nationalisation of banks should not take place any
more.
2. Private and foreign banks should be set up to
promote competition.
3. There should be a phased reduction of CRR and SLR.
Choose the correct option.
(a) 1 only (b) 2 only
(c) 3 only (d) All of the Above
66. Consider the following statement:
1. As per recommendations of the Narasimham
Committee, it has been decided that credit facilities
granted by banks will be classified into performing
and non-performing assets (NPA)
2. NPA is a loan which is in default for more than nine
months.
Choose the incorrect statement.
(a) 1 only (b) 2 only
(c) 1 and 2 (d) None of the Above
67. Consider the following in regards of types of loan:
1. Draft Loan 2. Term Loan
3. Cash credit 4. Overdraft
Choose the one which is not a loan.
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
68. _______ are conducted by the RBI by selling and buying
government securities from banks.
1. Bank rate
2. Cash reserve ratio
3. Open market operations
4. Statutory Liquidity Ratio
Choose the correct code.
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
69. Who all are the main players in the Indian capital market?
1. Insurance companies
2. Development Finance Institutions (DFI)
3. Non-Banking Finance Companies, (NBFCs)
4. Non-Banking Financial Institutions.
Choose the correct option.
(a) 1, 2, 3, 4 (b) 1, 2, 3
(c) 1, 2, (d) 1
70. Choose the type of capital market:
1. Securities Market
2. Financial institutions
3. Gill-edged market
4. Incorporated securities
Which among the following code is correct?
(a) 1 and 4 (b) 1 and 3
(c) 1 and 2 (d) 3 and 4
71. What all are local authorities?
1. City corporations 2. Municipalities
3. Port trusts
Choose the incorrect option.
(a) 1 only (b) 2 only
(c) 3 only (d) None of the Above
72. Consider the following statement:
1. Bombay Stock Exchange (BSE) is India’s oldest
stock exchange
2. It formally came into being in 1888
3. It was a regional exchange till 2002 when it became
a national exchange
Choose the incorrect statement regarding BSE.
(a) 1 only (b) 2 only
(c) 3 only (d) None of the Above
73. What are the authorities of SEBI?
1. Oversee the working of stock exchanges
2. Regulate merchant banks and mutual funds
3. Register and regulate intermediaries such as stock
brokers
Choose the incorrect answer.
(a) 1 only (b) 2 only
(c) 3 only (d) None of the Above
74. _______ deals with long-term finance (more than 365
days) funds. It includes all facilities and institutional
arrangements available for borrowing and lending of
term funds (including medium-term).
1. Capital market
2. Stock market
3. Debit
4. Credit
Choose the correct answer.
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
75. Consider the following statement:
1. GIC was formed in November 1972.
2. The 107 private companies operating in the
field were grouped together into four - National
Insurance Company, United India Insurance
Company, Oriental Insurance Company and New
India Assurance Company.
Choose the incorrect statement.
(a) 1 only (b) 2 only
(c) 1 and 2 (d) None of the Above
E-116 Money Supply and Indian Financial System
76. Name of four commodity exchanges working in the
country:
1. National Multi Commodity Exchange
2. Multi Commodity Exchange
3. National commodity and Derivatives Exchange
4. Indian Commodity Exchange
Choose the correct answer.
(a) 1 and 2 (b) 1, 2, 3
(c) 1, 2, 3, 4 (d) None of the Above
77. Name of four institutions that are regulated by the RBI as
all-India FIs:
1. Export Import Bank of India (EXIM Bank)
2. National Bank for Agriculture and Rural
Development (NABARD)
3. National Housing Bank (NHB)
4. Small Industries Development Bank of India
(SIDBI)
Choose the correct answer.
(a) 1 and 2 (b) 3 and 4
(c) 1, 3, 4 (d) 1, 2, 3, 4
78. Consider the following statement:
1. EXIM bank in India was established on January 1, (c) 3 only (d) All of the Above
1982
2. National Housing Bank was established in July,
1988.
3. SIDBI started its operations from April 2, 1990.
Choose the correct code.
(a) 1 only (b) 2 only
(c) 3 only (d) 1, 2, 3
79. The _________ bank linkage programme continued to
be the main micro-finance model by which the formal
banking system reaches micro-entrepreneurs (including
farmers).
1. Self-Help Group 2. Indian bank
3. SBI 4. PNB
Choose the correct name of the bank.
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
80. Consider the following statement.
1. NABARD stands for National Bank for Agriculture
and Rural Design
2. NABARD is an apex developmental bank in India.
3. Setting up of NABARD was recommended by the
committee to review arrangements for institutional
credit for agriculture and rural development, set
up by the RBI, under the chairmanship of Shri B.
Sivaraman.
Which statement is incorrect?
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
81. Consider the following statement:
1. IRDA is a multimember nodal agency
2. It is vested with regulatory powers in respect of the
insurance sector similar to those vested in SEBI in
respect of the capital markets and of RBI for the
banking sector.
3. The IRDA Act, 1999 cleared the way for private
sector entry into the insurance business.
Choose the correct statement.
(a) 1 only (b) 2 only
(c) 3 only (d) All of the Above
82. ______ is set up to promote liquidity to stocks of small
and medium enterprises.
1. Indo Next
2. Interconnected Stock Exchange of India
3. Over the Counter Exchange of India
4. Bombay Stock Exchange
Choose the correct code.
(a) 1 only (b) 2 only
(c) 3 only (d) 4 only
83. Consider the following statement:
1. Capital market deals with long-term finance funds.
2. Capital Market includes all facilities and institutional
arrangements available for borrowing and lending
of term funds (including medium-term).
3. Long-term funds are raised either by borrowing
from certain institutions or by issuing securities.
Choose the correct statement.
(a) 1 only (b) 2 only
Matching Based MCQ
DIRECTIONS (Qs. 84-86) : Match List-I with List-II and
select the correct answer using the codes given below the
lists.
84. List-I List-II
(A) Depression (1) Coexistence of inflation and
stagnation
(B) Recession (2) Recovery from depression
(C) Reflation (3) Reduction in production
over a short period
(D) Stagflation (4) Insufficient demand leading
to idle men and machinery
over a long time
(5) Reduction in level of economy
due to falling prices
(a) A-1; B-2; C-3; D-5 (b) A-4; B-3; C-2; D-5
(c) A-4; B-3; C-2; D-1 (d) A-3; B-4; C-2; D-1
85. Match the following.
Stock exchange name Set up Year
i. NSE a. 1887
ii. BSE b. 1984
iii. OTCEI c. 1989
iv. ISE d. 1998
(a) i-a, ii-b, iii-c, iv-d
(b) i-b, ii-a, iii-c, iv-d
(c) i-d, ii-c, iii-b, iv-a
(d) i-c, ii-b, iii-a, iv-d
86. Match the following.
Goods Example
i. Public goods a. Primary education
ii. Merit goods b. National defence
iii. Non-merit goods c. Pollution
(a) i-a, ii-b, iii-c (b) i-b, ii-a, iii-c
(c) i-c, ii-b, iii-a (d) i-a, ii-c, iii-b
Money Supply and Indian Financial System E-117

EXERCISE-1 48. (b) Syndicate Bank. The symbol of dog implies that
Bank is trustworthy and a friend. Its slogan is : Your
1. (b) 2. (b) 3. (d) 4. (a) 5. (b) 6. (b)
faithful and friendly financial partner.
7. (d) 8. (b) 9. (c) 10. (c) 11. (b) 12. (d)
49. (d) 50. (b)
13. (d) 14. (b) 15. (c) 16. (d)
51. (a) In economics, the Laffer curve is a hypothetical
17. (d) VAT is the State Subject.
representation of the relationship between
18. (c) Deflation is a decrease in the prices of goods and
government revenue raised by taxation and all
services. It occurs when the annual inflation rate
possible rates of taxation. It is used to illustrate the
falls below 0%, which is negative inflation rate.
concept of taxable income elasticity – which taxable
This is different from Disinflation which is a slow-
income will change in response to changes in the
down in the inflation rate. This is a situation when
rate of taxation.
inflation declines to lower levels but prices continue
52. (a) 53. (c) 54. (a)
to rise.
55. (a) Deficit financing, practice in which a government
19. (c) Base effect is almost an ubiquitous term which says
spends more money than it receives as revenue,
that the previous data affects the calculation of the
the difference being made up by borrowing or
current data.
minting new funds. Although budget deficits may
20. (c) The basic aim of Lead Bank scheme is that the
occur for numerous reasons, the term usually refers
bank should adopt particular districts for intensive
to a conscious attempt to stimulate the economy
development by offering loans and banking services.
by lowering tax rates or increasing government
21. (a) International Development Association (IDA) , is
expenditures. The influence of government deficits
a part of the World Bank that helps the world’s
upon a national economy may be very great. It is
poorest countries. It complements the World
widely believed that a budget balanced over the span
Bank’s other lending arm— the International Bank
of a business cycle should replace the old ideal of
for Reconstruction and Development (IBRD)
an annually balanced budget. Some economists have
which serves middle-income countries with capital
abandoned the balanced budget concept entirely,
investment and advisory services. IDA was created
considering it inadequate as a criterion of public
in 1960.
policy.
22. (a) A self-Regulatory organization (SRO) is a non-
56. (c) 57. (c) 58. (b) 59. (a)
governmental organization that has the power
60. (a) 61. (c) 62. (a)
to create and enforce industry regulations and
63. (d) A tight monetary policy is a course of action
standards. The priority is to protect investors
undertaken by Central bank to constrict spending in
through the establishment of rules that promote
an economy, or to curb inflation when it is rising too
ethics and equality.
fast. The increased bank rate increases the cost of
23. (a) 24. (a) 25. (c) 26. (a)
borrowing and effectively reduces its attractiveness.
27. (b) An outward shift in the demand for money, other
64. (b) Venture capital (VC) is a long term financial capital
things being equal should lead to a higher interest
provided to early-stage, high-potential, start up
rate but the same quantity of money. The supply
companies or new companies.
will not increase but with more demand the price
(the interest rate) should increase. EXERCISE-2
28. (c) 29. (c) 30. (b) 31. (c)
1. (b)
32. (a) 33. (a) 34. (c) 35. (d)
2. (c) SLR used by bankers indicates the minimum
36. (b) Foreign Banks and Regional Rural Banks also come
under the category of Scheduled Commercial Banks. percentage of deposits that the banks have to
Now, the banks are free to determine their savings maintain in the form of gold, cash or other approved
bank deposit interest rate, subject to the following securities.
two conditions: 3. (c)
1. Each bank will have to offer a uniform 4. (a) The statement (1) is correct because it includes the
interest rate on savings bank deposits up to ` 1 definition of teaser loans but the statement (2) is not
lakh,irrespective of the amount in the account correct, because in India teaser loan is provided to
within this limit. the home buyers not for setting up manufacturing or
2. For savings bank deposits over ` 1 lakh, a export units.
bank may provide differential rates of interest, 5. (c)
if it so chooses. However, there should not be 6. (a) Repo Rate is the rate at which commercial banks
any discrimination from customer to customer borrow funds from RBI. A reduction in the repo
on interest rates for similar amount of deposit. rate will help banks to get money from the central
37. (b) 38. (c) 39. (c) 40. (c) 41. (d) 42. (b) bank at a cheaper rate. When the repo rate increases
43. (a) 44. (c) 45. (a) 46. (c) 47. (c) borrowing from RBI becomes more expensive.
E-118 Money Supply and Indian Financial System
A value of (0) for Gini Coefficient in a country
implies that there is perfect equality in the system.
If the value is 1 then there is complete inequality in
the country.
7. (a) The ‘BSE SENSEX’ is a value-weighted index
composed of 30 stocks and was started in 1 January,
1986. The origin of the NYSE can be traced to 17
May, 1792. When the Buttonwood Agreement was
signed by 24 stock brokers outside 68 Wall Street
in New York under a buttonwood tree. Amsterdam
Stock Exchange (1602) is considered oldest in the
world and was established by the Dutch East India
company.
8. (a) 9. (c) 10. (b) 11. (b)
12. (a) Brent Crude is a major trading classification of sweet
light crude oil that serves as a major benchmark
price for purchases of oil worldwide. Brent Crude
is extracted from the North Sea and comprises
Brent Blend, Forties Blend, Oseberg and Ekofisk
crudes .The Brent Crude oil marker is also known
as Brent Blend, London Brent and Brent petroleum.
The index represents the average price of trading in
the 25 day Brent Blend, Forties, Oseberg, Ekofisk
(BFOE) market in the relevant delivery month as
reported and confirmed by the industry media.
13. (d) NIFTY is an Index computed from performance
of top stocks from different sectors listed on NSE
(National stock exchange). NIFTY consists of 50
companies from 24 different sectors. Indian Capital
Markets are regulated and monitored by the Ministry
of Finance, the Securities and Exchange Board of
India and the Reserve Bank of India. It does not
trade in mutual funds.
14. (a) Cost-push inflation occurs when businesses respond
to rising costs, by increasing their prices to protect
profit margins. There are many reasons why costs
might rise: Component costs, Rising labour costs and
higher indirect taxes imposed by the government.
So, the direct taxes should be increased when an
economy is going through inflationary pressures.
15. (a) Typically, higher inflation is caused by strong
economic growth. If Aggregate demand in an
economy expanded faster than aggregate supply,
we would expect to see a higher inflation rate.
If demand is rising faster than supply, then this
suggests that economic growth is higher than the
long run sustainable rate of growth.
16. (b) 17. (c)
18. (c) Deflation is defined as a fall in the general price
level of goods and services. It is a negative rate of
inflation. It means the value of money increases
rather than decreases.
19. (c) this does not represent inflation, unless the indirect
20. (b) The Office of the Economic Advisor (OEA) is an
attached office of the Ministry of Commerce &
Industry.
21. (d) 22. (d) 23. (d) 24. (b) 25. (c) 26. (c) arguments are that it is caused by excess demand
27. (c) 28. (b) 29. (a) 30. (d) 31. (d)
32. (c) Taxes on Agricultural income and Taxes on
consumption/sale of electricity are levied by the
State Governments.
33. (d) 34. (a) 35. (c) 36. (c) 37. (b) 38. (c)
39. (c) When inflation becomes very high, the RBI
decreases supply of money (to check inflation) by
adopting light monetary policy.
40. (d)
41. (c) Convertibility of rupee implies freely permitting
the conversion of rupee to other currencies and
vice versa. Currency Convertibility is the ease with
which a country’s currency can be converted into
gold or another currency.
42. (c)
43. (d) The Reserve Bank of India is the main monetary
authority of the country and beside that, in its
capacity as the central bank, acts as the bank of
the national and state governments. Sometimes it
happens that some of the banks close down due to
non recovery of loans or such other issues. In such
conditions people have to suffer as their money
is with the bank then. For this reason there is
provision for winding up of the banking company
under the Banking Regulation Act, 1949. The power
of winding up of Bank lies in the hand of Reserve
Bank of India.
44. (c) Land development bank started financing long term
loan for more significant rural development activities
like rural and cottage industries, rural artisans etc.
The main purpose of RRBs is to mobilize financial
resources from rural / semi-urban areas and grant
loans and advances mostly to small and marginal
farmers, agricultural labourers and rural artisans.
45. (c) When the Reserve Bank of India reduces the
Statutory Liquidity Ratio by 50 basis points; the
Scheduled Commercial Banks may cut their lending
rates.
46. (b) Because Reserve requirements are designed as
“precautionary measures” and not to stop banks
from “excessive” profit. This eliminates (c) and (d)
47. (d) The four concepts of money used in calculating
money supply are known as the money stock
measures or measures of monetary aggregates.
These are M1, M2, M3, M4.
M3 : M1 + Term deposits with the bank.
48. (a) In economics, the money supply or money stock is
the total amount of monetary assets available in an
economy at a specific time.
49. (a) Inflation is an increase in price of goods. It can
be seen as devaluation of the worth of money. A
crucial feature of inflation is that price rises are
sustained. Once only increase in the rate of, say,
value-added tax, will immediately put up prices, but
effects of the VAT rise have repercussions of prices
in periods after the direct effects. Accounts of the
causes of inflation are numerous. The most popular
in the economy (demand-pull inflation), that it is
Money Supply and Indian Financial System E-119
caused by high costs (cost-push inflation) and that
it results from excessive increases in the money
supply (monetarism). Inflation affects all segments
of the economy.
50. (d) Inflation benefits borrowers, as it leads to a fall in
the real cost of capital. But this is only a temporary
phase and the interest rate is bound to go up to
compensate for the inflation.
51. (a) Types of inflation are Demand Pull Inflation, Cost
Push Inflation, Stagflation, Hyperinflation.
52. (b) the main cost-push factor in India are:
(i) Fluctuations in output and supply in both agriculture
and industry sectors. Fluctuations in output of food
grains have been a major factor responsible for rise
in food-grain prices as well as general price. In the
same way, the supply of manufactured goods also
did not increase adequately in last few years. Power
breakdowns, strikes and lock-outs and shortage of
transport facilities have been the major constraints
responsible for lowering production of manufactured
goods. With ever-rising demand for manufactured
goods, the producers are in a position to hike the
prices of their products.
(ii) Problem of hoarding by traders and black
marketeers.
(iii) Taxation which gives the traders an opportunity to
raise the prices of goods, the proportion of which is
often more than the levy of taxes.
(iv) Administered Prices.
(v) Hike in Oil Prices.
53. (b) Price level is measured by Wholesale Price Index,
Consumer Price Index, Gross Domestic Product
(GDP) Deflator.
54. (c ) Factors causing an increase in demand for goods &
services:
(i) Increase in public expenditure
(ii) Increase in private expenditure
(iii) Increase in exports
(iv) Reduction in taxation
(v) Rapid growth of population
(vi) Black money
(vii) Deficit financing
(viii) Cheap money policy
(ix) Increase in consumer spending
(x) Department of Tax internal debts.
55. (a) The inflation occurs due to two main factors:
(i) Increase in demand for goods & services
(ii) Decrease in the supply of goods & services
56. (a) The Wholesale Price Index (WPI) is a weighted
average of indices covering 676 commodities, which
are traded in primary, manufacturing and fuel and
power-sectors.
57. (a) Inflation is an increase in price of goods while
Deflation is that state in which the value of money
rises and the price of goods and services falls.
58. (a) The reasons for deflation in the economy are:
(i) When the Government withdraws money from
circulation.
(ii) When Government imposes heavy direct taxes or
takes heavy loans from the public (voluntary or
compulsory or both).
(iii) When the Central Bank sells the securities in open
market (which reduces the quantity of money in
circulation).
(iv) When Central Bank controls the credit money and
adopt various measures such as increase in CRR,
credit rationing and direct action.
(v) When the Central Bank increases the Bank rate
(which curtails the quantity of credit in the economy).
(vi) When state of over-production (excess supply over
demand) takes place.
59. (d) Measures of checking deflation are:
(i) Increasing money supply.
(ii) Promoting credit creation by the banks.
(iii) Curtailment in taxes so as to increase the
purchasing power of the people.
(iv) Increasing the public expenditure and the
employment opportunities in the economy.
(v) Increasing the money supply in circulation by
repayment of old public debts.
(vi) Providing of economic subsidy by the Government
to the industrial sector of the econ.
60. (c) The type of organised sector of Indian money market
are Call Money Market, Treasury Bill Market,
Commercial Bill Market and Collateral loan market
61. (d) Ad hoc treasury bills are not sold to the banks and
the general public, and are not marketable while
regular treasury bills are sold by Reserve Bank of
India on behalf of the Central Government.
62. (a) Certificate of Deposit (CD) and Commercial Paper
(CP) markets were introduced by Reserve Bank of
India in March 1989 in order to widen the range
of money market instruments and give investors
greater flexibility in the deployment of their short-
term surplus funds.
63. (d) The nationalised banks are Central Bank of India,
Bank of India, Punjab National Bank, Canara Bank,
United Commercial Bank, Syndicate Bank, Bank of
Baroda, United Bank of India, Union Bank of India,
Dena Bank, Allahabad Bank, Indian Bank, Indian
Overseas Bank Bank of Maharashtra.
64. (c ) The functions of RBI are Issue of Notes, Banker
to the Government, Banker’s Bank, Controller of
Credit, Custodian of Foreign Reserves.
65. (d)
66. (b) NPA is a loan (whether term loan, cash credit,
overdraft, or bills discounted), which is in default
for more than six months.
67. (a) Types of loan are term loan, cash credit, overdraft,
or bills discounted.
68. (c) Open Market Operations: These are conducted by
the RBI by selling and buying government securities
from banks.
69. (a) The main players in Indian capital markets are:
• Banks, Indigenous and commercial.
• Insurance companies
• Development Finance Institutions (DFI), and
• Non-Banking Finance Companies (NBFCs)
• Non-Banking Financial Institutions.
E-120 Money Supply and Indian Financial System
70. (c) The securities market is further divided into the gilt-
edged market and the corporate securities market.
71. (d) Local authorities are city corporations, municipalities
and port trusts.
72. (c) Bombay Stock Exchange (BSE) India’s oldest stock
exchange formally came into being in 1887 and
was a regional exchange till 2002 when it became a
national exchange.
73. (d) The SEBI is authorised to:
• oversee the working of stock exchanges;
• regulate merchant banks and mutual funds;
• register and regulate intermediaries such as
stock brokers;
• curb fraudulent and unfair trade practices
including insider trading;
• promote the development of a healthy capital
market.
74. (a) Capital market deals with long-term finance (more
than 365 days) funds. It includes all facilities and
institutional arrangements available for borrowing
and lending of term funds (including medium-term).
75. (d) The GIC was formed in November 1972 consequent
upon the nationalisation of general insurance
business. The 107 private companies operating in
the field were grouped together into four - National
Insurance Company, United India Insurance
Company, Oriental Insurance Company and New
India Assurance Company, with GIC as the holding
company.
76. (c ) There are four commodity exchanges working
in the country. They are NMCE (National Multi
Commodity Exchange) - the oldest commodity
exchange in the country which became operational in
2002, MCX (Multi Commodity Exchange), NCDEX
(National Commodity and Derivatives Exchange)
and ICEX (Indian Commodity Exchange).
77. (d) According to the Economic Survey, there are four
Institutions, namely the Export Import Bank of
India (EXIM Bank), National Bank for Agriculture
and Rural Development (NABARD), the National
Housing Bank (NHB) and Small Industries
Development Bank of India (SIDBI).
78. (d) EXIM bank in India was established on January 1,
1982. National Housing Bank was established in
July 1988. SIDBI started its operations from April
2, 1990.
79. (a) The Self-Help Group (SHG) bank linkage
programme continued to be the main micro-finance
model by which the formal banking system reaches
micro-entrepreneurs (including farmers).
80. (a) NABARD stands for National Bank for Agriculture
and Rural Development.
81. (d) IRDA is a multimember nodal agency. It is vested
with regulatory powers in respect of the insurance
sector similar to those vested in SEBI in respect
of the capital markets and of RBI for the banking
sector.
The IRDA Act, 1999 cleared the way for private
sector entry into the insurance business.
82. (a) Indo Next is a new stock exchange, set up to promote
liquidity to stocks of small and medium enterprises.
83. (d) Capital market deals with long-term finance (more
than 365 days) funds. It includes all facilities and
institutional arrangements available for borrowing
and lending of term funds (including medium-term).
The difference between money market and capital
market is not so much in the institutions involved
as in their term of borrowing or lending. Long-term
funds are raised either by borrowing from certain
institutions or by issuing securities.
84. (b) Recession is slow down in effective demand for
goods and services, slow down in the economy
implies a short run decline in the growth rate.
85. (b) Stock exchange name Set up Year
(i) NSE a. 1984
(ii) BSE b. 1887
(iii) OTCEI c. 1989
(iv) ISE d. 1998
86. (b) Public goods include national defence, police,
general administration, Merit goods include primary
education, immunisation, public health programme,
Non-merit goods include pollution caused by
automobile emission.
FOREIGN TRADE AND 6
INVESTMENT IN INDIA

Introduction
Foreign trade is exchange of capital, goods, and services across international borders or territories, which involves the activities
of the government and individuals.
In most countries, it represents a significant share of gross domestic product (GDP). Foreign trade in India, includes all
imports and exports to and from India. At the level of Central Government it is administered by the Ministry of Commerce
and Industry.

Foreign Trade and Investment

Introduction Foreign Exchange India’s Foreign Balance of India’s Balance

Reserves Trade Payments of Payments

Gold
Trends 2
Special Drawing Problems
Right (SDR) Protectionist
Foreign Currency Policies
Assests (FCA) External Debt
Reserve Tranche
Export Promotion
Position (RTP)
Exchange Rate
Trade Policy
History India’s Export India’s Import Special Economic
Profile Profil e Zone (SEZ)
Foreign Direct
Investment
Introduction Structure of Balance
of Payments

Current Account
Capital Account
Reserve Account Balance
E-122 Foreign Trade and Investment in India
FOREIGN EXCHANGE RESERVES
Foreign exchange reserves also called forex reserves or FX
reserves are assets held by a central bank or other monetary
authority, usually in various reserve currencies and used
to back its liabilities e.g. the local currency issued, and the
various bank reserves deposited with the central bank by the
government or by financial institutions.
Why do countries keep foreign exchange reserves?
In the past, during the Bretton Woods system — an international
monetary system formed after the second world war, foreign
exchange reserves were used by countries through their
central banks to maintain the external value of their currencies
at fixed rate. Subsequently, with the collapse of this system,
the focus changed. Reserves are now generally maintained by
countries for meeting their international payment obligations
— both short and long terms, including sovereign and
commercial debts, financing of imports, for intervention in the
foreign currency markets during periods of volatility, besides
helping to boost the confidence of the market in the ability of
a country to meet its external obligations and to absorb any
unforseen external shocks, contingencies or unexpected capital
movements.
The foreign exchange reserves of India comprise of three
elements:
(i) Gold,
(ii) Special Drawing Rights (SDR),
(iii) Foreign Currency Assets (FCA).
Gold
It accounts for only 5% of our foreign exchange assets.
Special Drawing Rights (SDR)
An international type of monetary reserve currency, created
by International Monetary Fund (IMF) in 1969 which operates
as a supplement to the existing reserves of member countries.
It is also known as “paper gold”. Created in response to
concerns about the limitations of gold and dollars as the sole
means of settling international accounts, SDRs are designed to
augment international liquidity by supplementing the standard
reserve currencies. Its value is based on a basket of five key
international currencies and SDRs can be exchanged for freely
usable currencies. The basket of five international currencies
includes US dollar, euro, Chinese yuan, Japanese yen and
British pound.
Foreign Currency Assests (FCAs)
Foreign currency assests include foreign exchange reserves
less gold holdings, special drawing rights and India’s reserve
position in the IMF.
Foreign Exchange Management
Foreign exchange management can be managed in three
possible ways: Fixed currency rates, floating currency rates
and managed exchange rates.
Fixed Exchange rates
Fixed rates are currency values which are tied to a precious
metal such as gold, or anchored to another currency, like the
US Dollar. This method was brought by the International
Monetary Fund (IMF). The IMF system involved the US$ as
the anchor for the system with the US$ given a specific value
in terms of gold, and other currencies were then given a value
in terms of the US$, such as £1 = $2.40. India was part of this
regime too and in 1948, 1$ was equal to Rs. 3.30. However,
the system collapsed in 1971 for a variety of reasons, including
the build up of US debts abroad as a result of the need to fund
the war in Vietnam, inflation in the USA and growing doubts
about the stability of the US$.
Floating Exchange Rates
Under a floating system, a currency can rise or fall due to
changes in demand or supply of currencies on the foreign
exchange market. The advantages of floating exchange rates are
flexibility and automatic adjustment in case of balance of trade
disequilibrium. Under a floating regime, imports and exports
can readjust to move the balance of payments back towards
a desirable equilibrium. Exogenous shocks, like the financial
crisis of 2008-09, can occur from time to time and floating
exchange rates can help the readjustment process. Moreover,
policymakers are free to devalue or revalue to achieve specific
objectives, such as stimulating jobs and growth and reducing
inflationary pressure.
Managed Exchange Rates
This is a combination of fixed and floating rates. In today’s
economic situation, almost all countries follow this system of
exchange rate determination. The governments usually let the
market determine the exchange rates but intervene whenever
needed.
The success of foreign exchange management by RBI can
be seen in the fact that from US$ 5.8 billion in March 1991
(enough to meet the import requirements for three weeks) the
country’s reserves have grown to around US$ 352 billion by
December 2015. It is pertinent to note here that some of the
increase in the reserve is attributed to the weakness of the
dollar in the post-Iraq war scenario.
Reserve Tranche Position
Each member of the IMF is assigned a quota, part of which is
payable in SDRs or Specified usable currencies and part in the
member’s own currency. The difference between a member’s
quota and the IMF’s holdings of its currency is a country’s
Reserve Tranche position (RTP).
Foreign Trade and Investment in India E-123
INDIA’S FOREIGN TRADE
History of Foreign Trade in India
•• Historically, India ran a trade surplus for centuries
together through export of spices, handicrafts, textiles,
etc. No restrictions on imports or exports were officially
maintained.
•• Before India got independence, import of goods from
great Britain received official encouragement through
Imperial preferences.
•• Statutorily, it was the Sea Customs Act, 1878 that
provided the basis for implementing the official bias in
favour of imports from Britain.
•• The Government of India Act, 1935 granted Central
government the exclusive legislative powers to regulate
import of goods into India and export of goods from
India. However, this power was used when the Imports
and Exports (Control) Act, 1947 was enacted.
•• The initial life of the Imports and Exports (Control) Act,
1947 was three years but it was extended from time to
time till 1971.
•• To protect industries from influx of imported goods the
government issued the Imports (Control) Order 1955
allowing most of the imports only against an import
licence.
•• In 1976 many changes were made to the Imports and
Exports (Control) Act, 1947. This act gave the Central
Government wider powers to prohibit, restrict and control
the imports and Exports Trade.
Beginning mid-1991, the Government of India introduced
a series of reforms to liberalise and globalise the Indian
economy. Reforms in the external sector of India were intended
to integrate the Indian economy with the world economy.
India’s approach to openness has been cautious, contingent on
achieving certain preconditions to ensure an orderly process
of liberalization and ensuring macroeconomic stability. This
approach has been vindicated in recent years with the growing
incidence of financial crises elsewhere in the world. All the
same, the policy regime in India in regard to liberalization of
the foreign sector has witnessed very significant change.
The Import policies prior to 1992 contained an Open General
Licence under which specific goods could be imported and
exported by specific categories of importers and exporters
subject to fulfilment of certain conditions.
In 1992, the policy was amended to open general licence and
allow imports and exports of all goods without a licence, except
those specifically mentioned in a small negative list.
Foreign Trade is one of the significant macro fundamental
variables of an economy. India, until recently, was
predominantly a primary goods exporting and an industrial
goods importing country.
In 1950s, India’s share in the world trade was 1.78% which was
decline to 0.59% in 1990 and remained low for many years.
India’s share in world trade is currently around 2% (2015) and
our country has set for itself the ambitious target of gaining
3.5% of world trade by 2020. As per the rankings of WTO for
the year 2014, India was the 19th largest exporter (with a share
of 1.7%) and 12th largest importer (with a share of 2.5%) of
merchandise trade in the world. In Commercial services, India
is the 6th largest exporter (with a share of 3.3%) and 7th largest
importer (with a share of 2.9%). Service sector has been a major
financer for India’s merchandise trade deficit. Service surplus
financed around 53% of merchandise trade deficit during
2013-14.
India has been pursuing a policy of market diversification
directing her export promotion efforts at Asia and ASEAN,
Latin America and Africa through Focus Market Initiatives
and bilateral trade agreements.
India’s Export Profile & Exports
Growth
Indian exports have grown at a robust annual average rate of
21.3% (CAGR) between FYO3 and FY13; the value of exports
rising from USD 52.7 billion in FY03 to 300.2 billion in FY13.
Commodity Basket : Exports
•• Agriculture and allied products have registered high
growth of 22.2% (CAGR, FY03-FY13) and stood at USD
40.6 billion in FY13.
•• Major Agriculture and allied commodities exported by
India include basmati rice, marine products, meat and
meat products, oil meals, spices, wheat and sugar.
•• At USD 183.6 billion in FY13, manufactured goods have
registered growth of 18.4% (CAGR, FY03-FY13).
•• Major manufactured goods, exported by India include
engineering goods, chemicals and related products,
textiles and ready-made garments.
•• The exports of ores and minerals has grown by 12.1%
(CAGR, FY03-FY13), to touch USD 5.6 billion in
FY13, while export of petroleum and crude products has
registered exponential growth of 41.9% (CAGR, FY03-
FY13) to stand at USD 60.2 billion in FY13.
In terms of share in overall exports, the share of agriculture
and allied products, ores and minerals and other commodities
has moved in a range-bound fashion. However, there has
been some perceptible shift from the manufactured goods to
the petroleum and crude products segment between FY03 and
FY13.
Direction of Exports
India’s largest exports partner has been Asia. Exports to Asia
have grown by more than 23.0% (CAGR), from USD 22.2
billion in FY03 to USD 150.4 billion in FY13.
The next largest export destination is Europe (USD 58.8 billion
in FY13), followed by America (USD 53.4 billion).
Imports’ Profile & Import Growth
As a growing country, India’s imports demand has consistently
been on the rise.
E-124 Foreign Trade and Investment in India
Barring a marginal dip in the year of recession in FY10, when
imports fell from USD 299.3 billion to USD 287.6 billion,
imports to the country have always been on the rise.
In the last decade import growth has been high at 26.0%; from
USD 61.4 billion in FY03 to USD 490.3 billion in FY13.
Commodity Basket: Imports
•• Commodity imports of the country are classified as POL
(petroleum, oil and lubricants) and non-POL items.
•• Import of POL items has grown at 28.5% (CAGR, FY03-
FY13), from USD 17.6 billion in FY03 to USD 169.0
billion in FY13.
BALANCE OF PAYMENTS
Introduction
Balance of payments (BOP) is statistical statement of all
transactions made between one particular country and all other
countries during a specified period of time. BOP compares
the dollar difference of the amount of exports and imports,
including all financial exports and imports.
•• A negative balance of payments means that more money
is flowing out of the country than coming in. The balance
of payment is maintained by Central Bank of India, i.e.
Reserve Bank of India.
•• Balance of payments may be used as an indicator of
economic and political stability. For example, if a country
has a consistently positive BOP, this could mean that
there is significant foreign investment within that country.
It may also mean that the country does not export much
of its currency.
•• BOP indicates trade balance, foreign investments and
investment by foreigners. Even a negative BOP does
not signify unfavourable climate for the economy. It is
unfavourable only if the economy lacks the means to fill
the gap created by negative BOP.
Balance of trade and balance of payment
Balance of trade takes into account only those transactions
arising out of exports and imports (the visible items). It does not
consider the exchange of services rendered such as shipping.
Balance of payment takes into account the exchange of both
visible and invisible items. Hence, the balance of payments
represents a better picture of a country’s economic transactions
with the rest of the world than the Balance of trade.
Structure of Balance of Payments
Accounts
A balance of payments statement is a summary of a nation’s
total economic transaction undertaken on international account.
It is usually composed of three sectors:
1. Current account,
2. Capital account,
3. Reserve account balance.
•• Non-POL items on the other hand, have growth by 24.8%
over this period, to stand at USD 321.3 billion in FY13.
Direction of Imports
A major part of India’s imports are sourced from Asia itself
(57.7% of overall imports which are due to the POL bill.
Imports from Asia stood at USD 283.0 billion in FY13,
registering growth of 26.0% over FY03 (CAGR, FY03-13).
In fact, there appears to be substantial difference in the value
of imports from Asia and the next largest import partner of the
country. After Asia, the next largest import source is Europe
(USD 91.7 billion), followed by America (USD 58.2 billion).
Current Account
This account is the summary of all international trade
transactions of the domestic country in one year. It records the
following 3 items:
(i) Visible items of trade
The balance of exports and imports of goods is called the
balance of visible trade, e.g. Tea, Coffee, etc.
(ii) Invisible Trade
The balance of exports and imports of services is called
the balance of invisible trade.The invisbles are divided
into three categories: (a) Services- insurance, travel,
transportation, miscellaneous (like communication,
construction, financial, software, etc.), (b) Income, and
(c) Transfers (grants, gifts, remittances, etc.).
(iii) Unilateral transfers
Unilateral transfers are receipts which residents of a
country make without getting anything in return, e.g.
gifts, etc.
The net balance of visible trade, invisible trade and of
unilateral transfers is the balance on current account.
Current account in India is fully convertible now. It means
that if someone requires foreign exchange for current
purposes, it will be made available to him at official
exchange rate and thus, an unprohibited outflow of foreign
exchange is possible now. Current account convertibility
was a result of India’s obligations under Article VIII of
IMF which prohibits restrictions on exchange on current
international transactions.
Capital Account
This account is the summary of foreign capital transactions.
On the credit side of this account receipt of foreign exchange
due to Foreign Direct Investment (FDI), Foreign Capital
Investment (FCI) and Foreign Borrowing (FB) is recorded.
On the debit side of capital account payment of foreign
exchange due to Direct Investment Abroad (DIA), Portfolio
Investment Abroad (PIA) and Foreign Lending (FL) is
recorded.
While India made the rupee fully convertible under current
account, it was felt that the economy was not yet ready for
capital account convertibility (CAC). The countries which
Foreign Trade and Investment in India E-125
went in for hasty capital account convertibility in the 1980s
had to face financial crisis. The thinking was that trade and
domestic liberalization process should be completed before
full capital convertibility can be thought of. Many economists
feel that CAC will only help the drain of Indian capital,
which will get invested abroad. After the recommendations of
RBI appointed S.S Tarapore Committee on Capital Account
Convertibility (CAC), India is slowly moving towards full
convertibility, but with constant precautions. India still has
partial convertibility(40:60) but many reforms undertaken by
India hint at eventual movement towards CAC.
Reserve Account Balance
This is the adjusting account in balance of payment. It makes
an adjustment between current account balance and capital
account balance. If the deficit in the current account is followed
by surplus in capital account than the excess foreign exchange
is diverted into capital account to current account so that deficit
in the current account is eliminated. The remaining surplus
in the capital account is transferred to the Reserve account
and recorded on the credit of reserve account. Therefore both
Current Account and Capital Account is always balanced.
INDIA’S BALANCE OF PAYMENT
The international Balance of Payments (BOP) of a country
reflects its economic strengths and weaknesses. A typical
problem of the developing countries is that of a chronic BOP
deficit, India being no exception. Our country has been facing
BOP disequilibrium right since independence, culminating into
a disaster in 1990-91, the year of the acute BOP crisis. India
then had foreign exchange reserve of mere 1 billion dollar,
barely sufficient to finance a month’s import bill. The country
was on the verge of defaulting. This crisis led to the massive
changes in the country’s economic policy, popularly known as
the Structural Adjustment Program or New Economic Policy
(NEP) regime, focusing on liberalization and globalization of
the economy.
We opted for a very cautious approach and today after having
overcome the initial hiccups of a newly liberalized economy,
we have a fairly comfortable BOP situation. Even though we
have attained a comfortable BOP position reflecting a strong
emerging economy, BOP management still remains a tightrope
walk for policy makers, as now we are exposed to each and
every change in the global economic scenario.
Trends & Problems Of India’s
Bop – 1949-50 To 1999-2000.
The disequilibrium in India’s BOP has been caused by both
internal as well as external factors. The need for development
of such a big nation with a huge population is one of the main
causes for the recurring BOP problem. The BOP is always
under pressure and had huge deficits due to high imports of food
grains and capital goods, the heavy external borrowings and
its payment and poor exports. After achieving independence,
the foremost challenge before India was of attaining economic
growth with social justice. India’s aim after attaining
independence was to attain economic self- reliance. For this,
the country had to tap both the internal as well as the external
resources. Not only was our technology backward then, there
The Reserve Account is also the indicator of Forex Reserves
of the country. If surplus in the Capital Account is more than
deficit in the Current Account, there is net increase in the
Forex Reserves of the country at the end of the year. On the
other hand if deficit in the current account is more than surplus
in the Capital Account then there is net decrease in Foreign
Reserves of the country at the end of the year.
Balance of Payment (BOP) Crisis
If international reserves of a country are not enough to balance
a combined deficit in current and capital account on a sustained
basis, then the phenomenon is called a BOP crisis. It can be
tackled by exporting more or by limiting imports through tariffs,
quotas, etc. Contractionary fiscal and monetary policies can
also tackle the crisis through lower import demand with fall in
average income levels. Another short term solution is currency
devaluation which encourages exports and discourages costlier
imports.
However, for the Indian economy most of these solutions are
not realistic in the present context. The most potential solution
lies in the form of greater FDI and FII inflows letting a Capital
Account surplus tackle any BOP crisis.
was food scarcity too. Large amounts of food grains had to be
imported to feed the huge population.
India faced a major BOP crisis in the early 1990s. We had to
borrow from IMF to be able to sustain the economy. This loan
came with a number of conditions. The following are some of
the conditions that came with the medium term loan given by
IMF to India for restructuring of the economy:
•• Government expenditure to be cut by 10% per annum,
•• Devaluation of rupee by 22%,
•• Excise duty to be increased by 20%,
•• Custom duty to be cut drastically from the peak of 130%
to 30%.
Even though there was strong opposition within India to
such a loan which came with so many conditions, the Indian
government went ahead with its plan of restructuring Indian
economy guided by the pre conditions of the IMF. It led to
liberalisation of the Indian economy.
Protectionist Policies
The main objective of the Second Five Year Plan (1956-57 to
1960-61) was to attain self reliance through industrialization.
Self reliance was to be achieved through import substitution.
For this basic industries had to be set up which required import
of capital goods. Exports were expected to automatically take-
off with industrialization. The import substitution strategy
was based on non-price, physical- interventionist policies like
licensing, quotas and other physical restrictions on imports.
Heavy capital goods were imported but other imports were
severely restricted to shut off competition in order to promote
domestic industries. All focus was on import substitution, with
gross neglect of exports. Such inward looking protectionist
policies did result in some self-reliance in the consumer goods
industries, but the capital goods industries remained mostly
import intensive.
E-126 Foreign Trade and Investment in India
The high degree of protection to Indian industries led
to inefficiency and poor quality products due to lack of
competition. The high cost of production further eroded our
competitive strength.
Rising petroleum products demand, the two oil shocks, harvest
failure, all put severe strain on the economy. The BOP situation
remained weak throughout the 1980s, till it reached the crisis
situation in 1990-91, when India was on the verge of defaulting
due to heavy debt burden and constantly widening trade deficit.
External Debt
India had to resort to large scale foreign borrowings for
its developmental efforts in the field of basic social and
industrial infrastructure. The country’s resources were very
much limited due to low per capita income and savings. The
situation worsened because Government of India resorted to
heavy foreign borrowings to correct the BOP situation in the
short run out of panicky. By the Seventh Five Year Plan, the
debt service obligations rose sharply because of harder average
terms of external debt, involving commercial borrowing,
repayments to the IMF and a fall in concessional aid flow.
Export Promotion
Although by the Sixth Five Year Plan we had done away with
the need of food grain imports and some crude oil was being
produced domestically, BOP position was still not comfortable
due to low exports. The need for export promotion was felt
during the 1960s. The Third Five Year Plan introduced certain
export promotion policies like cash compensatory schemes, tax
exemptions, duty drawbacks, Rupee devaluation, etc. However
our exports remained discouraging. Indian exports depended
largely on world trade situation. We were mainly primary
product exporters, the price of which fluctuated heavily with
fluctuations in world market demand.
•• Primary products exporting countries have an unfavorable
term of trade. The earnings from primary product exports
were low and unstable.
•• Secondly, the quality of Indian products was not up to
the world standards due to which we could not sustain
markets.
•• Third, only residue products were mainly exported. The
fact that export earnings also contribute to economic
development was overlooked. Cumbersome procedures
for license, etc. served as disincentives for exporters.
Domestic inflation further reduced the competitiveness of
India’s export.
Exchange Rate
The instability of the exchange value of the rupee was another
problem. The constant devaluations (to promote exports)
raised the amount of external debt. The value of rupee was
managed by the central bank (fixed exchange rate). The gap
between official and market exchange rate created problems
for the exporters and importers. The strict foreign exchange
controls also encouraged hawala trade.
India followed a strongly inward looking policy, laying stress
on import substitution. Ideally, imports should be financed
by export earnings. But because there was export pessimism,
the deficit was financed either by the invisible earnings or by
foreign aid or depletion of valuable foreign exchange reserve.
Much import constraint to check trade deficit was also not
possible because India’s imports were mainly ‘maintenance
imports’. On one hand import reduction was not possible and
on the other exports suffered due to the recession in the 1980s.
India’s BOP was thus beset with several problems. The process
of liberalization began from the mid 1980s. Restriction on
certain imports were removed, particularly those which were
used as inputs for export production. But by then the situation
was already bad and all the mismanagement ultimately led to
the 1990-91 BOP crisis.
Trade Policy
India’s trade policy since Independence had been guided by
what has been described as “export pessimism” and “economic
nationalism. The former assumed that India could never hope
to compete with developed countries due to considerations of
quality and cost. The latter assumed that self-sufficiency and
domestic production was somehow superior to trade. This
concept, which can be traced to the Swadeshi movement, was
further buttressed by the Mahalanobis strategy adopted during
the Second Plan and continued with modifications till the early
1980s. It was only from 1985-86 that a genuine attempt was
made towards trade liberalisation. The result was spectacular
as export increased at an average rate of 17 % per annum in
dollar terms between 1986 and 1990. A combination of factors
such as bad policy, weak government and external factors led
to the decline of this performance to 9% in 1990-91 and 4% in
the subsequent years.
As part of economic liberalisation, government introduced a
series of trade reforms on the fourth of 1991. The major thrust
was to make exports competitive, unshackle foreign trade
from the clutches of a control regime and allow import of most
goods using only tariff as a restraint.
Foreign Trade Policy 2015-20
Aiming to nearly double India’s exports of goods and services
to $900 billion by 2020, the government has announced several
incentives in the five-year Foreign Trade Policy for exporters
and units in the Special Economic Zones (SEZ). Unveiling
the first trade policy of the NDA government, Commerce
Minister Nirmala Sitharaman said the FTP (2015-20) will
introduce Merchandise Exports from India Scheme (MEIS) and
Services Exports from India Scheme (SEIS) to boost outward
shipments.The new policy aims at boosting India’s exports and
it is believed that PM Narendra Modi’s pet projects, ‘Make
in India’ and ‘Digital India’ will be integrated with the new
Foreign Trade Policy.
Trade Policy (2015-20) Key Features
•• India to be made a significant participant in world trade
by 2020.
•• Merchandize exports from India (MEIS) to promote
specific services for specific Markets Foreign Trade
Policy.
Foreign Trade and Investment in India E-127
•• FTP would reduce export obligations by 25% and give
boost to domestic manufacturing.
•• FTP 2015-20 introduces two new schemes, namely
“Merchandise Exports from India Scheme (MEIS)”
and “Services Exports from India Scheme (SEIS)”.
The ‘Services Exports from India Scheme’ (SEIS) is for
increasing exports of notified services. These schemes
(MEIS and SEIS) replace multiple schemes earlier in
place, each with different conditions for eligibility and
usage. Incentives (MEIS and SEIS) to be available for
SEZs also e-Commerce of handicrafts, handlooms, books,
etc. eligible for benefits of MEIS. FTP benefits from both
MEIS and SEIS will be extended to units located in SEZs.
•• Agricultural and village industry products to be supported
across the globe at rates of 3% and 5% under MEIS.
•• Higher level of support to be provided to processed and
packaged agricultural and food items under MEIS.
•• Industrial products to be supported in major markets at
rates ranging from 2% to 3%.
•• Served from India Scheme (SFIS) will be replaced with
Service Export from India Scheme (SEIS).
•• Branding campaigns planned to promote exports in sectors
where India has traditional strength.
•• SEIS shall apply to ‘Service Providers located in India’
instead of ‘Indian Service Providers’.
•• The criteria for export performance for recognition of
status holder have been changed from Rupees to US
dollar earnings.
•• Manufacturers who are also status holders will be enabled
to self-certify their manufactured goods as originating
from India.
•• Reduced Export Obligation (EO) to (75%) for domestic
procurement under EPCG scheme.
•• Online procedure to upload digitally signed document
by Chartered Accountant/Company Secretary/Cost
Accountant to be developed.
•• Inter-ministerial consultations to be held online for issue
of various licences.
•• No need to repeatedly submit physical copies of documents
available on Exporter Importer Profile.
•• Export obligation period for export items related to
defence, military store, aerospace and nuclear energy to
be 24 months instead of 18 months.
•• Calicut Airport, Kerala and Arakonam ICDS, Tamil
Nadu notified as registered ports for import and export;
Vishakhapatnam and Bhimavarm added as Towns of
Export Excellence.
•• Certificate from independent chartered engineer for
redemption of EPCG authorisation no longer required.
Special Economic Zone (SEZ)
Special Economic Zone (SEZ) is a specifically delineated duty-
free enclave that has economic laws different from a country’s
typical economic laws, usually the goal is to increase foreign
investments.
India was one of the first in Asia to recognise the effectiveness
of the Export processing Zone (EPZ) model in promoting
exports, with Asia’s first EPZ set up in Kandla in 1965. With a
view to attract larger foreign investments in India, the Special
Economic Zones (SEZs) Policy was announced in April 2000.
Today, there are approximately 3,000 SEZs operating in 120
countries which account for over US $ 600 billion in exports
and about 50 million jobs.
As a major step forward meant to invoke confidence in
investors and signal the government’s commitment to a stable
SEZ policy regime, a comprehensive Special Economic Zones
Act, 2005 was passed by the Parliament in May 2005. It
received Presidential assent on the 23rd of June 2005. This Act
came into force w.e.f. February 10, 2006.
The main objectives of the SEZ Act are:
(a) Generation of additional economic activity.
(b) Promotion of exports of goods and services.
(c) Promotion of investment from domestic and foreign
sources.
(d) Creation of employment opportunities.
(e) Development of infrastructure facilities.
The salient features of SEZs Act are:
•• Exemption from customs duty, excise duty, etc. on import/
domestic procurement of goods for the development,
operation and maintenance of SEZs and the units therein.
•• 100% income tax exemption for 5 years, 50% for the next
5 years and 50% of ploughed back export profits for 5
years thereafter for SEZs units.
•• Exemption from capital gains on transfer of an undertaking
from an urban area of SEZs.
•• 100% income tax exemption to SEZ developers for a
block of 10 years in 15 years.
•• Exemption from dividend distribution tax to SEZ
developers.
•• 100% income tax exemption for 5 years and 50% for next
five years for off shore Banking units located in SEZ.
•• Exemption to SEZ developer and units from Minimum
Alternate Tax.
•• CST exemption to SEZ developer and units on inter-state
purchase of goods.
•• Constitution of an authority for each SEZ with a view to
providing greater administrative, financial and functional
autonomy to these zones.
•• Establishment of designated courts and a single enforcement
agency to ensure speedy trial and investigation of offences
committed in SEZs.
•• Encouragement to State Governments to liberalise State
laws and delegate their powers to the Development
Commissioners to the SEZs to facilitate single window
clearance.
Export Oriented Units, Export processing Zone
and Special Economic Zone Schemes
The Government has liberalised the scheme for export-oriented
units and export processing zones. Agriculture, horticulture,
poultry, fisheries and dairying have been included in export-
oriented units. Export processing zone units have also been
E-128 Foreign Trade and Investment in India
allowed to export through trading and star trading houses and
can have equipments on lease. These units have been allowed
cent per cent participation in foreign equities.
1. Export Processing Zones
Before getting converted into Special Economic Zones
(SEZs), these Export Processing Zones (EPZs) were
playing important role in promoting exports of the country.
These zones were created to develop such an environment
in the economy which may provide capability of facing
international competition. The Export Processing Zone
(EPZs) set up as enclaves, separated from the Domestic
Tariff Area by fiscal barriers, were intended to provide a
competitive duty free environment for export production.
All the 8 EPZs, located at Kandla and Surat (Gujarat),
Santa Cruz (Maharshtra), Cochin (Kerala), Chennai
(Tamil Nadu), Vishakhapatnam (Andhra Pradesh), Faeta
(West Bengal) and Noida (U.P) have been converted into
Special Economic Zones.
2. Export-Oriented Units
Since 1981, the Government introduced a complementary
plan of EPZ (Now converted into SEZ) scheme for
promoting export units (making export of their cent per cent
production. Under this scheme the Government provides
various incentives to increase the production capacity of
these units so as to increase exports of the country. This
scheme offers a wider source of raw materials, hinterland
facilities, availability of technological skills, existence of
an industrial base and the need for a larger area of land
for the project.
3. Export Houses, Trading Houses and Star Trading
Houses
To increase the marketable efficiency of exporters, the
Government introduced the concept of export houses,
trading houses and star trading houses. Those registered
exporters who have shown good export performances
over past few years have been given the status of
export houses, and trading houses. Units having such
classification are required to achieve the prescribed
average export performance level and earning of foreign
exchange. These units are provided some special facilities
and benefits by the Government.
Since April 1, 1994 a new category named Golden Super
Star Trading Houses was added by the Government
which has the highest average annual foreign exchange
earnings. On March 31, 2003 there were 4 Golden Super
Star Trading House working in the country.
4. Export Promotion Industrial Parks (EPIP)
A Centrally-sponsored ‘Export Promotion Industrial Park
(EPIP)’ scheme was introduced in August 1994 with a
view to involving the state governments in the creation
of infrastructure facilities for export oriented production.
It provides for 75% (limited to 10 crore) grant to state
government towards creation of such facilities. The
Central Government has so far approved 25 proposals
for establishments of EPIPs in the states of Punjab,
Haryana, Himachal Pradesh, Rajasthan, Karnataka,
Kerala, Maharashtra, Tamil Nadu, Andhra Pradesh,
U.P., Gujarat, Bihar, J&K, Assam, M.P., West Bengal,
Odisha, Meghalaya, Manipur, Nagaland, Mizoram and
Tripura. While the EPIP in Rajasthan at Sitapura (Distt.
Jaipur), Bangalore (Karnataka), Ambarnath (Distt.
Thane, Maharashtra), Kakkinad (Distt. Ernakulam,
Kerala), Surajpur (Distt. Gautambudh Nagar, U.P.),
Gummidipoondi (Distt. Chengalpattu, Tamil Nadu),
Pashamylaram (Distt. Mendak, Andhra Pradesh) and
Amingaon (Near Guwahati, Assam) have been completed.
Exports have already commenced from Karnataka, Kerala
and Rajasthan EPIPs. Other parks are at various stages of
implementation.
At present, the number of formally approved SEZs is 413, 327
SEZs have been notified, 202 SEZs are operational and the total
number of units approved in SEZs is 4,102. A total investment
of Rs.3,48,983.22 crores has been done till 2015. Moreover,
till now15,04,597 persons have received employment through
SEZs.
Foreign Direct Investment (FDI)
Foreign direct investment (FDI) is an investment in a business by
an investor from another country for which the foreign investor
has control over the company purchased. The Organisation
of Economic Co-operation and Development (OECD) defines
control as owning 10% or more of the business. Businesses that
make foreign direct investment are after called Multinational
Corporations (MNCs) or Multinational Enterprises (MNEs).
• A MNE may create a new foreign enterprise by making a
direct investment, which is called a greenfield investment.
• A MNE may make a direct investment by the acquisition of
a foreign firm, which is called an acquisition or prownfield
investment .
Advantages of foreign Direct Investment
1. Economic Development Stimulation.
2. Easy International Trade.
3. Employment and Economic Boost.
4. Development of human capital Resources.
5. Tax incentives.
6. Resource Transfer.
7. Reduced disparity between revenues and costs.
8. Increased productivity.
9. Increment in income.
Disadvantages of Foreign Direct Investment
1. Hindrances to domestic Investment.
2. Risk from political changes.
3. Negative influence on exchange rates.
4. Higher costs.
5. Economic non-viability.
6. Expropriation.
7. Modern-day Economic colonialism.
FDI, being a non-debt capital flow, is a leading source of external
financing, especially for the developing economies. It not only
brings in capital and technical know-how but also increases
the competitiveness of the economy. Overall it supplements
domestic investment, much required for sustaining the high
growth rate of the country. Since 2000, significant changes
Foreign Trade and Investment in India E-129
have been made in the FDI policy regime by the government
to ensure that India becomes an increasingly attractive and
investor-friendly destination.
The current phase of FDI policy is characterized by negative
listing, permitting FDI freely except in a few sectors indicated
through a negative list. Under the current policy regime, there
are three broad entry options for foreign direct investors.
1. In some sectors, FDI is not permitted (negative list);
2. In another small category of sectors, foreign investment
is permitted only till a specified level of foreign equity
participation, and
3. The third category, comprising all the other sectors,
is where foreign investment up to 100 % of equity
participation is allowed. The third category has two
subsets –
a. one consisting of sectors where automatic approval
is granted for FDI (often foreign equity participation
less than 100 %), and
b. the other consisting of sectors where prior approval
from the Foreign Investment Approval Board (FIPB)
is required.
FDI policy changes increasingly reflect the requirements of
industry and are based on stakeholder’s consultation. Upfront
listing of negative sectors has helped focus on reform areas,
which are reflected in buoyant FDI inflows.
The following are some of the sectors with
100% FDI
Advertising, agriculture, air transport services (domestic
airlines), courier services, drugs and pharmaceuticals,
electricity, power, films and studios, hotel and tourism,
housing and real estate, construction, mass rapid transport
system, mining (gold and silver), NBFC, marketing, pipelines
and refining of petroleum products, tourism, transport
infrastructure, townships, SEZs, railways, single brand retail
(upto 49% automatic and from 49 to 100% has to be approved
by FIPB), telecommunications (upto 49% automatic, 49-100%
by FIPB), and asset reconstruction companies ( upto 49%
automatic, 49-100% by FIPB).
74% FDI
Airports, broadcasting, coal and lignite, credit information
companies, direct to home (DTH), mining ( diamonds &
precious stones), satellites, and private sector banking are the
sectors with FDI limit of 74%.
26-49% FDI
Airlines/aviation, defence, insurance and pension are the
sectors which have 49% FDI limit. Sectors with 26% FDI
limits print media (newspaper – 26%, scientific & periodicals
– 100% ) and FM radio. Public sector Banks have the lowest
FDI limit of 20%.
E-130 Foreign Trade and Investment in India
1. Which of the following organisation provides guarantee
to exporters?
(a) EXIM Bank
(b) Export Loan Guarantee Corporation
(c) RBI
(d) Commerce Ministry
2. Which of the following does not form part of current
account of Balance of Payments? visa restrictions.
(a) Export and import of goods
(b) Export and import of services
(c) Income receipts and payments
(d) Capital receipts and payments
3. Which institution is known as ‘soft loan window’ of
World Bank?
(a) IFC
(b) IDA
(c) IMF
(d) Indian Development Forum
4. Global capital-flows to developing countries increased
significantly during the nineties. In view of the East
Asian financial crisis and Latin American experience,
which type of inflow is good for the host country?
(a) Commerical loans
(b) Foreign Direct Investment
(c) Foreign Portfolio Investment
(d) External Commercial Borrowings
5. The earnings of India from diamond export is quite high.
Which one of the following factors has contributed to it?
(a) pre-independene stock-piling of diamonds in the
country which are now exported
(b) large production of industrial diamonds in the
country
(c) expertise available for cutting and polishing of
imported diamonds which are then exported
(d) as in the past, India produces huge quantity of gem
diamonds which are exported
6. Which one of the following modes of privatization is the
most comprehensive and complete?
(a) introduction of private capital in public sector
(b) contracting out management of public enterprises to
the private sector
(c) transferring ownership and management to the
workers
(d) transferring ownership and management to the
private sector
7. Which one of the following types of borrowings from the
IMF has the softest servicing conditions?
(a) Second tranche loan
(b) SAF
(c) ESAF
(d) Oil facility
8. Which unit of valuation is known as ‘paper gold’?
(a) Eurodollar (b) Petrodollar
(c) SDR (d) GDR
9. Which of the following is not one of the features of
the Special Economic Zones (SEZ) being set up for
promoting exports ?
(a) The SEZ area will be treated as foreign territory for
trade operations, duties and tariff.
(b) No licence is required for import into the zone.
(c) Foreign workers will be allowed free entry without
(d) There will be no routine examination by customs
authorities of import/export cargo.
10. Which of the following is considered lending for
promotion of exports?
(a) Packing Credit
(b) Overdraft
(c) Cash Credit Account
(d) Bill Discounting
11. For National Manufacturing and Investment Zones
(NMIZ), Special Economic Zone (SEZ) and EOUs
(Exports-Oriented Units), which of the following
statement is true?
(a) NMIZs and EOUs will be located within SEZs
(b) SEZs and EOUs will be located within NMIZs.
(c) NMIZs are independent of SEZs and EOUs.
(d) NMIZs and SEZs will be competitors in nature
12. Both Foreign Direct Investment (FDI) and Foreign
Institutional Investor (FII) are related to investment in
a country. Which one of the following statements best
represents an important difference between the two ?
(a) FII helps bring better management skills and
technology, while FDI only brings in capital.
(b) FII helps in increasing capital availability in general,
while FDI only targets specific sectors.
(c) FDI flows only into the secondary market while FII
targets primary market
(d) FII is considered to be more stable than FDI.
13. A great deal of Foreign Direct Investment (FDI) to India
comes from Mauritius than from many major and mature
economies like UK and France. Why?
(a) India has preference for certain countries as regards
receiving FDI
(b) India has double taxation avoidance agreement with
Mauritius
(c) Most citizens of Mauritius have ethnic identity with
India and so they feel secure to invest in India
(d) Impending dangers of global climatic change prompt
Mauritius to make huge investments in India
14. TRIPS (Trade Related aspects of Intellectual Property
Rights) agreements is administered by
(a) United Nations Conference on Trade and
Development (UNCTAD)
(b) United Nations Organization (UNO)
(c) World Trade Organization (WTO)
(d) World Bank (WB)
Foreign Trade and Investment in India E-131
15. Which is the role of the International Monetary Fund
(IMF)?
(a) To implement and advance global trade agreements
(b) To settle industrial and trade disputes between
members
(c) To help poorer countries with their economic
development
(d) To maintain international financial stability in global
financial markets
16. Which of the following is not an argument for
protectionism?
(a) To protect infant industries
(b) To increase the level of imports
(c) To protect strategic industries
(d) To improve the balance of payments
17. Dumping in the context of international trade refers to :
(a) Exporting goods at prices below the cost of
production
(b) Exporting goods of inferior quality
(c) Exporting goods only to re-import them at cheaper
rates
(d) Exporting goods without paying appropriate taxes in
the receiving country
18. Foreign Direct Investment involves:
(a) A speculator trying to make a profit by buying
company shares on a foreign stock exchange.
(b) A UK energy company buying territory abroad
where it expects to find oil reserves.
(c) A tourist purchasing foreign currency to spend on a
holiday abroad.
(d) A company signing an agreement with a wholesaler
to distribute its products in foreign markets.
19. Many a times we read about Hot Money in newspapers.
Which among the following options rightly describes hot
money?
(a) Hot money is useful and generally durable and is
good for the country in all weathers
(b) Hot money is dangerous and volatile and leaves the
country in bad weather conditions
(c) Hot money is good and adds to the development of
the country & it comes from exports of services
(d) Hot money is bad & useless as its arises from
unusual activities like casinos, gambling, horse
races, speculations etc.
20. A systematic record of all economic transactions
completed between residents of a country and the rest of
the world in a year is known as..?
(a) Net Capital Flow (b) Balance of Payment
(c) Balance of Trade (d) Absolute Flow
21. Asian Financial Crisis of 1997 started from which of the
following countries?
(a) Myanmar (b) Thailand
(c) Cambodia (d) Malaysia
22. Many a times we read in the newspapers that when
Foreign Capital is allowed to enter the country freely,
it can affect the economy adversely. Which among the
following is a correct reason for the above assumption?
(a) It affects the balance of payments of the country by
adversely affecting the Current Account
(b) It poses risks to the value of the country’s currency
as well as management of local liquidity
(c) The foreign capital earns profit in the country which
is repatriated
(d) The Balance of Trade of the country is badly affected
by Foreign Capital Inflows
23. TANKAN is revision of the Industry Classification of
the Short-term Economic Survey of Enterprises (usually
quarterly ) is used in following country ?
(a) Japan (b) South Korea
(c) China (d) All of them
24. Which among the following is the most important source
region of NRI remittances to India ?
(a) North America (b) Europe
(c) Middle East (d) Asia Pacific
(e) South America
25. In context with the two way trade of India with different
regions, which among the following region is India’s
largest trade partner?
(a) EU Region (b) Gulf Region
(c) North America (d) Latin America
26. Which among the following will be a debit entry in India’s
balance of payments?
(a) Imports of goods by India.
(b) Income of Indian investments abroad.
(c) Receipts of transfer payments.
(d) Exports of services by India.
27. Which among the following countries is currently the
biggest supplier of crude oil to India?
(a) Iran (b) Saudi Arabia
(c) UAE (d) Nigeria
28. IMF can grant loan to __________?
(a) Any sovereign country of the World
(b) Any sovereign country of the World and Public
Sector companies backed by Sovereign guarantee
(c) Any Member country of IMF
(d) Any Member country of IMF and Public Sector
Companies backed by Sovereign guarantee of
Member Country ‘
29. In which among the following forms, the Special Drawing
Rights (SDR) are kept as currency of International
Monetary Fund?
(a) Paper Currency
(b) Gold
(c) Book Keeping Entry
(d) A combination of all of three
30. A new term Lourdes Treatment and Resuscitation Option
(LTRO) was making news in context with which among
the following?
(a) World Bank
(b) International Monetary Fund
(c) European Central Bank
(d) Federal Reserve Bank of America
31. Christine Lagarde is the head of which among the
following international agencies / bodies?
(a) Asian Development Bank
(b) Non-alignment Movement
(c) International Atomic Energy Agency
(d) International Monetary Fund
32. AoA in context with World Trade Organization is ___?
(a) Article of Association
(b) Agreement on Agriculture
(c) Agreement on Association
(d) Administration of Agriculture
E-132 Foreign Trade and Investment in India
Statement Based MCQ
1. Consider the following statements.
Most internationals agencies which fund development
programmes in Indian on inter-government bilateral
agreements, mainly provide.
1. Technical assistance
2. Soft loans which are required to be paid back with
interest
3. Grants, not required to be paid back
4. Food assistance to alleviate poverty
(a) 2 and 4 are correct (b) 1, 2 and 3 are correct
(c) 1, 2 and 4 are correct (d) 3 and 4 are correct
2. FDI in Multi-Brand Retail Trade (MBRT) in all products
is now permitted in India subject to
1. a ceiling of 51%
2. minimum amount to be brought in as FDI by the
foreign investor is US $ 100 million.
3. atleast 50% of the procurement of manufactured/
processed products should be sourced from ‘small
industries’.
4. retail sales locations set-up only in cities with a
population of more than 10 lakh.
Select the correct answer using the codes given below
(a) 1, 2, 3 and 4 (b) 1 and 4
(c) Only 2 (d) 1, 2 and 4
3. Which of the following were the aims behind the setting
up of the World Trade Organization (WTO)?
1. promotion of free trade and resource flows across
countries
2. protection of intellectual property rights
3. managing balanced trade between different countries
4. promotion of trade betwen the former East Bloc
countries and the Western World
(a) 1, 2, 3 and 4 (b) 1 and 2
(c) 2 and 3 (d) 1 and 4
4. Consider the following statements in respect of the
functions of World Trade Organisation (WTO):
1. It seeks to make international trade free by establishing
predictable and transparent ground rules.
2. It promotes capital flow from developed to
developing countries.
3. It provides a forum for trade negotiations.
4. It works as a neutral agency for settlement of trade
disputes.
Identify the correct statements from the above:
(a) 1, 3 and 4 (b) 2, 3 and 4
(c) 1, 2, 3 and 4 (d) 1, 2 and 3
5. Which of the following statement is not correct in relation
to International Monetary Fund?
1. India is a founder member of the IMF.
2. IMF conducts regular review of India’s economic
status under Article IV.
3. India’s quota in the IMF is more than 2 per cent
4. Finance Minister is ex-officio Governor of the IMF.
(a) 1 and 4 (b) 3 only
(c) 1 only (d) 2 and 4
6. The New Economic Policy (1991) was launched in the
background of the following economic indicators:
1. India’s foreign exchange reserves had fallen to
US$1 billion.
2. The fall of the Soviet Union had deprived India of
almost a quarter of its export market.
3. There was negative growth in real GDP.
4. Indian rupee had to be devalued by 45 per cent.
(a) 1, 2, 3 and 4 (b) 1 only
(c) 1 and 2 (d) 1, 2 and 3
7. Which of the following pairs are correctly matched?
1. Increase in—Monetary expansion
2. Low import growth rate in India-Recession in Indian
industry
3. Euro-issues—Shares held by Indian companies in
European countries
4. Portfolio investment—Foreign institutional investors.
(a) 1, 2 and 4 (b) 3 and 4
(c) 1, 2 and 3 (d) 1, 2, 3 and 4
8. Which of the following would include Foreign Direct
Investment in India?
1. Subsidiaries of foreign companies in India
2. Majority foreign equity holding in Indian companies
3. Companies exclusively financed by foreign
companies
4. Portfolio investment
Select the correct answer using the codes given below
(a) 1, 2, 3 and 4 (b) 2 and 4
(c) 1 and 3 (d) 1, 2 and 3
9. Which of the following is correct about ‘Foreign direct
investment’ (FDI)?
1 Through FDI a company buys a company in the
target country.
2. Through FDI a company expand operations of an
existing business in the target country.
3. FDI is an investment in the securities of another
country such as stocks and bonds.
4. FDI is an investment directly into production in a
country by a company located in another country.
(a) 1 and 2 (b) 1, 2 and 4
(c) 1, 2 and 3 (d) 1, 2, 3 and 4
10. International Monetary Fund (IMF) argues that developing
economies hold a massive stockpile of foreign exchange.
Which could be the consequences of such stockpiling?
1. A trade imbalance or major difference in value of
imports/exports is generated between the developing
and emerging economies and the rich countries.
Such an imbalance is not a healthy sign.
2. These imbalances have caused the current global
economic crisis.
3. Such stockpiling is responsible not only for problems
in trade balances but leads to money laundering.
(a) 1 only (b) 2 only
(c) 3 only (d) 1, 2 and 3
Foreign Trade and Investment in India E-133
11. Consider the following statements relating to the World
Trade Organization (WTO):
1. The WTO deals with the global rules of trade
between nations.
2. The goal of the WTO is to help producers of goods
and services, exporters, and importers conduct their
business.
3. The WTO, which is a successor body of the General
Agreement on Tariffs and Trade, came into being
following the Uruguay Round of Negotiations.
4. The WTO distances itself in framing of rules on trad
in intellectual property rights.
Which of the statements given above are correct?
(a) l, 2 and 3 (b) 2, 3 and 4
(c) 1, 2 and 4 (d) 1 and 3 only
12. Foreign Direct Investments are preferred over Capital
Inflow. In this context, please consider the following.
1. FDI brings in latest technology
2. FDI does not involve large outflow
3. FDI improves working efficiency
Which is/are most suitable reason/reasons for the given
statement?
(a) 1 only (b) 1 and 3
(c) 1 and 2 (d) All 1, 2 and 3
13. Consider the following:
1. Balance of trade 2. Net factor income
3. Net transfer payments
Which among the above make the part of the “Capital
Account”?
(a) Only 1 (b) 1 & 2
(c) 2 & 3 (d) 1, 2 & 3
14. Consider the following statements:
1. Indian Rupee has faced 2 devaluations till now
2. Indian Rupee faced highest devaluation in 1966
Which among the above statements is / are correct?
(a) Only 1 is correct
(b) Only 2 is correct
(c) Both 1 and 2 are correct
(d) Neither 1 nor 2 is correct
15. Consider the following statements regarding the Indian
Depository Receipts?
1. An IDR declares ownership of shares of a Foreign
Company
2. The Shares in an IDR are held by an Indian Custodian
3. Using IDR, the Indian Residents get a chance to
invest in a listed foreign entity
Which among the above statements is / are correct?
(a) Only 1 (b) Only 2
(c) Only 1 & 2 (d) Only 1 & 3
16. Market Economy:
1. The role of market forces and competition is
eliminated by law
2. There is a high degree of competition in both
commodity and factor markets
3. Private gains are the main motivating and guiding
force for carrying out economic activities
Which among the above is/ are correct statements?
(a) Only 1 & 2 are correct Investment in India?
(b) Only 2 & 3 are correct
(c) All are correct
(d) None of them is correct
17. We read in the newspapers that the Foreign Direct
Investments are preferred over the Capital Inflow. In this
context, please consider the following :
1. FDI brings in latest technology
2. FDI does not involve large outflow
3. FDI Improves efficiency of the economy
Which among the above is / are most suitable reasons for
the given statement?
(a) Only 1 (b) Only 1 & 3
(c) Only 1 & 2 (d) All 1, 2 & 3
18. Which of the following constitute the Capital Account ?
1. Foreign Loan.
2. Foreign Direct Investment.
3. Private Remittances.
4. Portfolio Investment.
Select the correct answer using the codes given below
(a) 2 & 4 (b) 1 & 3
(c) 1 & 2 (d) 1, 2 & 4
19. Consider the following:
1. International Bank for Reconstruction and
Development (IBRD)
2. International Development Association (IDA)
3. International Finance Corporation (IFC)
4. Multilateral Investment Guarantee Agency (MIGA)
5. International Centre for Settlement of Investment
Disputes (ICSID)
Which among the above constitute the World Bank
group?
(a) 1 2 (b) 1 2 3
(c) 1 2 3 4 (d) 1 2 3 4 5
20. Consider the following statements:
1. The Foreign Exchange Management Act FEMA
became an act on the 1st day of June, 2002.
2. It replaced FERA.
3. It made all offenses regarding foreign exchange civil
offenses, as opposed to criminal offenses as dictated
by FERA.
Which of the statements given above is/are correct?
(a) 1 and 2 (b) 2 and 3
(c) 1 and 3 (d) None
21. Consider the following statements:
1. Kelkar Committee is associated to oil and gas.
2. Kelkar Committee has to prepare a roadmap for
enhancing import of oil and gas.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) 1 and 2 (d) None
22. Consider the following statements:
1. The Petrapole-Benapole border checkpoint controls
the foreign trade between India and Bangladesh.
2. Petrapole is on Bangladesh side and Benapole is on
Indian side.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) 1 and 2 (d) None
23. Which of the following would include Foreign Direct
1. By incorporating a wholly owned subsidiary or
company anywhere
2. By acquiring shares in an associated enterprise
E-134 Foreign Trade and Investment in India
3. Through a merger or an acquisition of an unrelated
enterprise
4. Participating in an equity joint venture with another
investor or enterprise
Select the answer using the codes given below.
(a) 1 and 2 (b) 2, 3 and 4
(c) 1, 3 and 4 (d) 1, 2, 3 and 4
24. Consider the following statements:
1. International Monetary Fund (IMF) was initiated in
1944 at the Bretton Woods Conference and formally
created in 1945.
2. IMF grants loan to member country and other
developing countries.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) 1 and 2 (d) None
25. Consider the following statements regarding the
Federation of Indian Export Organisation (FIEO):
1. FIEO was set up in 1965 under the aegis of Ministry
of Commerce.
2. It is an apex body of Export Promotion Organisations
3. FIEO renders an integrated package of services
to various organizations connected with export
promotion.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) 1 and 2 (d) 1, 2 and 3
26. Match the following countries with its currencies:
Country Currency
I. US a. Yen
II. China b. Dollar
III. Japan c. Pound
IV. Britain d. Yuan
(a) I – b, II – d, III – a, IV – c
(b) I – a, II – d, III – b, IV – c
(c) I – b, II – c, III – a, IV – d
(d) I – a, II – c, III – b, IV – d
27. Which sentence is correct regarding foreign exchange?
I. Foreign exchange reserves in India comprises of 6
elements.
II. Foreign exchange management can be done in three
possible ways: Fixed currency regime, floating
currency regime and managed exchange rates.
III. Silver is an element of foreign exchange reserve
(a) I & II (b) Only II
(c) Only III (d) None of the above
28. Which sentences are correct regarding special drawing
rights?
I. It was created in 1980
II. It is also known as “paper gold”.
III. Its value is based on a basket of five key international
key currencies and SDRs can be exchanged for
freely usable currencies
(a) Only II (b) I & III
(c) II & III (d) All the above
29. Which of the statement is correct according to Fixed
Exchange rates?
I. Fixed rates are currency values which are tied to a
precious metal such as gold, or anchored to another
currency, like the US Dollar.
II. Under a fixed system, a currency can rise or fall due
to changes in demand or supply of currencies on the
foreign exchange market.
III. Under this imports and exports can readjust to move
the balance of payments back towards a desirable
equilibrium.
(a) I & II (b) I & III
(c) II & III (d) Only I
30. Why did the fixed exchange rate system collapsed?
I. The build up of US debts abroad as a result of the
need to fund the war in Vietnam
II. Inflation in the USA
III. Growing doubts about the stability of the US$.
(a) Only I (b) I & II
(c) II & III (d) All the above
31. Match the following percentage of world trade in different
years of India:
Year Percentage
I. 1950’s a. 0.59%
II. 1990’s b. 2%
III. 2015 c. 1.78%
(a) I –b, II – c, III – a (b) I – c, II – a, III – b
(c) I - a, II- b, III – c
32. What are the categories in which India export?
I. Agricultural and Allied Products
II. Mineral Fuel and Lubricants
III. Coal and petroleum
(a) Only II (b) I & II
(c) Only III (d) None of the above
33. What are the facts regarding structural change in India’s
export since 1991?
I. There are indications that during 1990s, some
of Indian exports have moved upwards in value
addition chain whereby instead of exporting raw
materials, the country has switched over to export
of processed goods.
II. There were significant compositional shift within
the major manufactured product groups such as
engineering goods, chemicals and allied products,
etc.
(a) Only II (b) Only I
(c) Both I & II (d) None of the above
34. Match the following export products of India with the
Percentage they constitute:
Products Percentage
I. Petroleum a. 4%
II. Gems & Jewellery b. 7.8%
III. Transport & c. 20.4%
Equipments
IV. Machinery d. 16.3%
(a) I – c, II – d, III – b, IV – a
(b) I – a, II – c, III – b, IV – d
(c) I – b, II – a, III – d, IV – c
(d) I – d, II – c, III – a, IV – b\
35. Which statements are true regarding India’s Import?
I. In 1947-48 the main items of India’s imports were
machineries, oil, grains, cotton, cutlery, hardware
implements, chemicals, etc.
II. They constituted 70% of India’s imports
(a) Only II (b) Only I
(c) Both I & II (d) None of the above
Foreign Trade and Investment in India E-135
36. What is meant by term Balance of Payment?
I. Those transactions arising out of exports and imports
(the visible items)
II. It is astatistical statement of all transactions made
between one particular country and all other
countries during a specified period of time
III. This account is the summary of all international
trade transactions of the domestic country in one
year
(a) I & III (b) Only I
(c) Only II (d) None of the above
37. What is meant by term Balance of Trade?
I. Those transactions arising out of exports and imports
(the visible items)
II. It is a statistical statement of all transactions made
between one particular country and all other
countries during a specified period of time
III. This account is the summary of all international
trade transactions of the domestic country in one
year
(a) I & III (b) Only I
(c) Only II (d) None of the above
38. Which statement is correct regarding Current account?
I. Those transactions arising out of exports and imports
(the visible items)
II. It is a statistical statement of all transactions made
between one particular country and all other
countries during a specified period of time
III. This account is the summary of all international
trade transactions of the domestic country in one
year
(a) I & II (b) Only I
(c) II & III (d) Only III
39. Which statement is incorrect regarding balance of
payment?
I. BoP compares the dollar difference of the amount of
exports and imports, including all financial exports
and imports.
II. A negative balance of payments means that more
money is flowing out of the country than coming in
and vice versa.
III. The balance of payment is maintained by State Bank
of India
(a) I & III (b) Only III
(c) II & III (d) Only I
40. Match the following current accounts with their examples:
CA
I. Visible Trade a. Gifts
II. Invisible Trade b. Tea
III. Unilateral Transfer c. Insurance
(a) I – b, II – c, III – a
(b) I – a, II – c, III – b
(c) I – c, II – a, III – b
41. Which statement is correct regarding capital account?
I. On the credit side of this account receipt of foreign
exchange due to Foreign Direct Investment (FDI),
Foreign Capital Investment (FCI) and Foreign
Borrowing (FB) is recorded.
II. On the debit side of capital account payment of
foreign exchange due to Direct Investment Abroad
(DIA), Portfolio Investment Abroad (PIA) and
Foreign Lending (FL) is recorded.
(a) Only II (b) Only I
(c) Both I & II (d) None of the above
42. Which of the below statements are correct?
I. Reverse account balance makes an adjustment
between current account balance and capital account
balance.
II. If surplus in the Capital Account is more than deficit
in the Current Account, there is net increase in the
Forex Reserves of the country at the end of the year.
III. If deficit in the current account is more than surplus
in the Capital Account then there is net decrease in
Foreign Reserves of the country at the end of the
year.
(a) I & II (b) I & III
(c) Only II (d) All the above
43. Which statement is correct regarding balance of payment
crises?
I. If international reserves of a country are not enough
to balance a combined deficit in current and capital
account on a sustained basis, then the phenomenon
is called a BoP crisis.
II. It can be tackled by exporting more or by limiting
imports through tariffs, quotas, etc. Contractionary
fiscal and monetary policies can also tackle the crisis
through lower import demand with fall in average
income levels.
III. Another short term solution is currency devaluation
which encourages exports and discourages costlier
imports.
(a) Both I & II (b) Only I
(c) II & III (d) All the above
44. Which statement is incorrect regarding India’s balance of
payment?
I. 1994-95 was the year of the acute BOP crisis in India.
II. India then had foreign exchange reserve of mere 3
billion dollar
III. This crisis led to the massive changes in the
country’s economic policy, popularly known as the
Structural Adjustment Program or New Economic
Policy (NEP) regime, focusing on liberalization and
globalization of the economy.
(a) I & III (b) I & II
(c) Only III (d) Only I
45. What conditions are correct that came with the medium
term loan given by IMF to India for restructuring of the
economy?
I. Government expenditure to be cut by 20% per annum
II. Devaluation of rupee by 22%.
III. Excise duty to be increased by 40% .
IV. Custom duty to be cut drastically from the peak of
130% to 30%
(a) II & IV (b) I & II
(c) III & IV (d) Only II
46. What are the factors on which import substitution strategy
was based on?
I. Non-price
II. Physical- interventionist policies like licensing,
quotas and other physical restrictions on imports
(a) only II (b) Only I
(c) Both I & II (d) None of the above
E-136 Foreign Trade and Investment in India
47. Why there was the need for export promotion in India?
I. Primary products exporting countries have an
unfavourable term of trade. The earnings from
primary product exports were low and unstable
II. Secondly, the quality of Indian products was not up
to the world standards due to which we could not
sustain markets.
III. Third, only residue products were mainly exported.
The fact that export earnings also contribute to
economic development was overlooked.
(a) I & III (b) II & III
(c) Only III (d) All the above
48. Which of the below statements are correct regarding
exchange trade?
I. The value of rupee was managed by the state bank
II. The strict foreign exchange controls also encouraged
hawala trade
III. India followed a strongly inward looking policy,
laying stress on import substitution
(a) Only I (b) Both II & III
(c) Only III (d) All the above
49. Choose the correct sentence regarding the trade policy:
I. Mahalanobis strategy adopted during the First plan
II. Export increased at an average rate of 29 per cent
per annum in dollar terms between 1986 and 1990
III. A combination of factors such as bad policy, weak
government and external factors led to the decline of
this performance to nine per cent in 1990-91 and 4
per cent in the subsequent years.
(a) Only III (b) I & II
(c) II & III (d) All the above
50. What was the main reason of introducing trade reforms
in 1991?
I. Make exports competitive
II. Unshackle foreign trade from the clutches of a
control regime
III. Allow import of most goods using only tariff as a
restraint
(a) I & II (b) Only II
(c) Only III (d) All the above
51. What are the key features of trade policy?
I. India to be made a significant participant in world
trade by 2025
II. Merchandize exports from India (MEIS) to promote
specific services for specific Markets Foreign Trade
Policy
III. FTP would reduce export obligations by 50% and
give boost to domestic manufacturing
(a) I & II (b) Only II
(c) II & III (d) All the above
52. Which is the correct statement according to FTP 15 – 20?
I. FTP 2015-20 introduces two new schemes, namely
“Merchandise Exports from India Scheme (MEIS)”
and “Services Exports from India Scheme (SEIS)”
II. These schemes (MEIS and SEIS) replace multiple
schemes earlier in place, each with different
conditions for eligibility and usage.
III. Incentives (MEIS & SEIS) to be available for SEZs
also e-Commerce of handicrafts, handlooms, books
etc., eligible for benefits of MEIS.
IV. FTP benefits from both MEIS & SEIS will be
extended to units located in SEZs.
(a) I & II (b) II & IV
(c) Only III (d) All the above
53. Which statement is not correct according to MEIS?
I. Agricultural and village industry products to be
supported across the globe at rates of 3% and 5%
under MEIS.
II. Higher level of support to be provided to processed
and packaged agricultural and food items under
MEIS.
(a) Only I (b) Only II
(c) Both I & II (d) None of the above
54. What are the objectives of SEZ act?
I. Generation of additional economic activity.
II. Promotion of exports of goods & services.
III. Promotion of investment from domestic and foreign
sources.
IV. Creation of employment opportunities
(a) I & II (b) II & IV
(c) Only III (d) All the above
55. Which points are correct regarding SEZ act?
I. Exemption to SEZ developer and units from
Minimum Alternate Tax.
II. Constitution of an authority for each SEZ with a
view to providing greater administrative, financial
and functional autonomy to these zones.
III. Establishment of designated courts and a single
enforcement agency to ensure speedy trial and
investigation of offences committed in SEZs.
(a) I & II (b) Only II
(c) Only III (d) All the above
56. Consider the following statements:
I. Agriculture, horticulture, poultry, fisheries and
dairying have been included in export-oriented
units.
II. Export processing zone units have also been allowed
to export through trading and star trading houses
and can have equipment on lease.
Which of the following statements are true regarding
Export Units:
(a) Only II (b) Only I
(c) Both I & II (d) None of the above
57. Consider the following statements:
I. These zones were created to develop such an
environment in the economy which may provide
capability of facing international competition.
II. The Export Processing Zone (EPZs) set up as
enclaves, separated from the Domestic Tariff
Area by fiscal barriers, were intended to provide
a competitive duty free environment for export
production
III. There are total 10 EPZs in our country
Which statement is/are correct regarding export
processing zone
(a) Only III (b) I & II
(c) II & III (d) All the above
Foreign Trade and Investment in India E-137
58. Match the States with their cities where there are EPZs in
India:
States City
I. Gujarat a. Noida
II. West Bengal b. Kandla
III. U.P c. Faeta (it is a placein West
Bengal which is mentioned
in the chapter)
(a) I-b, II-c, III-a (b) I-a, II-c, III-b
(c) I-b, II-a, III-c (d) I-c, II-b, III-a
59. Which statement is correct regarding export oriented
units?
I. Since 1981, the Government introduced a
complementary plan of EPZ (Now converted into
SEZ) scheme for promoting export units.
II. Under this scheme the Government provides various
incentives to increases the production capacity of
these units so as to increase exports of the country.
III. This scheme offers a wider source of raw materials,
hinterland facilities, availability of technological
skills, existence of an industrial base and the need
for a larger area of land for the project.
(a) Only III (b) I & II
(c) II & III (d) All the above
60. Which statement is correct regarding Export houses?
I. To increases the marketable efficiency of exporters,
the Government introduced the concept of export
houses, trading houses and star trading houses.
II. Those registered exporters who have shown good
export performances over past few years have been
given the status of export houses, and trading houses.
III. Units having such classification are required to
achieve the prescribed average export performance
level and earning of foreign exchange.
(a) Only III (b) I & II
(c) II & III (d) All the above
61. Which statement is correct regarding EPIP?
I. EPIP was introduced in 1996
II. It is sponsored by centre
III. It provides 80% grant to the state
(a) II & III (b) Only I
(c) I & II (d) All the above
62. Match the area with the state where there are EPIPs in
India:
Column I Column II
I. Rajasthan a. Amingaon
II. Maharashtra b. Sitapura
III. Kerala c. Ambarnath
IV. Assam d. Kakkinad
(a) I-b, II-c, III-d, IV-a (b) I-a, II-c, III-d, IV-b
(c) I-d, II-c, III-b, IV-a (d) I-c, II-b, III-a, IV-d
63. Which statement is correct regarding FDI?
I. FDI is a non-debt capital flow, is a leading source
of external financing, especially for the developing
economies.
II. It not only brings in capital and technical know-
how but also increases the competitiveness of the
economy.
III. Overall it supplements domestic investment, much
required for sustaining the high growth rate of the
country.
IV. Since 2000, significant changes have been made in
the FDI policy regime by the government to ensure
that India becomes an increasingly attractive and
investor-friendly destination.
(a) I & II (b) II & III
(c) Only IV (d) All the above
64. Are the statements given below the subset of the third
category of FDI?
I. It consists of sectors where automatic approval is
granted for FDI (often foreign equity participation
less than 100 per cent)
II. It consists of sectors where prior approval from
the Foreign Investment Approval Board (FIPB) is
required
(a) Only I (b) Only II
(c) Both I & II
65. What are the sectors with 100% FDI?
I. Agriculture
II. Advertising
III. Air transport service
IV. Drugs and pharmaceuticals
(a) I & II (b) II & IV
(c) Only III (d) All the above
66. Match the following sectors with the percentage of FDI:
Sectors Percentage
I. Private sector a. 49%
banking
II. Defence b. 20%
III. Print media c. 74%
IV. Public sector banks d. 26%
(a) I-c, II-a, III-d, IV-b (b) I-d, II-a, III-c, IV-b
(c) I-a, II-a, III-c, IV-b (d) I-c, II-d, III-a, IV-b
67. Foreign exchange reserves of India comprise of which
elements?
I. Gold
II. Special Drawing Rights (SDR)
III. Foreign currency assets
IV. Reserve Tranche Position (RTP) in the IMF
(a) I & II (b) II & III
(c) Only III (d) All the above
68. Which statement is correct regarding FDI?
I. The success of foreign exchange management by RBI
can be seen in the fact that from US$ 5.8 billion in
March 1991 (enough to meet the import requirements
for three weeks) the country’s reserves have grown
to around US $ 352 billion by December 2015.
II. It is pertinent to note here that some of the increase
in the reserve is attributed to the weakness of the
dollar in the post-Iraq war scenario.
(a) Only I (b) Only II
(c) Both I & II
69. Imports of India are classified into:
I. Petroleum Products
II. Pearls and Precious Stones
III. Iron and Steel
IV. Fertilizers
(a) I & II (b) Only II
(c) Only IV (d) All the above
70. Match the following imports of products with the
percentage:
Column I Percentage
I. Gold a. 7.3%
II. Petroleum b. 12.7%
III. Electronic goods c. 30.7%
(a) I-b, II-c, III-a (b) I-a, II-c, III-b
(c) I-c, II-b, III-a (d) I-b, II-a, III-c
E-138 Foreign Trade and Investment in India
EXERCISE-1
1. (b) brand retail trader will be limited to only those
2. (d) Capital receipts and payments do not form part of
current account of Balance of Payment.
3. (b) 4. (b) 5. (c) 6. (d) 7 (c) agglomeration limits of such cities).
8. (c) 9. (c) 10. (a) 11. (b) 12. (b)
13. (b) India has comprehensive Double Taxation
Avoidance Agreements (DTAA ) with 23 countries.
This means that there are agreed rates of tax and
jurisdiction on specified types of income arising
in a country to a tax resident of another country.
Under the Income Tax Act 1961 of India, there are
two specific provisions, Section 90 and Section 91,
which provide specific relief to taxpayers to save
them from DTAA. Section 90 is for taxpayers who
have paid the tax in a country with which India has
signed DTAA, while Section 91 provides relief to
taxpayers who have paid tax to a country with which
India has not signed a DTAA. Thus, India gives
relief to both kind of taxpayers Mauritius by itself is
a low tax counting.
14. (c) 15. (d)
16. (b) Protectionism would reduce the level of imports into
an economy.
17. (a) bulk of the world’s trading nations and ratified in
18. (b) The energy company will own and control the
territory and the oil reserves it contains.
19. (b) 20. (b) 21. (b) 22. (b) 23. (a) 24. (a)
25. (b) 26. (b) 27. (b) 28. (c) 29. (c)
30. (c) European Central Bank European Central Bank’s
(ECB’s) LTRO — Long Term Refinancing Operation
is more appropriately termed the Lourdes Treatment
and Resuscitation Option.
31. (d)
32. (b) Different agreements of WTO are:
1. Multi-Fiber agreement (MFA).
2. Agreement on agriculture (AOA).
3. Trade related investment measures (TRIMS).
4. Trade related intellectual property right (TRIPS).
5. General agreement on trade and services (GATS)
EXERCISE-2
1. (b) offenses, as opposed to criminal offenses as dictated
2. (d) In respect to multi-brand retail trading, changes
made in 2012 permitted up to 51 % FDI with prior
government approval. The foreign investor has
to bring in a minimum investment of USD 100
million in an entity engaged in multi brand retail
trading. Similar to the requirement of mandatory
local sourcing as applicable in single brand product
trading (prior to Cabinet meeting) at least 30%
of the procurement of manufactured/ processed
products shall be sourced from `small industries`.
The reach of retail sales outlets of foreign multi
cities with a population of 1 million (including an
area of 10 kilometres around the municipal/urban
3. (b) 4. (a) 5. (b) 6. (c)
7. (a) Euro issue includes issue of ADR (American
Depositary Receipts) and GDR (Global Depositary
Receipts). A scheme has been initiated during 1992
under which Indian companies are permitted to raise
foreign currency resources through issue of Foreign
Currency Convertible Bonds (FCCBs) and/or issue
of ordinary equity shares through Global Depositary
Receipts (GDRs)/American Depositary Receipts
(ADRs) to foreign investors i.e. institutional
investors or individuals (including NRIs) residing
abroad.
8. (d) All statements except 4th regarding F.D.I in India
are correct.
9. (b) 10. (d)
11. (a) The World Trade Organization (WTO) is the only
global international organization dealing with the
rules of trade between nations. At its heart are the
WTO agreements, negotiated and signed by the
their parliaments. The goal is to help producers
of goods and services, exporters and importers
conduct their business. The Uruguay Round led to
the creation of the World Trade Organization, with
GATT remaining as an integral part of the WTO
agreements. The agreements fall into a simple
structure with six main parts, intellectual property
(Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS)) was one of them.
12. (d) 13. (d) 14. (b) 15. (d)
16. (b) 17. (a) 18. (d) 19. (d)
20. (b) The Foreign Exchange Management Act (FEMA)
has been introduced as a replacement for earlier
Foreign Exchange Regulation Act (FERA). FEMA
became an act on the 1st day of June, 2000. FEMA
made all offenses regarding foreign exchange civil
by FERA.
21. (a) Vijay Kelkar Committee is prepared to prepare
a road map for enhancing domestic production
of oil and gas so as to reduce the nation’s import
dependency by 2030.
22. (a) The Petrapole-Benapole border checkpoint controls
the foreign trade between India and Bangladesh. It
is in North 24 Parganas district of West Bengal. Out
of them, Petrapole is on Indian side and Benapole is
on Bangladesh side.
Foreign Trade and Investment in India E-139
23. (d) Foreign direct investment (FDI) is a direct
investment into production or business in a country
by an individual or company of another country,
either by buying a company in the target country or
by expanding operations of an existing business in
that country. Foreign direct investment is in contrast
to portfolio investment.
24. (a) International Monetary Fund (IMF) was initiated in
1944 at the Bretton Woods Conference and formally
created in 1945 to foster global growth and economic
stability. IMF grants loan to member country only.
25. (d) FIEO an apex body of Export Promotion
Organisations was set up in 1965 to renders
an integrated package of services to various
organizations connected with export promoting
undertaken to stimulate and diversify the country’s
export trade.
26. (a) The basket of five international currencies includes
US dollar, euro, Chinese yuan, Japanese yen and
British pound.
27. (b) Foreign exchange management can be done in three
possible ways: Fixed currency regime, floating
currency regima and managed exchange rates.The
foreign exchange reserves of India comprise of four
elements
28. (c) SDR is an international monetary reserve currency,
created by International Monetary Fund (IMF) in
1969. It operates as a supplement to the existing
reserves of member countries. It is also known as
“paper gold”.
29. (d) Fixed rates are currency values which are tied to a
precious metal such as gold, or anchored to another
currency, like the US Dollar. This method was
brought by the International Monetary Fund (IMF).
30. (d) The system collapsed in 1971 for a variety of
reasons, including the build up of US debts abroad
as a result of the need to fund the war in Vietnam,
inflation in the USA and growing doubts about the
stability of the US$.
31. (c) 32. (b)
33. (c) There are indications that during 1990s, some of
Indian exports have moved upwards in value addition
chain whereby instead of exporting raw materials,
the country has switched over to export of processed
goods. There were significant compositional shift
within the major manufactured product groups such
as engineering goods, chemicals and allied products,
etc.
34. (a) 35. (c)
36. (c) Balance of payments (BoP) is astatistical statement
of all transactions made between one particular
country and all other countries during a specified
period of time. It also include export-import of
visible and invisible items.
37. (b) Balance of trade takes into account only those
transactions arising out of exports and imports of
only (the visible items).
38. (d) This account is the summary of all international
trade transactions of the domestic country in one
year
39. (b) BoP compares the dollar difference of the amount of
exports and imports, including all financial exports
and imports. A negative balance of payments means
that more money is flowing out of the country than
coming in and vice versa. The balance of payment
is maintained by Central Bank of India i.e. Reserve
Bank of India.
40. (a)
41. (c) On the credit side of this account receipt of foreign
exchange due to Foreign Direct Investment (FDI),
Foreign Capital Investment (FCI) and Foreign
Borrowing (FB) is recorded. On the debit side of
capital account payment of foreign exchange due
to Direct Investment Abroad (DIA), Portfolio
Investment Abroad (PIA) and Foreign Lending (FL)
is recorded.
42. (d) If surplus in the Capital Account is more than deficit
in the Current Account, there is net increase in the
Forex Reserves of the country at the end of the year.
On the other hand if deficit in the current account is
more than surplus in the Capital Account then there
is net decrease in Foreign Reserves of the country at
the end of the year.
43. (d) If international reserves of a country are not enough
to balance a combined deficit in current and capital
account on a sustained basis, then the phenomenon
is called a BoP crisis. It can be tackled by exporting
more or by limiting imports through tariffs, quotas,
etc. Contractionary fiscal and monetary policies
can also tackle the crisis through lower import
demand with fall in average income levels. Another
short term solution is currency devaluation which
encourages exports and discourages costlier imports.
44. (b) Our country has been facing BOP disequilibrium
right since independence, culminating into a disaster
in 1990-91, the year of the acute BOP crisis. India
then had foreign exchange reserve of mere 1 billion
dollar, barely sufficient to finance a month’s import
bill. The country was on the verge of defaulting.
This crisis led to the massive changes in the
country’s economic policy, popularly known as the
Structural Adjustment Program or New Economic
Policy (NEP) regime, focusing on liberalization and
globalization of the economy.
45. (a) Government expenditure to be cut by 10% per
annum, Devaluation of rupee by 22%, Excise duty
to be increased by 20% so as to neutralize the effect
of lodd of revenue dur to custom cut, Custom duty
to be cut drastically from the peak of 130% to 30%
46. (c) The import substitution strategy was based on
non-price, physical- interventionist policies like
licensing, quotas and other physical restrictions on
imports.
47. (d) 48. (b)
49. (a) Mahalanobis strategy adopted during the Second
Plan and continued with modifications till the early
1980s. It was only from 1985-86 that a genuine
attempt was made towards trade liberalisation. The
E-140 Foreign Trade and Investment in India
result was spectacular as export increased at an
average rate of 17 per cent per annum in dollar terms
between 1986 and 1990. A combination of factors
such as bad policy, weak government and external
factors led to the decline of this performance to nine
per cent in 1990-91 and 4 per cent in the subsequent
years.
50. (d) The major thrust was to make exports competitive,
unshackle foreign trade from the clutches of a control
regime and allow import of most goods using only
tariff as a restraint.
51. (b)
52. (d) These schemes (MEIS and SEIS) replace multiple
schemes earlier in place, each with different
conditions for eligibility and usage. Incentives
(MEIS & SEIS) to be available for SEZs also
e-Commerce of handicrafts, handlooms, books etc.,
eligible for benefits of MEIS. FTP benefits from
both MEIS & SEIS will be extended to units located
in SEZs.
53. (c) Agricultural and village industry products to be
supported across the globe at rates of 3% and 5%
under MEIS, Higher level of support to be provided
to processed and packaged agricultural and food
items under MEIS.
54. (d) 55. (d)
56. (c) Agriculture, horticulture, poultry, fisheries and
dairying have been included in export-oriented
units. Export processing zone units have also been
allowed to export through trading and star trading
houses and can have equipments on lease.
57. (b) These zones were created to develop such an
environment in the economy which may provide
capability of facing international competition. The
Export Processing Zone (EPZs) set up as enclaves,
separated from the Domestic Tariff Area by fiscal
barriers, were intended to provide a competitive
duty free environment for export production.
58. (a)
59. (d) Since 1981, the Government introduced a
complementary plan of EPZ (Now converted into
SEZ) scheme for promoting export units (making
export of their cent percent production. Under this
scheme the Government provides various incentives
to increases the production capacity of these units so
as to increase exports of the country. This scheme
offers a wider source of raw materials, hinterland
facilities, availability of technological skills,
existence of an industrial base and the need for a
larger area of land for the project.
60. (d) To increases the marketable efficiency of exporters,
the Government introduced the concept of export
houses, trading houses and star trading houses.
Those registered exporters who have shown good
export performances over past few years have been
given the status of export houses, and trading houses.
Units having such classification are required to
achieve the prescribed average export performance
level and earning of foreign exchange. These units
are provided some special facilities and benefits by
the Government.
61. (a) 62. (a)
63. (d) a non-debt capital flow, is a leading source of
external financing, especially for the developing
economies. It not only brings in capital and technical
know-how but also increases the competitiveness
of the economy. Overall it supplements domestic
investment, much required for sustaining the high
growth rate of the country. Since 2000, significant
changes have been made in the FDI policy regime
by the government to ensure that India becomes
an increasingly attractive and investor-friendly
destination.
64. (c) The third category has two subsets – one consisting
of sectors where automatic approval is granted for
FDI (often foreign equity participation less than
100 per cent) and the other consisting of sectors
where prior approval from the Foreign Investment
Approval Board (FIPB) is required.
65. (d) 66. (a) 67. (d)
68. (c) The success of foreign exchange management
by RBI can be seen in the fact that from US$ 5.8
billion in March 1991 (enough to meet the import
requirements for three weeks) the country’s reserves
have grown to around US $ 352 billion by December
2015. It is pertinent to note here that some of the
increase in the reserve is attributed to the weakness
of the dollar in the post-Iraq war scenario.
69. (d) 70. (a)
 INDUSTRY AND
7
INFRASTRUCTURE

Introduction
Growth of industies has been always focus area of the government. The reason behind this is the important role played by
the industries in Gross Domestic Product (GDP) of India. The government, therefore, has many schemes and incentives to
facililate growth and development of industries.
It has been generally noticed in the most of developing countries shift from agriculture to industries in the overall economic
growth of the country.
Indian economy, however portrays a contradictory trend. Here, the economic has by passed industries growth to rapid growth
of services sector. The rapid growth of services may be Largely attributed to reform and liberalisation of the 1990s. Indian
industries contribute 18% of India’s GDP and employ about 19% of work force. Major industries of our country are textiles,
Chemicals, food processing, steel, cement, petroleum, pharmaceuticals etc.

Indian Industries

Introduction Status of Micro, Small and Major Public Sector Small Scale
Indian Industries Medium Enterprise Industries Units Industries

Before Acts and Industrial

Cottage, Small
Independence Regulations and Village Structure Sickness
After Industries of PSES Disinvestment
Independence Agro and Rural Role in Policy
Industrial Policy
Industries economy Approach for
Resolution, 1948
Cotton and Textfile Disinvestment
Industrial Industry
Development and Energy
Sugar Industry
Regulation Act 1951 Crude oil
Industrial Policy 1956 Iron and Steel Industry
Coal
MRTP Act 1969 Petroleum Industry Power
FERA 1973 Railway
Oil and Gas Production
Industrial Policy 1973
Gems and Jewellery Road
Industrialization post 1990 Transport
Industrial Policy 1991 Chemical Industry Inland waterways
Competition Act 2002 Infrastructure Shipping
Competition Civil Aviation
(Ammendment) Tele communication
Bill, 2007 Information Technology
E-142 Industry and Infrastructure
STATUS OF INDIAN INDUSTRIES
Before Independence
Status of Indian Industries : India was a manufacturing
economy before industrial revolution of England in 19th
century. Its exports of cotton, silk fabrics and handicrafts were
popular in many areas. But, due to import of cheap machine-
made goods during the colonial period, Indian manufacturing
declined.
The development thinking in the 1940s and 1950s was influenced
by the economic prospects of newly-independent countries
like India, the experience of Latin America and writings of
influential economists of ‘the import substitution’ school. The
argument was that political freedom could be sustained only
by achieving economic independence from foreign elements.
At Independence, foreigners controlled 65% of India’s tea
plantation, more than 90% of jute manufacturing, 70% of
coal production and 73% of minerals. Colonial policy was
export-oriented, as only exports provided a means of transfer
of wealth from the colonies. Therefore, after independence,
many of the former colonies, including India, chose an anti-
export and inward looking industrial regime in the 1950s.
But the government later modified its policies with the
following points:
•• Defence and strategic industries were to be the exclusive
domain of the government.
•• Existing units in basic and key industries could continue
in the private sector but no fresh private investment in
these sectors was to be allowed.
•• Twenty important industries were allowed in private
sector but under strict supervision of the state.
•• All industries not covered by the above three categories
were allowed in the private sector under general
supervision of the state.
Industrial Growth AfterIndependence
Prior to independence the ownership or control of much of the
large private industries were in the hands of managing agencies,
which grew under the British system and had access to London
money markets. Thus the owners of these managing agencies
controlled a major portion of the economy, prior to independence.
But things changed after independence. Parliament enacted a
legislation to curb the powers of managing agencies. By 1971
the government had banned the managing agencies.
The Industrial Policy Resolution,1948, clearly put forward
the goal of the Government’s policy with respect to
industrialization. This was the first economic policy of our
country. It declared that India would be a mixed economy.
Following are the major highlights of this resolution.
•• Those industries completely owned by the Government
e.g. ordinance, atomic energy, railways and any industry
of national importance were to be the exclusive domain of
the Central government. Certain important industries like
coal, iron and steel, aircraft manufacture, ship building,
telephone, telegraphs and communications, were given
the permission to operate for ten years, at the end of
which the government would nationalize them.
•• A group of 18 specified industries (of medium category)
were in control of the state governments in liaison with
the Central government.
•• The remaining industrial options which were not
covered by either the centre or state lists, were left open
to the private sector.
•• This policy was to be reviewed after 10 years.
Industrial Development and
Regulation Act 1951
The act gave complete authority to the government. This
resulted in the bureaucracy extending complete control over
the industrialization of the country.
•• They controlled the authorization of capability,
whereabouts and growth of any request for manufacture
of new products.
•• They controlled the authorization of foreign exchange
expenditure on the import of plant and machinery.
•• They controlled the authorization for the terms of
international joint ventures.
Industrial Policy In 1956
In 1956 a new policy for industrialization was initiated.
•• All basic and sensitive industries in India were under the
purview of public sector enterprises (PSUs) and were
called as category A type of industries. The Centre had
complete monopoly over these industries. The then PM
Pandit Jawaharlal Nehru termed the PSUs the “temples
of modern India” in this industrial policy.
•• In category B, industries were a joint venture of both
public and private enterprises. 12 industrial areas were
put under this category. This category also carried the
provision of compulsory licensing. This provision led
to the establishment of the so called ‘Licence- Quota-
Permit raj’ in the economy.
•• The remaining industries came under category C, to be
under the control of private initiative.
•• The policy of 1956, for the first time, recognized the
contribution of small scale industries in the growth of the
Indian economy. It laid stress on rational distribution of
national income and effective utilization of resources.
This policy is considered one of the most important
industrial policies of India as it decided the nature and
scope of the Indian economy till the reforms of 1991.
MRTP Act -1969
The Government of India appointed a Monopolies Inquiry
Commission, under Justice K. C. Dasgupta, to study the
presence and outcomes of concentration of economic power
in private sector. The Commission observed the presence of
monopolistic and restrictive practices in certain key sectors of
the economy. The Commission recommended the setting up of
the Monopolies and Restrictive Trade Practices Commission
and this eventually resulted in the MRTP Act in 1969.
Industry and Infrastructure E-143
FERA 1973
The Foreign Exchange and Regulation Act (FERA) was
passed in 1973. This resulted in a tremendous shift in the
foreign investment policy of the Government of India.
Foreign Investment was allowed in only those industries that
were directly into exports.
Restrictions were placed on foreign investments. International
companies could hold a maximum of 40% equity. But some
industries in the field of advanced technology were given
permission for 51% foreign capital. This has often been
called a draconian act which hampered the modernisation
and growth of Indian industries.
Industrial Policy 1973
The policy listed out the various Appendix 1 industries
that could be started by large business houses so that small
industries were not driven out of business. The establishment
of small and medium industries was encouraged.
Private industries were encouraged to set up production units
in rural areas and in backward areas with a vision to give thrust
for the economic development of those areas.
Industrialization Post 1990
•• Exemption from licensing was allowed for all start ups
and for those with an investment worth Rs 2.5 crores in
fixed assets and a right to import up to 30% of the total
value of plant and machinery.
•• Foreign equity investment was allowed up to 40%.
•• Geographical restrictions and investment cap for small
industries were Removed.
At the time of liberalization the Indian industries were not
competitive in the global scenario. They could not face the
stiff competition from the foreign industries; hence many
industries sold their companies to multinational corporations
or entered into joint ventures with foreign companies or shut
down the business.
At the same time a new wave of service industries emerged,
which positioned itself in the outsourcing segment. IT and
ITE’s industries flourished providing employment to millions
of graduates.
Industrial Policy 1991
(A) Objectives
• to maintain a sustained growth in productivity.
• to enhance gainful employment.
• to achieve optimum utilisation of human resources.
• to attain international competitiveness.
• to transform India into a major partner and players in
the global arena.
(B) Main Focus on
• deregulating Indian industry.
• allowing the industry freedom and flexibility in
responding to market forces, and
• providing a policy regime which facilitates and
fosters growth of Indian industry.
(C) Policy Measures
(i) Liberalisation of Industrial Licensing Policy.
(ii) Introduction of Industrial Entrepreneur’s Memorandum
(i.e. no industrial approval is required for industries
not requiring compulsory licensing).
(iii) Liberalisation of Locational Policy.
(iv) Liberalised policy for Small Scale Sectors.
(v) Non-Resident Indians Scheme (NRIs are allowed to
invest upto 100% equity on non-repatriation basis in
all activities except for a small negative list).
(vi) Electronic Hardware Technology Park (EHTP),
Software Technology Park (STP) Scheme for building
up strong electronic industry to enhance exports.
(vii) Liberalised policy for Foreign Direct Investment
(FDI).
(viii) Abolition of the MRTP limit.
(ix) FERA was replaced by highly liberal FEMA.
Competition Act, 2002
In the present era of LPG (Liberalisation, Privatisation and
Globalisation), it was felt that the existing Monopolies and
Restrictive Trade Practices Act, 1969 has become hurdle in
certain respects and there is a need to shift our focus from
curbing monopolies to promoting competition. Hence a new
law, the Competition Act has been enacted and published in the
gazette of India on January 14,2003 for bringing competition
in the Indian market. The main objectives of the Act are to
establish a commission to prevent practices having adverse
effect on competition, to promote and sustain competition in
markets in India, to protect the interests of consumers and to
ensure freedom of trade carried on by participants in market in
India and for related matters.
The Act mainly covers the following aspects:
(i) Prohibition of anti competitive agreements;
(ii) Prohibition of abuse of dominance;
(iii) Regulation of combination (acquisitions, mergers and
amalgamations of certain size);
(iv) Establishment of Competition Commission of India (CCI);
and
(v) Functions and powers of CCI.
The Act is expected curb those practices, which would have an
appreciable adverse effect on competition.
Competition (Amendment) Bill, 2007
On September 10, 2007 Parliament finally passed the
long pending Competition (Amendment) Bill, 2007 that
empowers the Competition Commission of India (CCI) to
act as the competition regulator and to deal with a host of
contemporary economic issues including monopolies and
take-overs of corporate firms.
According to the Bill’s provisions, the CCA will replace
Monopolies and Restrictive Trade Practice Commission
(MRTPC). The CCA was established in 2003. Under new
provisions, the MRTPC will continue till two years after the
Constitution of CCA for dealing with pending cases but after
two years MRTPC will be dissolved.
However, MRTPC would not entertain any new cases after
the CCI is constituted. Cases pending with MRTPC after two
years of setting up of CCI will be transferred to the latter.
E-144 Industry and Infrastructure
Micro, Small and Medium Enterprise
Enterprises have been categorized broadly into those
engaged in (i) manufacturing and (ii) providing/ rendering
of services. Both categories have been further classified
into micro, small and medium enterprises, based on their
investment in plant and machinery (for manufacturing
enterprises) or in equipment (in case of enterprises providing
or rendering services) as under:
The following are the investment requirements under the
Manufacturing Enterprises category:
Micro Enterprises are those enterprises which have
investment upto ` 25 lakh. Small Enterprises are those
enterprises with investment above 25 lakh and upto 5 crore.
Medium Enterprises are those enterprises which have
investment above ` 5 crore and upto `10 crore..
MAJOR INDUSTRIES
Major Cottage, Small and Village
Industries
In a broad sense cottage, small and village industries are
treated similar but they fundamentally differ from each other.
Cottage industry is run by family members on full or part
time basis. It possesses negligible capital investment. The
production is done by hands and no wage earning person is
employed in cottage industry.
Small industrial units employ wage earning labour and
production is done by the use of modern techniques. Capital
investment is also present in small industries. A few cottage
industries which are export-oriented have been included in the
category of small sector so that facilities provided to small
units may also be given to export-oriented cottage industries.
The industries established in rural areas having population
below 10,000 and having less than ` 15,000 as fixed capital
investment per worker will be termed as village industries.
KVIC and state village Industries Board provide economic
and technical assistance in establishing and operating these
industrial units.
Agro and Rural Industries
Development of agro and rural industries based on local
raw materials, skills and technology has been identified as
one of the most important activities for gainful employment
in the rural non-farm sector and for overall growth of the
national economy. Various policies and programmes are
being implemented by the Government through Khadi and
Village Industries Commission (KVIC) and Coir Board and
Prime Minister’s Rozgar Yojana (PMRY) with the active co-
operation and participation by RBI, other banks and the state
governments for the promotion of agro and rural industries in
rural areas and small towns.
For the development of Khadi and Village Industries (KVI)
Sector, the Government is implementing various programmes/
schemes through KVIC.
The following are the investment requirements under the
Service Enterprises category:
Micro Enterprises investment includes companies with
investment upto ` 10 lakh. Small Enterprises need an
investment above 10 lakh and upto 2 crore. Medium
Enterprises are those enterprises which have an investment
above 2 crore and upto 5 crore.
Small and Medium Enterprises Development Bill 2005
(which was introduced in the Parliament on May 12, 2005)
was approved by the President and became an Act. This
Act, named as ‘Small and Medium Enterprise Development
Act, 2006’ became effective from October 2, 2006. This
Act makes a different category for medium level enterprises.
Cotton and Textiles Industry
Cotton Industry in India is the most organised industry which
contributes to about 4% of GDP, 14% of manufacturing
value and 13.5% to total export earnings. It provides
employment to millions of skilled and semi-skilled workers.
The industry is characterised by wide diversity ranging from
the organised mill sector to the decentralised power-loom
sector and employs millions of artisans and weavers.
•• The first Indian modernised cotton mill, located in Kolkata
in 1818, was not successful. The second mill named
‘Bombay Spinning and Weaving Co’ was established in
1854 at Bombay by KGN Daber. Truly speaking, this
mill only laid the foundation stone of modern cotton
industry in India.
•• Since 1854, the number of cotton mills has been rapidly
increasing.
•• Development of cotton industry had a great role in
Indian freedom struggle. Various movements like Non-
Cooperation Movement, Quit India Movement, etc.
created a wave of boycotting foreign goods and accepting
swadeshi goods, which helped a lot in developing
indigenous industries.
•• The partition of India adversely affected the Indian
cotton industry. Most of the muslim weavers migrated
to Pakistan and this industry got divided into two parts.
•• There were 394 cotton mills in India before the partition.
Out of these, 14 mills went to Pakistan and the remaining
380 cotton mills continued to operate in India.
•• On the other hand, 40% of cotton producing area became
the part of Pakistan and only 60% area was transferred
to India.
•• So after independence India had to import raw material to
meet the input requirements of 380 cotton mills.
•• India’s Five Year Plans proved a boon to cotton industry,
as this industry not only made remarkable development but
also established itself in international markets.
•• The Government by its Textile Development and Regulation
Order 1993 has made this industry licence-free.
•• The textile industry is concentrated mainly in the states of
Maharashtra, Tamil Nadu and Gujarat.
Industry and Infrastructure E-145
Sugar Industry
Sugar industry occupies an important place among agriculture
based industries. Sugar industry is the second largest industry
after cotton textile industry among agro based industries of
the country. This industry provides not only employment to a
substantial number of persons but also holds the potentialities
of developing other industries related to its by-products.
India is the largest consumer of sugar and the second largest
producer of sugar with a share of over 15% of world sugar
production. The importance of sugar industry in India can be
estimated from the fact that about 45 million sugarcane growers
and a large number of rural labourers depend on sugarcane and
sugar industry for their livelihood. Sugar cultivation accounts
for 3% of total cultivated area and contributes 7.5% of the
gross value of agricultural production.
Approximately `1,250 crore is invested in this industry and it
provides livelihood for nearly 2.86 lakh workers. The industry
also benefits the nearly 2.5 crore people who grow sugarcane
in India. In India, the major sugar producing states are
Maharashtra, Gujarat, Uttar Pradesh, Haryana, Tamil Nadu,
Punjab, Karnataka, Bihar and Andhra Pradesh.
The Central Government fixes the Statutory Minimum Price
(SMP) of sugarcane for each sugar season. The SMP is fixed
on the basis of the recommendations of the Commission for
Agricultural Cost and Prices (CACP) and after consulting the
State Governments and associations of sugar industry and cane
growers.
Iron and Steel Industry
The advent of Iron and Steel Industry took place in India in
the year 1870 when Bengal Iron Works Company established
its plant at Kulti near Jharia, West Bengal. This plant
produced only cast iron. Large scale iron and steel production
was started in 1907 by TISCO established at Jamshedpur.
In 1919, Indian Iron and Steel Company (IISCO) was
established at Burnpur. Both TISCO and IISCO are private
sector companies. The first public sector company was
‘Vishwashwaraiya Iron and Steel Works at Bhadravati’.
After independence, though a thought was given to develop
Iron and Steel Industry in First Five Year Plan, but this
materialised in Second Five Year Plan. The Second Plan
established three steel plants in the public sector-Bhilai
(with assistance of USSR), Durgapur (with assistance of
U.K.) and Rourkela (with assistance of West Germany).
All the three public sector plants started production between
1956 and 1962.
All the three public sector steel plants were expanded during
Third Five Year Plan and attempts were made to establish
one more public sector steel plant at Bokaro with the
assistance of USSR.
Petroleum Industry
Initially, Digboi (Assam) was the only oil producing area of the
country. But now, a number of regions having oil reserves have
been identified and the oil is being extracted in these regions.
Oil regions in India are Assam, Tripura, Manipur, West
Bengal, Mumbai, Gujarat, Jammu and Kashmir, Himachal
Pradesh, Tamil Nadu, Andhra Pradesh, Rajasthan, Coastal
area of Kerala and Andman & Nicobar Islands.
India has 21 refineries - 17 in the public sector, 3 in the
private sector and one in joint venture. Out of 17 public sector
refineries, 8 are owned by Indian Oil Corporation Ltd. (IOCL),
2 each by Chennai Petroleum Corporation Ltd. (a subsidiary
of IOCL), Hindustan Petroleum Corporation Ltd. (HPCL),
Bharat Petroleum Corporation Ltd. (BPCL) and Oil & Natural
Gas Corporation Ltd. (ONGC). Numaligarh Refinery Limited
(a subsidiary of BPCL) and Manglore Refinery and Petrol
Chemicals Ltd. have one refinery each. The Joint Venture
Refinery belongs to Bharat Petroleum Corporation Ltd.
Oil and Gas Production
Efficient and reliable energy supply is a prerequisite for
accelerated growth of the Indian economy. While the energy
needs of the country, especially oil and gas, are going to
increase at a rapid rate in the coming decades, the indigenous
energy resources are limited. Oil and gas occupy a major
position of total energy consumption at 45%. At the same
time, the dependence on imports of petroleum and petroleum
products continues to be around 80% of total oil consumption
in the country.
Gems and Jewellery Industry
Gems and Jewellery industry emerged as leading export
product in India due to traditional strength in craftsmanship
and its reasonable share in global business. The gems and
jewellery sector, contributing about 12% of India’s total
merchandise exports continued to maintain India as the
largest cutting and polishing centre of diamonds in the world
both in terms of quantity and value. In terms of carat, India’s
share in this sector is about 80% of the world market. Gold
jewellery and coloured gem segments accounts for about 12%
and 5%, respectively of India’s gem and jewellery export in
value terms.
Chemical Industry
Chemical industry is one of the oldest industries. It includes
basic chemicals and its products, petrochemicals, fertilisers,
paints and varnishes, gases, soap, perfumes, toiletries and
pharmaceuticals. This industry is one of the most diversified of
all industrial sectors covering more than 70,000 commercial
products. It not only plays a crucial role in meeting the daily
needs of the common man, but also contributes significantly
towards industrial and economic growth of the nation. It is
an important constituent of the Indian economy. Its turnover
size is estimated at around US $ 160 billion approx., which
is equivalent to about 3% of India’s GDP. Major chemicals
undergo several stages of processing to be converted into
downstream chemicals. These processed chemicals are
used in agriculture and industry as auxiliary materials such
as adhesives, unprocessed plastics, dyes and fertilizers.
Chemicals are also directly used by consumers in the form of
pharmaceuticals, cosmetics, household products, paints, etc.
Alkali chemicals, inorganic chemicals and organic chemicals
constitute the major segments of the chemicals industry.
E-146 Industry and Infrastructure

Infrastructure increasing dependence on oil in the energy sector and immediate

steps should be taken to tackle this increasing dependence.
Production of goods requires supporting services such as
transporting of raw materials and finished goods, institutions Crude Oil
for offering credit, energy sources such as coal, oil and electric Our production of crude oil declined over the years. The decline
power, communication facilities and social overheads like is attributed to unexpected reservoir behaviour and lack of new
health, education and housing. All these supporting structures major discoveries. It is estimated that at the current level of
are collectively known as infrastructure. consumption, the recoverable reserves of oil in India (approx.
Infrastructure is broadly of two types: 550 million tonnes) would last for only 20-25 years. India’s
•• Economic infrastructure is located within the system crude oil production increased at highest pace in last four years
of production and distribution. Some of these are the of 5.6% to 3.193 million tonnes in August 2015.
transport system, banking system and power. The oil ministry has estimated India will import 188.23 million
•• Social infrastructure contributes to the production tonne of crude oil in FY16 at a cost of ` 4,72,932 crore,
process from outside the system. Some examples are compared to 189.43 million tonnes crude worth ` 6,87,416
education, training, hospitals and housing. crore imported in FY15, saving ` 2,14,484 crore on fuel bill.
•• Communication system is treated as both social and
economic infrastructure as it has a role both within and Coal
outside the production process. Coal is the most important indigenous source of energy. The
Although there has been massive investment in infrastructure energy derived from coal in India is twice that of energy
in successive five-year plans, India is even now far behind derived from oil, whereas on the other hand, energy derived
global standards in the matter of infrastructure development. from coal is about 30% less than energy derived from oil the
According to the Global Competitiveness Report, 2015 India’s world over.
ranking in terms of Global Competitiveness Index was 55 out India is today the third largest producer of coal in the world.
of 140 countries. Million tonnes
Different methods needed to attract private investment in
State Proved Indicated Inferred Total
infrastructure activities must include simplification and
transparency in clearing procedures; creating an independent Total 1259029 142506 33149 301564
regulatory framework and unbundling infrastructure projects West Bengal 13403 13022 4893 31318
so that private sectors may be able to chose sub- segments in Jharkhand 41377 32780 6559 80716
a project.
Bihar 0 0 160 160
Some ongoing government schemes to help in development of
Madhya Pradesh 10411 12382 2879 25673
infrastructure are: Jawarharlal Nehru National Urban Renewal
Mission (JNNURM), National Urban Transport Policy (2006), Chhattisgarh 16052 33253 3228 52533
National Highways Development Project (NHDP), Special Uttar pradesh 884 178 0 1062
Accelerated Road development Programme for North East Maharashtra 5667 3186 2110 10964
Region (SARDP-NE), Pradhan Mantri Gram Sadak Yojna
Odisha 27791 37873 9408 75073
(PMGSY), etc.
The Budget 2015 shows a significant increase of ` 70000 crore Andhra Pradesh 9729 9670 3068 22468
in investment in infrastructure in 2015-16 over the current Assam 465 47 3 515
year, with a focus on railways and roads. The money will come Sikkim 0 58 43 101
from an additional public investment outlay of ` 1.25 trillion
Arunachal 31 40 19 90
over that of 2014-15. The allocation for roads and railways is `
Pradesh
40,000 crore each, an increase of ` 14,031 crore and ` 10,050
crore respectively over the current fiscal year. Meghalaya 89 17 471 576
Nagaland 9 0 307 315
Energy (Source: Geological Survey of India)
Energy is the most fundamental input into any production
process. Advanced countries of North America and Europe Categorization of Resources
had developed their economies at a time when the cost of The Coal resources of India are available in older Gondwana
energy was very low. Coal was the most important source of Formations of peninsular India and younger Tertiary formations of
energy during the Industrial Revolution. In the 20 century, north-eastern region. Based on the results of Regional/ Promotional
it was replaced by oil, which was an even cheaper source. Exploration, where the boreholes are normally placed 1-2 Km
When the oil producing countries formed a cartel (OPEC) and apart, the resources are classified into ‘Indicated‘ or ‘Inferred‘
increased the price of crude oil from $2.1 per barrel in 1973 category. Subsequent Detailed Exploration in selected blocks,
to as much as $28 per barrel in 1980, it hit the developing where boreholes are less than 400 meter apart, upgrades the
countries like India the most. resources into more reliable ‘Proved‘ category. The Formation-
Although India has abundant reserves of coal, our development wise and Category-wise Coal resources of India as on 1.4.2014
process has not utilised this indigenous source. There is an are given in the table below:
Industry and Infrastructure E-147

Million tonnes railway has been contributing to the industrial and economic
Formation Proved Indicated Inferred Total landscape for over 150 years. Of the two main segments
Total 125909 142506 33149 301564 (freight and passenger) of the Indian railways, the freight
segment accounts for roughly two thirds of revenues.
Gondwana Coals 125315 142407 32350 300072
Out of the freight and passenger traffic, the freight segment
Tertiary Coals 594 99 799 1493 accounts for about 70% of revenue. Within the freight
State of Coal Resources in India Last 5 years segment, bulk traffic accounts for nearly 84% of revenue-
earning freight traffic (in physical terms), of which about
As a result of Regional, Promotional and detailed Exploration
44% is coal.
by GSI, CMPDI, SCCL, MECL, State Govts. etc., the
estimation of Coal resources in India reached to 301.56 billion The railway budget 2015-16 announced four major goals
tones. The increase/up gradation of Coal resources in the of attaining sustained improvement in customer facilities,
country during last 5 years is furnished in table below: making railways safer means of travel, expanding
substantially and making Indian Railways self- sustainable.
Million tonnes
In order to increase transportation capacity, reduce unit
As on Geological Resources of Coal costs of transportation, and improve service quality, the
Proved Indicated Inferred Total mega rail transport projects, namely the Eastern and western
1.4.2009 105820 123470 37920 267210 Dedicated Freight Corridors, are being undertaken.
1.4.2010 109798 130654 36358 276810 Road Transport
1.4.2011 114002 137471 34390 285862 India has one of the largest road networks in the world
1.4.2012 118145 142169 33183 293497 aggregating to about 3.62 million km at present. A series of
1.4.2013 123182 142632 33101 298914 initiatives have been undertaken in recent years, to set stage
for a quantum leap in India’s road system. These initiatives
1.4.2014 125909 142506 33149 301564
combine new institutional arrangements, highway engineering
Power of international standards, founded on a self-financing revenue
Power has been the most crucial problem in India’s economic model comprising tolls and a cess on fuel. Three initiatives in
development. The share of hydro power is 26%, thermal 66%, the road sector were begun in recent years:
renewable energy sources 5% and nuclear 3%. The National The National Highway Development Project (NHDP),
Electricity Policy, 2005 recognises electricity as a “basic human Pradhan Mantri Bharat Jodo Pariyojana (PMBJP), and
need” and lays down per capita availability of power from the
Pradhan Mantri Gram Sadak Yogana (PMGSY).
present 631 units to 1000 units per annum by the end of 2012. In
budget 2015, emphasising the need to generate more electricity NHDP dealt with building high quality highways. The PNBJP
from clean energy sources, the government announced a massive dealt with linking up major cities to the NHDP Highways.
renewable power production target of 1,75,000 MW in the next The PMGSY addressed rural roads.
seven years. Of the total 1,75,000 MW proposed to be tapped While the Central Sector Programme pertains mainly to
by 2022, solar power will have the major share of 1,00,000
National Highways, the responsibility for development of
MW followed by 60,000 MW from wind energy, 10,000 MW
biomass energy and 5,000 MW of small hydro projects. other categories of roads vests with the State/Union territories.
A major initiative to expedite power generation has been the The Indian road network, the second largest in the world
development of coal-based-Ultra Mega Power Projects (UMPP) consists of 96,260 km of National Highways, 1,31,899 km of
each with a capacity of 4000 MW or above. Nine sites have been State Highways and about 27,17,763 km of Other District and
identified including four pithead sites (Chhattisgarh, Jharkhand, Rural Roads. The National Highways account for about 2% of
Madhya Pradesh and Odisha) and five coastal sites (Andhra the total road network but carry as much as 40% of the total
Pradesh, Gujarat, Karnataka, Maharashtra and Tamil Nadu). road traffic in the country. Out of the total length of National
The pithead units will get coal from captive mines while the Highways, 24% is single lane/intermediate lane, 52% is 2-lane
coastal plants will import coal.
standard and balance of 24% is four-lane standard or more.
Railway Indian Road Network
The first train in India was started on a small rail route of 34 Indian road network of 33 lakh Km. is second largest in
kilometers between Bombay and Thane on April 16, 1853. the world and consists of:
At present, the Indian Railway consists of an extensive
Length (In Km)
network spread over 63974 km comprising Broad Gauge
(54257 km) , Meter Gauge (7180 km) and Narrow Gauge Expressways 200
(2537 km).With such a large rail route, the Indian Railway National Highways 96,260.72
network has become the biggest railway of Asia and the State Highways 1,31,899
third in the world. Out of this, about 30% of the route
Major District Roads 4,67,763
kilometre, 41% of running track kilometre and 43% of total
track kilometre has been electrified. Railways absorb about Rural and Other Roads 26,50,000
41% of the total central government employees. Indian Total Length 33 Lakhs Kms (Approx)
E-148 Industry and Infrastructure
Modal Shift
• About 65% of freight and 80% passenger traffic is
carried by the roads.
• National Highways constitute only about 1.7% of the
road network but carry about 40% of the total road
traffic.
• Number of vehicles has been growing at an average
pace of 10.16% per annum over the last five years.
Inland Waterways
The inland waterways are another mode of transport which was
once important but came to be neglected after the development
of railways. It is still an important mode in the North-East
where almost half of the cargo traffic between Calcutta and
Assam is handled by this mode. Total navigable waterways
extend to around 14,500 kms of which more than 3700 kms are
suited for mechanical crafts. The inland Waterways Authority of
India, established in 1986, is entrusted with the responsibility
of developing and maintaining national waterways.
The six existing National Waterways in India
National Waterway 1 (NW1)
The National Waterway No. 1 uses a 1,620-kilometre stretch
of the Ganges River. It was declared a national waterway inthe
year 1986 and runs from Allahabad in Uttar Pradesh to Haldia
in West Bengal
National Waterway 2 (NW2)
The National Waterway No. 2 consists of an 891-kilometre
stretch on the Brahmaputra River. The waterway was declared
on September 1, 1988, and uses the stretch from Dhubri near
the Assam-Bangladesh border and Sadiya in North-East Assam.
National Waterway 3 (NW3)
Popularly known as the West Coast Canal, the National
Waterway No. 3 is a 168-kilometre stretch that runs from
Kollam to Kottapuram in Kerala. The waterway does not
follow a specific river. It consists of several canals that form
the Kerala Backwaters.
National Waterway 4 (NW4)
The most complex inland waterway, the National Waterway
No. 4, was declared on November 24 in 2008.
The waterway consists of the Kakinada-Pondicherry stretch of
canals, the Kaluvelly tank,
Bhadrachalam-Rajahmundry stretch of River Godavari and the
Wazirabad-Vijayawada stretch of River Krishna.
It traverses around 1,095 kilometre from Kakinada in Andhra
Pradesh to the Union Territory of Pondicherry.
National Waterway 5 (NW5)
Another waterway with multiple riverlines and rivulets is the
National Waterway No. 5. The waterway was declared in
November 2008. The NW5 consists of stretches from Talcher
to Dhamra on River Brahmani, the Geonkhali-Charbatia
stretch of the East Coast Canal, the Charbatia-Dhamra stretch
of River Matai and the Mangalgadi-Paradip stretch of River
Mahanadi Delta. The waterway also includes a 91 kilometre
stretch between Geonkhali and Nasirabad in West Bengal.
National Waterway 6 (NW6)
The last in the list, NW6, is under construction. The waterway
is proposed to cover the distance between Lakhipur and Bhanga
near the Bangladesh border in Assam, on the Barak River.
The first phase of the two-phase project is scheduled to be
completed by 2016-17. The waterway aims to benefit people
from the northeastern states.
Plans for 106 inland waterways in India
The Union Cabinet, chaired by Prime Minister Narendra
Modi, has approved to pass the official amendment of the
National Waterways Bill, 2015.
Here are some key points you need to know:
• The bill seeks to add 106 inland waterways to the existing
six National Waterways on the recommendations of
the Parliamentary Standing Committee on Transport,
Tourism and Culture and comments of several state
governments.
• The bill will also look after the renovation and
maintenance of the existing waterways.
• Out of the 106 new waterways, 18 have already been
identified. These include five waterways each from
Karnataka and Meghalaya, three each from Maharashtra
and Kerala, one each from Tamil Nadu and Rajasthan.
• The bill also aims to help the Inland Waterways Authority
of India (IWAI) to develop the feasible stretches for
Shipping and Navigation.
Shipping
Shipping is another important infrastructure in the country’s
trade and industry. Indian overseas fleet ranks the 17 in
the world in terms of tonnage, with 659 ships totalling 77
lakh gross registered tonnage (GRT). 102 Indian shipping
companies are in operation of which 65 are engaged only in
coastal shipping. The public sector Shipping Corporation of
India (SCI) has a fleet of 112 vessels aggregating three million
GRT. In spite of this, Indian ships carry only 29% of India’s
total sea borne trade. More than half of this tonnage is crude
oil and its products.
There are twelve major ports under Central Government and
139 minor ports under state control along the Indian coastline
of about 5600 Kms. The major ports together handle a cargo
of 251 million tonnes.
Civil Aviation
The rapid expansion of this sector during the last five years
has necessitated urgent investment in infrastructure. There
are 14 scheduled airline operators using 334 aircraft. It
is expected that another 250 aircraft will be added during
the next five years. In addition, there are 65 non-scheduled
airlines operators who have 201 aircraft. The existing
airports are unable to manage this increased volume.
The numbers also demand better regulation of the operators
in order to ensure satisfactory service. An Airport Economic
Regulatory Authority (AERA) was set up to ensure healthy
competition among operators and settlement of disputes
among operators as well as between them and passengers.
Another major reform in this sector has been the merger of
the Indian Airlines and Air India into a new entity called the
National Aviation Company of India Limited (NACIL).
Industry and Infrastructure E-149
Telecommunication
Telecommunication has witnessed the most dramatic
growth since the ending of the monopoly of Department of
Telecommunication, as part of the New Telecom Policy of
2012 (NTP 2012)
New Telecom Policy: Highlights
1. Rural Tele-density – To improve rural teledensity from
the current level of around 39 to 70 by the year 2017 and
100 by the year 2020.
2. Broadband – “Broadband For All” at a minimum
download speed of 2 Mbps.
3. Domestic Manufacturing – Making India a global hub.
4. Convergence of Network, Services and Devices.
5. Liberalization of Spectrum – any Service in any
Technology.
6. Simplification of Licensing regime – Unified Licensing,
delinking of Spectrum from License, Online real time
submission and processing.
7. Consumer Focus – Achieve One Nation – Full Mobile
Number Portability and work towards One Nation – Free
Roaming.
8. Resale of Services.
9. VOIP – Voice over Internet Protocol.
10. Cloud Computing – Next Generation Network including
IPV6.
•• The number of telephone subscribers in India increased
to 1002.05 million in May, 2015. The overall tele-
density in India reached 79.67%.
•• Central government in its decision made on April
19, 2007 notified the enhancement of foreign direct
investment (FDI) in telecom from 49% to 74%.
•• As per the notification, all companies have been given
three months time to comply with the revised norms.
PUBLIC SECTOR UNITS
Most countries, including India, have adopted a mixed economy
model that encourages the role of the public as well as private
sector enterprises. Since Independence, the Indian government
made sustained efforts to bring about balanced development
by setting up public sector enterprises (PSEs). The role of the
PSEs was earlier limited to basic, heavy and core industries,
which were considered of strategic importance and vital for
mass consumption. Furthermore, the government had to step
in and set up these huge PSEs because the nation was in the
initial stages of development and private enterprises could not
afford massive investments which the core sector called for. In
recent years, PSEs have penetrated into production of essential
consumer goods and have begun to spread into wide areas of the
economy including non-infrastructure and other non-core areas.
•• The public sector banks (PSBs), which have played an
important role in shaping up the Indian economy since the
pre-independence period until now, continue to dominate
the Indian banking industry, accounting for more than
70% share of total banking business in India.
•• With the introduction of economic reforms and
liberalisation in 1991, the Government initiated a systemic
•• This notification is a following step of the Union Cabinet’s
approval of the 74% FDI in telecom in March 2007.
•• As per new norms, FDI upto 49% will continue to be
on the automatic route.
•• If the FDI limit were to cross 49% then it would require
the approval of the Foreign Investment Promotion
Board (FIPB).
•• By this notification, FIPB is also empowered to note
that the investment is not coming from countries of
concern or unfriendly entities.
•• The guidelines allow foreigners to hold key positions
(like Chairman, MD, CEO, etc.) of telecom companies,
subject to clearance from the Telecom Ministry on a
yearly basis.
Information Technology
The enactment of the Information Technology Act (2000)
was a milestone in the development of India’s IT industry.
It provided a legal framework for e-commerce and electronic
transactions. It also addresses the security needs of privacy,
authenticity,integrity and non-repudiation over the Internet.
A study by NASSCOM said that software exports for 2015-
16 would grow between 12-14% to about $110-112 billion,
compared with the 13-15% growth estimate for the fiscal year
2014-15. The Indian domestic market is expected to grow by
14% to $48 billion in the current fiscal year, mainly because of
e-commerce growth. Domestic growth is expected to be led by
e-commerce, government initiatives and technology adoption
by industries. Investment of $26 billion by the government in
2014-15 also helped domestic revenue growth.
The IT industry is the biggest private sector employer in India,
and it added 230,000 employees in 2014-15, thus making the
total number of jobs in the industry close to 3.5 million.The IT
sector also accounted for 9.5% of the gross domestic product
(GDP). The IT industry holds the largest share of total services
exports at 38%.
shift to a more open economy with greater reliance on
market forces and a larger role of the private sector,
including foreign investment.
•• The PSEs were exposed to competition from domestic
private sector companies as well as foreign MNCs.
•• To sustain in a growing competitive scenario, PSEs have
undertaken several steps to perform and operate on par
with their private peers such as adopting state-of-the-art
technology, focusing on improving productivity, giving
performance-related pay, offering additional welfare
facilities and other benefits to employees, establishing
brands and increasing marketing efforts.
Structure of PSEs in India
The PSEs in India are basically categorised under four broad
types based on their ownership structure. These include:
(i) departmental undertakings,
(ii) statutory corporations,
(iii) government-owned companies and
(iv) autonomous bodies set up as registered societies.
E-150 Industry and Infrastructure
(i) Departmental undertakings
Departmental undertakings are primarily meant to provide
essential services such as railways. They function under
the control of the respective ministries of Government
of India (GOI). A departmental undertaking structure is
considered suitable for activities the government aims to
keep in its control in view of the public interest.
(ii) Statutory corporations
Statutory corporations are public enterprises that came
into existence by a Special Act of the Parliament. The
Act defines the powers and functions, rules and regulations
governing the employees and the relationship of the
corporation with government departments.
(iii) Government-owned companies
Government-owned or controlled companies refer to
companies in which 51% or more of the paid up capital
is held by the central or any state government (partly
or wholly by both). It is registered under the Indian
Companies Act and is fully governed by the provisions of
this Act.
SMALL SCALE INDUSTRIES
Small scale Industries (SSI)
Small scale industries (SSI) are production units with a capital
investment of up to ` one crore.
•• It plays a vital role in the growth of India. It contributes
almost 40% of the gross industrial value added in the
Indian economy, 6% of GDP and 35% of exports.
•• It has been estimated that a million rupees of investment in
fixed assets in the small scale sector produces 4.62 million
worth of goods or services. The small scale sector in India
is very diverse producing 8000 products from traditional
handicraft to high end technical instruments.
•• The small-scale sector has grown rapidly over the years.
The growth rates during the various plan periods have
been very impressive.
•• When the performance of this sector is viewed against the
growth in the manufacturing and the industry sector as a
whole, it instils confidence in the resilience of the small-
scale sector.
(iv) Autonomous bodies
Autonomous bodies are set up whenever it is felt that certain
functions need to be discharged outside the governmental set
up with some amount of independence and flexibility without
day-to-day interference from the governmental machinery.
These bodies are set up by the concerned ministries or
their departments and are funded through grants-in-aid,
either fully or partially, depending on the extent which such
institutes generate internal resources of their own. These
grants are regulated by the Ministry of Finance (MOF)
through their instructions. They are mostly registered as
societies under the ‘Societies Registration Act’ and in certain
cases they have been set up as statutory institutions under
the provisions contained in various Acts.
CPSE’s Role in Economy
•• CPSE investments have a multiplier effect on the
economy
During the first five-year plan (1950-51 to 1955-56) there
were only 5 CPSEs with a total financial investment (Including
equity plus long-term loans) of Rs. 290 million, whereas at
present, in 2015, there are as many as 290 CPSEs, wherein,
169 are Holding CPSEs and 121 are the subsidiaries.As of
Mar 31, 2012, the total financial investment of CPSEs was
7,292.3 billion, showing a CAGR of around 12% during the
same period.
•• CPSEs continue to dominate domestic output of key
sectors
CPSEs continue to hold control across several industries, despite
opening up of several sectors for private investment. CPSEs
continue to have complete monopoly in nuclear power generation.
Other leading areas of dominance are coal (over 80%), crude
oil (over 70%), refineries (over 55%) and wired lines (over
80%). However, their share has decreased considerably, with
the exception of coking coal and power generation.
Employment
•• SSI Sector in India creates largest employment
opportunities for the Indian populace, next only to
Agriculture. It has been estimated that 100,000 rupees
of investment in fixed assets in the small-scale sector
generates employment for four persons.
•• Food products industry has ranked first in generating
employment, providing employment to 0.48 million
persons (13.1%). The next two industry groups were
Non-metallic mineral products with employment of
0.45 million persons (12.2%) and Metal products with
0.37 million persons (10.2%).
•• In chemicals and chemical products, machinery parts except
electrical parts, wood products, basic metal industries,
paper products and printing, hosiery and garments, repair
services and rubber & plastic products, the contribution
ranged from 9% to 5%, the total contribution by these
eight industry groups being 49%.
Industry and Infrastructure E-151
•• In all other industries the contribution was less than
5%.
•• SSI Sector plays a major role in India’s present export
performance. 45%-50% of the Indian Exports is
contributed by SSI Sector. Direct exports from the SSI
Sector account for nearly 35% of total exports. Besides
direct exports, it is estimated that small-scale industrial
units contribute around 15% to exports indirectly. This
takes place through merchant exporters, trading houses
and export houses. They may also be in the form of
export orders from large units or the production of parts
and components for use for finished exportable goods.
INDUSTRIAL SICKNESS
Industrial Sickness refers to the situation where an industrial
firm performs poorly, incurs losses for many years and defaults
in its repayment obligations.
RBI defines a sick unit as “One which has incurred a cash
loss for one year and likely to continue incurring losses in the
following year. The unit which has an inbalance in its financial
structure such as current ratio is less than 1:1 and there is
worse trend in debt equity ratio.
Industrial sickness can be caused by internal and external factors.
•• Internal factors could be mismanagement, lack of finance
wrong dividend policy, not providing for reserves or
deliberate ‘milking’ of the unit by the owners.
•• External factors could be wrong government policy,
power shortage, non-availability of raw materials,
transport problem, lack of technological advancement and
labour disputes.
Since 1987, the entire responsibility to tackle sickness was
entrusted to the quasi judicial body set up for the purpose, i.e.
the Board for Industrial and Financial Reconstruction (BIFR).
The BIFR approves and sanctions rehabilitation schemes for
sick companies that are referred to it. The functioning of
BIFR, however, has been criticised over the years because
of the adoption of time consuming procedures which lead to
delays in rehabilitation.
The government set up the Justice Eradi committee to
recommend a mechanism for revival as well as closure of a sick
unit. On the recommendations of the panel, the government has
decided to set up a National Company law Tribunal (NCLT)
whose main purpose will be to make it easier to liquidate sick
companies within a short timeframe of two years. The NCLT
will act as the single forum for sick companies, replacing the
existing three forums- BIFR, Company Law Board (which
works under the Companies Act, 1956 and handles some cases
of dispute resolution and compliance) and High Courts (which
deal with winding up of companies).
DISINVESTMENT POLICY
The process of selling of government equities in public sector
enterprises is known as disinvestment. Disinvestment in India
is mainly a tool for public sector reforms and was, at the
beginning, motivated by the need for gaining resources for
allocations made in the yearly budgets.
As per the recommendations Rangarajan Committee on
Disinvestment of PSEs, government launched a programme of
disinvestment. However, the first instalment of disinvestment
of shares valued at 6480 crore fetched only 3038 crore in
1991-92. The process attracted a lot of criticism. Moreover,
instead of raising resources either to strengthen the healthier
PSUs or at least to retire the national debt, the government has
been looking at extra budgetary support to bridge the deficit.
In order to speed up the process of disinvestment, Government
of India set up a separate Department of Disinvestment in
March 2000. A decision was also taken to reduce Government’s
equity in non-strategic PSUs to 26% or less through strategic
sale of such shares. Only three areas-defence, atomic energy
and railway-were identified as strategic and all other sectors
were open to disinvestment up to 26%.
The then NDA Government pursued this policy of disinvestment
and several profit-making PSUs, including IPCL, VSNL and
IBP were partially divested. Many state governments were also
following similar disinvestment policy in respect of state PSUs.
Disinvestment Policy of UPA (2009-14)
The current disinvestment policy was initially decided by the
UPA government (2009-2014), under its Common Minimum
Programme. The main ideology, as listed on the site of
Ministry of Finance, says that:
(i) Citizens have every right to own part of the shares of
Public Sector Undertakings.
(ii) Public Sector Undertakings are the wealth of the Nation
and this wealth should rest in the hands of the people.
(iii) While pursuing disinvestment, Government has to retain
majority shareholding, i.e. at least 51% and management
control of the Public Sector Undertakings.
Approach for Disinvestment
On 5th November 2009, Government approved the following
action plan for disinvestment in profit making government
companies:
(i) Already listed profitable CPSEs (not meeting mandatory
shareholding of 10%) are to be made compliant by ‘Offer
for Sale’ by Government or by the CPSEs through issue
of fresh shares or a combination of both.
(ii) Unlisted CPSEs with no accumulated losses and having
earned net profit in three preceding consecutive years
are to be listed.
(iii) Follow-on public offers would be considered taking
into consideration the needs for capital investment of
CPSE, on a case by case basis, and Government could
simultaneously or independently offer a portion of its
equity shareholding.
(iv) In all cases of disinvestment, the Government would
retain at least 51% equity and the management control.
(v) All cases of disinvestment are to be decided on a case
by case basis.
(vi) The Department of Disinvestment is to identify CPSEs
in consultation with respective administrative Ministries
and submit proposal to Government in cases requiring
Offer for Sale of Government equity.
E-152 Industry and Infrastructure
1. What is a ‘limited company’?
(a) In which shareholders possess the ownership limited
to their paid up capital
(b) In which shares are issued
(c) A company of Government ownership
(d) A Registered Company
2. In India the public sector is the most dominant in
(a) steel production
(b) organized term-ending financial institution
(c) transport
(d) commercial banking (d) Company Law Board
3. Tourism industry in India is quite small compared to
many other countries in terms of India’s potential and
size. Which one of the following statements is correct in
this regard?
(a) Distances in India are too far apart and its luxury
hotels are too expensive for Western tourists.
(b) For most of the months India is too hot for Western
tourists to feel comfortable.
(c) Most of the picturesque resorts in India such as
in the northeast and Kashmir are, for all practical
purposes, out of bounds.
(d) In India, the infrastructure required for attracting
tourists is inadequate.
4. ‘Level playing field’ argument of industries requires
(a) MNCs to be stopped from investing in India.
(b) licence for MNCs to be given only in environment-
friendly technology.
(c) domestic industry to be given preference.
(d) domestic industry to be treated on par with MNCs.
5. Which of the following is not an internal factor for
industrial sickness?
(a) Mismanagement
(b) Power shortage
(c) Wrong dividend policy
(d) Diversion of funds
6. The Eastern Dedicated Freight Corridor being built by
Indian Railway will connect
(a) Panipat and Allahabad
(b) Rajkot and Bhubaneswar
(c) Jawaharlal Nehru Port and Tuglakabad
(d) Ludhiana and Sonnagar
7. British colonial authorities did not oppose the setting up
of cotton mills in India by local capitalists during the 19th
century because
(a) the coast of producing mill cloth in India was higher
(b) the first mills set up in India were spinning mills
which competed with indigenous hard spinning
(c) it was too expensive to transport textiles to U.K.
(d) the quality of Indian mill-made cloth was inferior
8. It is argued that continuation of reservation for Small
Scale Industries after import liberalisation is anachronistic
because
(a) such reservation does not exist outside India
(b) Indian small scale manufacturers have to compete
with large scale manufacturers from outside
(c) Indian large scale producers cannot compete in
outside markets
(d) Indian SSI units are inherently inefficient
9. The Committee on Competition Policy and Law
(Raghavan Committee) has recommended the replacement
of which of the following institutions?
(a) Securities and Exchanges Board
(b) Disinvestment Commission
(c) Monopolies and Restrictive Trade Practices
Commission
10. Which of the following can be termed an infrastructural
bottleneck in the development of India’s economy?
(a) Existence of a large variety of financial institutions
(b) The federal nature of Indian policy
(c) The volatility of the Indian rupee
(d) Delay in the administration of justice
11. With reference to India, which one of the following
statements is NOT correct?
(a) IPCL is India’s largest petrochemical company
(b) RIL is the largest private sector company in India
(c) MTNL is listed on NYSE
(d) BSNL is the first telecom service organization in
India to launch a nationwide cellular service at one
time
12. Which one of the following statements is not correct?
(a) Rourkela Steel Plant, the first integrated steel plant
in the Public Sector of India was set up with the
Soviet Union collaboration.
(b) Salem Steel Plant is a premier producer of stainless
steel in India.
(c) Maharashtra Elektrosmelt Ltd. is a subsidiary of the
Steel Authority of India Ltd.
(d) Visakhapatnam Steel Plant is a unit of the Rashtriya
Ispat Nigam Ltd.
13. Explain ‘joint sector’ in India?
(a) Where the government has more than 50% share
(b) Product produced together by the public and private
sectors is called the joint sector
(c) It is an enterprise owned jointly by both the sectors
(d) It is an enterprise owned jointly by an Indian and a
foreign enterprise
14. Which sector has maximum weightage in the index of
industrial production assigned?
(a) Mining and quarrying
(b) Manufacturing
(c) Electricity
(d) All equal
15. The moral case for CSR, i.e. that it is the right thing to
do, is justified by which of the following arguments?
(a) That the corporation is a creation of society and
should therefore serve its needs.
(b) That the corporation is a legal creation and therefore
cannot be a moral agent.
Industry and Infrastructure E-153
(c) Large corporations do not have the power or
resources to address society’s problems.
(d) Business decisions will have social and
environmental consequences which will be
addressed by governments.
16. In India ‘Report on Currency and Finance’ is the annual
publication of
(a) SEBI (b) RBI
(c) Finance Commission (d) Finance Ministry block in India to start production?
17. Which of the following is related to the EPCG Scheme
of Central Government ?
(a) Foreign Investment (b) Foreign Trade
(c) Communication (d) Banking
18. Which of the following commissions / companies of
Indian Origin signed a pact for obtaining oil-blocks in
Libya?
(a) Reliance petroleum (b) Oil India Ltd.
(c) ONGC (d) BPCL
19. NASSCOM is the organisation of companies of which
sector?
(a) Media sector:
(b) Mobile phone service
(c) Information technology
(d) Automobiles
20. Over how many years periodic review of the “Miniratna”
& “Navratna” status of public enterprises on the basis of
their performance?
(a) every year (b) 2 years
(c) 3 years (d) 4 years
21. Which of the following funds was established in India in
1992 to provide assistance to cover the costs of retraining
and redeployment of employees arising as a result of
modernization, technology up gradation and industrial
restructuring?
(a) National Renewal Fund
(b) National Insurance Fund
(c) National Social Security Fund
(d) National Up-gradation Fund
22. Which among the following is the apex organization of
Industrial Finance in India?
(a) IDBI (b) ICICI
(c) IFCI (d) RIDF
23. Who among the following leaders announced the
Industrial Policy of 1956?
(a) Sardar Patel (b) Jawaharlal Nehru
(c) Balwant Rai mehta (d) J B Kriplani
24. Which among the following is the correct full form of
SIDO?
(a) Small Industries Development Organization
(b) Sick Industries Development Organization
(c) Small Industries Development Office
(d) State Industrial Development Organization
25. Which among the following is the most important bulk
import of India?
(a) Nonelectrical machinery (b) Electric Goods
(c) Petroleum (d) Food Grains
26. In which among the following years, a new “ Liberalized
Industrial Policy “ in India was announced for the first
time?
(a) 1986 (b) 1991
(c) 1992 (d) 1993
27. In an oligopolistic or monopolistically competitive
market, firms do not raise their prices because even a
small price increase will lose many customers.
Which among the following is the most suitable terms
used for this concept ?
(a) Supracompetitive pricing (b) Swing Demand
(c) Kinked Demand (d) Imperfect
28. Which among the following was the first deepwater
(a) Krishna Godavari D-6
(b) Mahanadi deepwater block NECDWN-2002/1
(c) SB-11
(d) KG-DWN- 2005/2
29. Who among the following heads the Genetic Engineering
Approvals Committee (GEAC) in India?
(a) Minister of Environment & Forests
(b) Minister of Science and Technology
(c) Minister of Agriculture
(d) None of them
30. Bring out the incorrect statement regarding India’s textile
(a) India’s textile and clothing sector currently employs
35 million people
(b) After agriculture it is second largest provider of
employment
(c) Textile sector has a tendency to shrink as the GDP
and Economy grows
(d) Textile sector is a major absorber of low-skilled
labor
31. Who among the following are the beneficiaries of the
MAFALDA?
(a) Landless Laborers
(b) Jobless Youth
(c) Small Industries
(d) Small and Marginal Farmers
32. Tourism industries India is quite a small compared to
many other countries in term of India potentials and size.
Which one of the following statement is correct in this
regard?
(a) Distances in India are too far apart and its luxury
hotels are too expensive for western tourists
(b) For most of the months India is too hot for western
tourist to feel comfortable
(c) Most of the picturesque resort in India such as
in North- East and Kashmir are, for all practical
purposes, out of bounds
(d) In India the infrastructure required for attracting
tourists is inadequate
33. Which one of the following is the objective of National
Renewal Fund ?
(a) To safeguard the interest of workers who may be
affected by technology upgradation of industry or
closer of sick units.
(b) To develop a core sector of economy.
(c) For the development of the infrastructure such as
energy, transport, communication and irrigation.
(d) For human resources development such as full
literacy, employment, population control, housing
and drinking water.
E-154 Industry and Infrastructure
34. The Council of Scientific and Industrial Research (CSIR)
links 37 constituent laboratories with diverse research
portfolios as varied as drug discovery to oceanography.
Recently we read in the newspapers that CSIR’s latest
imitative is launching of an Open Source Drug Discovery
(OSDD) Programme.
What is the main purpose of Open Source Drug
Discovery (OSDD) Programme?
(a) To make India a hub of drug research and
development
(b) To bring the scientists of the world under one roof
(c) To bring down the costs of the new drugs and make
them affordable to all
(d) To make India self reliant in Drug production
35. Which among the following sectors contributes maximum
excise revenue to Indian exchequer?
(a) Agriculture (b) Steel industry
(c) Oil and gas (d) Aviation
36. What does PKI stands for?
(a) Private Key Infrastructure
(b) Primary Key Infrastructure
(c) Public Key Infrastructure
(d) Public Key Institute
37. Disguised unemployment generally means               entrepreneurs
(a) large number of people remain unemployed
(b) alternative employment is not available
(c) marginal productivity of labour is zero
(d) productivity of workers is low
1. Consider the following statements:
Small-scale industries are in most cases, not as
efficient and competitive as the large-scale ones. Yet
the government provides preferential treatment and
reservations in a range of products to the small firms
because small-scale industries.
1. provide higher employment on a per unit capital
development basis.
2. promote a regional dispersion of industries and
economic activities.
3. have performed better in export on manufactured
products than the large scale ones.
4. provide jobs to low-skill workers, who otherwise
may not find employment revenues elsewhere.
Which of the above statements are correct?
(a) 1 and 4 (b) 1 and 2
(c) 2 and 3 (d) 3 and 4
2. With reference to the Public Sector Undertakings in
India, consider the following statement
1. Minerals and Metals Trading corporation of India
Limited is the largest non-oil importer of the
country.
2. Project and Equipment Corporation of India Limited
is under the Ministry of Industry.
3. One of the objectives of Export Credit Guarantee
Corporation of India Limited is to enforce quality
38. The balance of payments of a country is a systematic
record of
(a) all import and export transactions of a country
during a given period of time, normally a year
(b) good exported from a country during a year
(c) economic transaction between the government of
one country to another
(d) capital movements from one country to another.
39. An increase in the Bank Rate generally indicates that the
(a) market rate of interest is likely to fall
(b) Central Bank is no longer making loans to
commercial banks
(c) Central Bank is following an easy money policy
(d) Central Bank is following a tight money policy
40. The sales tax you pay while purchasing a toothpaste
is a
(a) tax imposed by the Central Government
(b) tax imposed by the Central Government but
collected by the State Government
(c) tax imposed by the State Government but
collected by the Central Government
(d) tax imposed and collected by the State Government
41. What does venture capital mean?
(a) A short-term capital provided to industries
(b) A long-term start-up capital provided to new
(c) Funds provided to industries at times of incurring
losses
(d) Funds provided for replacement and renovation of
industries
control and compulsory pre-shipment inspection of
various exportable commodities.
Which of these statements is / are correct?
(a) 1 only (b) 1 and 2
(c) 2 and 3 (d) 3 only
3. With reference to the National Investment Fund to which
the disinvestment proceeds are routed, consider the
following statements ?
1. The assets in the National Investment Fund are
managed by the Union Ministry of Finance.
2. The National Investment Fund is to be maintained
within the Consolidated Fund of India.
3. Certain Asset Management companies are appointed
as the fund managers.
4. A certain proportion of annual income is used for
financing select social sectors.
Which of the statements given above is/are correct ?
(a) 1 and 2 (b) 2 only
(c) 3 and 4 (d) 3 only
4. Despite having large reserves of coal, why does India
import millions of tonnes of coal?
1. It is the policy of India to save its own coal reserves
for future, and import it from other countries for the
present use.
Industry and Infrastructure E-155
2. Most of the power plants in India are coal-based and
they are not able to get sufficient supplies of coal
from within the country.
3. Steel companies need large quantity of coking coal
which has to be imported.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 and 3
(c) 1 and 3 (d) 1, 2 and 3
5. With reference to the Public Sector Undertakings in
India, consider the following statements
1. Minerals and Metals Trading Corporation of India
Limited is the largest non-oil importer of the
country.
2. Project and Equipment Corporation of India Limited
is under the Ministry of Industry.
3. One of the objectives of Export Credit Guarantee
Corporation of India Limited is to enforce quality
control and compulsory pre-shipment inspection of
various exportable commodities.
Which of these statements is/are correct?
(a) 1 only (b) 1 and 2
(c) 2 and 3 (d) 3 only
6. What is/are the recent policy initiative(s) of Government
of India to promote the growth of manufacturing sector?
1. Setting up of National Investment and Manufacturing
Zones.
2. Providing the benefit of ‘single window clearance’.
3. Establishing the Technology Acquisition and
Development Fund.
Select the correct answer using the codes given below:
(a) 1 only (b) 2 and 3
(c) 1 and 3 (d) 1, 2 and 3
7. SEZs were established with the objective of ____ .
1. attracting foreign investment directly.
2. protect domestic market from competition from
multinationals.
3. providing more capital to agricultural and allied
activities.
(a) 1 only (b) 2 only
(c) 3 only (d) All of the above
8. Consider the following statements:
Small-scale industries are, in most cases, not as
efficient and competitive as the large-scale ones. Yet
the Government provides preferential treatment and
reservations in a range of products to the small firms
because small-scale industries
1. provide higher employment on a per unit capital
deployment basis.
2. promote a regional dispersion of industries and
economical activities.
3. have performed better in export of manufactured
products than the large scale ones.
4. provide jobs to low-skill workers, who otherwise
may not find employment avenues elsewhere.
Which of the above statements are correct?
(a) 1 and 4 (b) 1 and 2
(c) 2 and 3 (d) 3 and 4
9. Consider the following statements about Tata steel:
1. It is the Asia’s first privately own integrated iron
and steel plant.
2. It is the first company outside Japan to get the
deming application prize in 2008 for excellence in
total quality management
3. Immediately after the enactment of the Provident
Fund Law in India, Tata steel introduced provident
fund for its employees.
4. It is the first company in the world to get social
accountability 8000 certification from the social
accountability international from the USA.
Which of the statements given above are correct?
(a) 2 and 3 (b) 3 and 4
(c) 1, 2 and 3 (d) 1, 2, 3 and 4
10. Consider the following statements :
1. MMTC limited is India’s largest international
trading organisation.
2. Neelanchal Ispat Nigam Limited has been set up by
MMTC jointly with the government of Odisha.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
11. Consider the following statements about the Navaratna
status industries.
1. Navaratna was originally assigned to nine public
sector enterprises in 1997.
2. The number of PSEs (Public Sector Enterprises)
having Navaratna status is now more than 15
industries.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
12. Consider the following statements :
1. The first petrochemical industry in India was started
with the establishment of National organic chemical
industry limited in sixties.
2. The real thrust of petrochemical industry in India
came with the establishment of Indian Petrochemical
Corporation Limited (IPCL) at Baroda.
Which of the statements given above is/are
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
13. Consider the following statements :
1. Miniratna public sector enterprises can be a joint
venture, set subsidiary company or overseas office
but with certain conditions.
2. Till now there are less than 50 public sector
enterprises which have been given Miniratna status
by the Indian government.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
14. Consider the following statements :
1. India has attained self-sufficiency in almost all
consumer goods.
2. In terms of capital goods, India still depends on the
import.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
15. Consider the following statements about Competition
Commission of India.
1. Competition Commission of India (CCI) was
established with effect from 14th october 2003.
E-156 Industry and Infrastructure
2. The goal is to combat the monopoly tendencies
and faster the competition among public sector
enterprises.
3. CCI (Competition Commission of India) consists
of a chairperson and 6 members appointed by the
central government.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) 1 and 2 (d) All of the above
16. Arrange the following Acts in order in which they were
enacted. Use the codes given below.
1. The Industrial Employment (Standing orders) Act.
2. The Indian Trade Unions Act
3. The Industrial Disputes Act
4. The Employment Exchange (Compulsory
Notification) Act
Codes:
(a) 2, 1, 3, 4 (b) 3, 4, 1, 2
(c) 1, 2, 4, 3 (d) 4, 3, 2, 1
17. In context of the present ceiling on investment for
categorization of various enterprises as Micro, Small and
Medium Manufacturing Enterprises (MSMEs), which of
the following statements are correct:
1. A micro enterprise is an enterprise where the
investment in equipment does not exceed `25 lakh.
2. A small enterprise is an enterprise where the
investment in equipment is more than `25 lakh but
does not exceed `5 crore.
3. A medium enterprise is an enterprise where the
investment in equipment is more than `5 crore but
does not exceed `10 crore.
(a) Only 1 (b) Only 2
(c) Only 3 (d) All of them
18. Consider the following factors:
1. High Investment in industries
2. Expanding market for product
3. Dynamic entrepreneurship
Which of the above are required for accelerated growth
of an economy ?
(a) Only 1 (b) 1 & 2
(c) 1, 2 & 3 (d) 2 & 3
19. India has a high export earning from Diamonds.
In this context, consider the following:
1. High Diamonds Stocks
2. Large Production of Industrial Diamonds
3. Availability of experts on cutting and polishing
Which among the above is/ are most appropriate reason/
reasons behind the above fact?
(a) Only 1 (b) Only 1 & 3
(c) Only 3 (d) 1, 2 & 3
20. Consider the following statements:
1. Lack of adequate entrepreneurship and leadership in
business.
2. Lack of saving to invest.
3. Lack of technology, skills and infrastructure.
4. Limited purchasing power among the larger masses.
Which of the above statement(s) are correct ?
(a) 1, 2 and 3 (b) 1, 3 and 4
(c) 2, 3 and 4 (d) 1, 2 and 4
21. Consider the following statements:
Small-Scale industries are in most cases not as efficient
as and competitive as the large scales one. Yet the
government provides preferential treatment and
reservation in a range of product to the small firms
because small industries
1. Provide higher employment on a par unit capital
development basis.
2. Promote a regional dispersion of industries and
economic activities.
3. Have promoted better in export of manufacture
products than the large scales one.
4. Provides job to low skills workers, who otherwise
may not find employment avenues elsewhere.
Which of the above statement(s) are correct ?
(a) 1 and 4 (b) 1 and 2
(c) 2 and 3 (d) 3 and 4
22. Consider the following factors regarding an industry:
1. Capital investments
2. Business turnover
3. Labor forces
4. Power consumption
Which of the following factor determine the nature and
size of the industry
(a) 1, 3 and 4 (b) 1, 2 and 4
(c) 2, 3 and 4 (d) 2 and 3
23. With the reference to the public sector undertaking in
India, consider the following statements :
1. Minerals and Metals Trading Corporation of
India limited is the largest non-oil importer of the
country.
2. Project and Equipment Corporation of India Limited
is under the ministry of industry.
3. One of the objectives of Export Credit Guarantee
Corporation of India Limited is to enforce quality
control and compulsory pre-shipment inspection of
various exportable commodities.
Which of the above statement(s) are correct ?
(a) 1 only (b) 1 and 2
(c) 2 and 3 (d) 3 only
24. The Reserve Bank of India regulates the commercial
banks in matters of
1. liquidity of assets
2. branch expansion
3. merger of banks
4. winding-up of banks
Select the correct answer using the codes given below.
(a) 1 and 4 only (b) 2, 3 and 4 only
(c) 1, 2 and 3 only (d) 1, 2, 3 and 4
25. Which of the following grants / grant direct credit
assistance to rural households?
1. Regional Rural Banks
2. National Bank for Agriculture and Rural
Development
3. Land Development Banks
Select the correct answer using the codes given below.
(a) 1 and 2 only (b) 2 only
(c) 1 and 3 only (d) 1, 2 and 3
26. Consider the following statements:
1. Inflation benefits the debtors.
2. Inflation benefits the bondholders.
Which of the statements given above is/are correct?
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
Industry and Infrastructure E-157

27. Consider the following liquid assets: II. Existing units in basic and key industries could
1. Demand deposits with the banks
2. Time deposits with the banks
3. Saving deposits with the banks
4. Currency
The correct sequence of these assets in the decreasing
order of liquidity is
(a) 1-4-3-2 (b) 4-3-2-1
(c) 2-3-1-4 (d) 4-1-3-2
28. What is/are the facility/facilities the beneficiaries can
get from the services of Business Correspondent (Bank
Saathi) in branchless areas? mixed economy?
1. It enables the beneficiaries to draw their subsidies
and social security benefits in their villages.
2. It enables the beneficiaries in the rural areas to
make deposits and withdrawals.
Select the correct answer using the code given below.
(a) 1 only (b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
29. In the context of Indian economy, which of the following
is/are the purpose/purposes of ‘Statutory Reserve
Requirements’?
1. To enable the Central Bank to control the amount
of advances the banks can create
2. To make the people’s deposits with banks safe and
liquid
3. To prevent the commercial banks from making
excessive profits
4. To force the banks to have sufficient vault cash to
meet their day-to-day requirements
Select the correct answer using the code given below.
(a) 1 only (b) 1 and 2 only
(c) 2 and 3 only (d) 1, 2, 3 and 4
30. List-I List-II
(Industries) (Industrial Centres)
(A) Pearl fishing (1) Pune international joint ventures.
(B) Automobiles (2) Tuticorin
(C) Ship building (3) Pinjore 35. Match the following:
(D) Engineering (4) Marmagao
goods
(a) A – 2; B – 1; C – 4; D – 3 II. Joint Venture b. Category A
(b) A – 2; B – 1; C – 3; D – 4
(c) A – 1; B – 2; C – 4; D – 3 (a) I – b, II – c, III – a
(d) A – 1; B – 2; C – 3; D – 4
31. Match the following products with their percentage
part that was controlled by the foreigners at the time of
independence:
Product Percentage
I. Tea a. 70%
II. Jute b. 73%
III. Coal c. 65%
IV. Minerals d. 90%
(a) I – c, II – d, III – a, IV – b
(b) I – b, II – d, III – a, IV - c
(c) I – c, II – b, III – a, IV - d
(d) I – a, II – d, III – c, IV - b
32. What were the modified policies of government after
1950’s?
I. Defence and strategic industries were to be the
exclusive domain of the government.
continue in the private sector but no fresh private
investment in these sectors was to be allowed.
III. Twenty important industries were allowed in private
sector but under strict supervision of the state.
IV. All industries not covered by the above three
categories were allowed in the private sector under
general supervision of the state.
(a) Only I (b) I & II
(c) II & III (d) All the above
33. What are the major points when India was declared as
I. Those industries completely owned by the
Government e.g. ordinance, atomic energy,
railways and any industry of national importance
were to be the exclusive domain of the Central
government.
II. A group of 18 specified industries (of medium
category) were in control of the state governments
in liaison with the central government.
III. The remaining industrial options which were not
covered by either the centre or state lists, were left
open to the private sector.
IV. This policy was to be reviewed after 5 years.
(a) I & II (b) I, II & III
(c) Only III (d) All the above
34. Which sentence is correct regarding Industrial
Development and Regulation Act 1951?
I. They controlled the authorization of capability,
whereabouts and growth of any request for
manufacture of new products.
II. They controlled the authorization of foreign
exchange expenditure on the import of plant and
machinery.
III. They controlled the authorization for the terms of
(a) I & II (b) Only III
(c) II & III (d) All the above
Column I Column II
I. PSU’s a. Category C
III. Private Sector c. Category B
(b) I – a, II – c, III - b
(c) I – c, II – b, III - a
(d) I – b, II – a, III – c
36. Which statement is correct regarding joint venture?
I. 15 industrial areas were put under this category.
II. This category also carried the provision of
compulsory licensing.
III. This provision led to the establishment of the so-
called ‘Licence- Quota- Permit raj’ in the economy.
(a) I & II (b) II & III
(c) Only I (d) All the above
37. Which statement is correct regarding Industrial Policy
1956?
I. The policy of 1956, for the first time, recognized
the contribution of small scale industries in the
growth of the Indian economy.
II. It laid stress on rational distribution of national
income and effective utilization of resources.
E-158 Industry and Infrastructure
III. This policy is considered one of the most important
industrial policies of India as it decided the nature
and scope of the Indian economy till the reforms of
1991.
(a) I & II (b) II & III
(c) All the above (d) Only I
38. Which statement is correct regarding FERA 1973?
I. The Foreign Exchange and Regulation Act (FERA)
was passed in 1980.
II. This resulted in a tremendous shift in the foreign
investment policy of the Government of India.
III. Foreign Investment was allowed in only those
industries that were directly into exports.
(a) I & II (b) Only III
(c) II & III (d) All the above
39. Consider the following statements:
I. The policy listed out the various Appendix 1
industries that could be started by large business
houses so that small industries were not driven out
of business.
II. The establishment of small and medium industries
was encouraged.
III. Private industries were encouraged to set up
production units in rural areas and in backward
areas with a vision to give thrust for the economic
development of those areas.
Which statement is /are correct regarding Industrial
Policy 1973:
(a) I & II (b) II & III
(c) Only III (d) All the above
40. Which statements are correct regarding Industrialization
post 1990?
I. Exemption from licensing was allowed for all start
ups and for those with an investment worth `2.5
crores in fixed assets and a right to import up to
30% of the total value of plant and machinery.
II. Foreign equity investment was allowed up to 70%.
III. Geographical restrictions and investment cap for
small industries were removed.
(a) I & II (b) Only II
(c) I & III (d) All the above
41. Which among the below statements are correct regarding
the Features of Industrial Policy 1991?
I. To maintain a sustained growth in productivity.
II. To enhance gainful employment.
III. Liberalisation of Industrial Licensing Policy.
IV. Introduction of Industrial Entrepreneur’s Memorandum
(i.e., no industrial approval is required for industries
not requiring compulsory licensing).
(a) I & II (b) I & III
(c) Only IV (d) All the above
42. Industrial Policy 1991 mainly focuses on which points?
I. Deregulating Indian industry.
II. Allowing the industry freedom & flexibility in
responding to market forces
III. Providing a policy regime which facilitates and
fosters growth of Indian industry.
(a) I & II (b) II & III
(c) Only III (d) All the above
43. What were the policy measures taken under Industrial
Policy 1991?
I. Non-Resident Indians Scheme (NRIs are allowed to
invest upto 100% equity on non-repatriation basis in
all activities except for a small negative list).
II. Electronic Hardware Technology Park (EHTP),
Software Technology Park (STP) Scheme for
building up strong electronic industry to enhance
exports.
III. Liberalised policy for Foreign Direct Investment
(FDI).
IV. Abolition of the MRTP limit.
(a) I & III (b) III & IV
(c) Only II (d) All the above
44. Match the following investment requirements under the
Manufacturing Enterprises category:
Column I Column II
I. Micro Enterprise a. 5 crores to upto 10 crores
II. Small Enterprise b. 25 lakh to upto 5 crores
III. Medium Enterprise c. Upto 25 lakh
(a) I – c, II – b, III – a
(b) I – b, II – c, III - a
(c) I – c, II – a, III - b
(d) I – a, II – b, III - c
45. Match the following investment requirements under the
Service Enterprises category:
Column I Column II
I. Micro Enterprise a. 2 crores to upto 5 crores
II. Small Enterprise b. 10 lakh to upto 2 crores
III. Medium Enterprise c. Upto 10 lakh
(a) I – c, II – b, III – a
(b) I – b, II – c, III – a
(c) I – c, II – a, III – b
(d) I – a, II – b, III – c
46. Which statement is correct regarding cottage industries?
I. Cottage industry is run by family members on full
or part time basis.
II. It possesses negligible capital investment.
III. The production is done by hands and no wage
earning person is employed in cottage industry.
(a) I & II (b) II & III
(c) Only II (d) All the above
47. Consider the statements:
I. Small industrial units employ wage earning labour
and production is done by the use of modern
techniques.
II. Capital investment is also present in small industries
Which among the above statement is correct regarding
small industries?
(a) Only I (b) Only II
(c) Both I & II (d) None of the above
48. Which statement is correct regarding village industries?
I. The industries established in rural areas having
population below 10,000 and having less than
` 15,000 as fixed capital investment per worker will
be termed as village industries.
II. KVIC and state village Industries Board provide
economic and technical assistance in establishing
and operating these industrial units.
(a) I & II (b) Only I
(c) Only II (d) None of the above
49. Match the following according to the contribution of
cotton industries in different sectors:
Column I Column II
I. GDP a. 13.5%
II. Manufacturing Value b. 4%
III. Export earning c.14%
Industry and Infrastructure E-159
(a) I – b, II – c, III - a
(b) I – a, II – c, III - b
(c) I – b, II – a, III - c
(d) I – c, II – b, III - a
50. Which statement is correct regarding cotton industry?
I. The first Indian modernised cotton mill, located in
Kolkata in 1818
II. The second mill named ‘Bombay Spinning and
Weaving Co.’ was established in 1854 at Bombay
by KGN Daber
III. There were 394 cotton mills in India before the
partition
(a) I & II (b) II & III
(c) Only II (d) All the above
51. Which statement is correct regarding iron and steel
industry?
I. Large scale iron and steel production was started in
1907 by TISCO established at Jamshedpur.
II. In 1919, Indian Iron and Steel Company (IISCO)
was established at Burnpur. Both TISCO and IISCO
are private sector companies.
III. The first public sector company was ‘Vishwashwaraiya
Iron and Steel Works at Bhadravati’.
(a) I & II (b) Only II
(c) II & III (d) All the above
52. What are the categories of PSEs?
I. Departmental undertakings
II. Statutory corporations
III. Government-owned companies
IV. Autonomous bodies
(a) II & III (b) II & IV
(c) All the above (d) Only I
53. What is departmental undertaking?
I. They are primarily meant to provide essential
services such as railways.
II. They are public enterprises that came into existence
by a Special Act of the Parliament.
III. They are companies in which 51% or more of the
paid up capital is held by the central or any state
government (partly or wholly by both).
IV. They are set up whenever it is felt that certain
functions need to be discharged outside the
governmental set up with some amount of
independence and flexibility without day-to-day
interference from the governmental machinery
(a) Only I (b) I & III
(c) Only III (d) None of the above
54. What is Statutory Corporation?
I. They are primarily meant to provide essential
services such as railways.
II. They are public enterprises that came into existence
by a Special Act of the Parliament.
III. They are companies in which 51% or more of the
paid up capital is held by the central or any state
government (partly or wholly by both).
IV. They are set up whenever it is felt that certain functions
need to be discharged outside the governmental
set up with some amount of independence and
flexibility without day-to-day interference from the
governmental machinery
(a) Only I (b) I & III
(c) Only II (d) None of the above
55. What is government owned companies?
I. They are primarily meant to provide essential
services such as railways.
II. They are public enterprises that came into existence
by a Special Act of the Parliament.
III. They are companies in which 51% or more of the
paid up capital is held by the central or any state
government (partly or wholly by both).
IV. They are set up whenever it is felt that certain functions
need to be discharged outside the governmental
set up with some amount of independence and
flexibility without day-to-day interference from the
governmental machinery
(a) Only III (b) I & III
(c) Only II (d) None of the above
56. What are autonomous bodies?
I. They are primarily meant to provide essential
services such as railways.
II. They are public enterprises that came into existence
by a Special Act of the Parliament.
III. They are companies in which 51% or more of the
paid up capital is held by the central or any state
government (partly or wholly by both).
IV. They are set up whenever it is felt that certain functions
need to be discharged outside the governmental
set up with some amount of independence and
flexibility without day-to-day interference from the
governmental machinery
(a) Only IV (b) I & III
(c) Only II (d) None of the above
57. Which sentence is correct regarding CPSE?
I. During the first five-year plan (1950-51 to 1955-56)
there were only five CPSEs with a total financial
investment (Including equity plus long-term loans)
of ` 290 million
II. In 2015, there are as many as 290 CPSEs, wherein,
169 are Holding CPSEs and 121 are the subsidiaries.
III. As of Mar 31, 2012, the total financial investment
of CPSEs was 7,292.3 billion, showing a CAGR of
around 12% during the same period.
(a) I & II (b) Only I
(c) Only III (d) All the above
58. Match the following products with the percentage of
CPSE control over them:
Column I Column II
I. Coal a. 70%
II. Crude Oil b. 55%
III. Refineries c. 80%
(a) I – c, II – a, III – b
(b) I – a, II – c, III – b
(c) I – c, II – b, III – a
(d) I – b, II – a, III – c
59. Which statement is true regarding employment in India?
I. Food products industry has ranked first in generating
employment, providing employment to 0.48 million
persons (13.1%).
II. The next two industry groups were Non-metallic
mineral products with employment of 0.45 million
persons (12.2%) and Metal products with 0.37
million persons (10.2%).
E-160 Industry and Infrastructure
III. In chemicals & chemical products, machinery parts
except electrical parts, wood products, basic metal
industries, paper products & printing, hosiery
& garments, repair services and rubber & plastic
products, the contribution ranged from 9% to 5%
(a) I & II (b) II & III
(c) Only III (d) All the above
60. Which sentences are correct regarding export in India?
I. 45%-50% of the Indian Exports is contributed by
SSI Sector.
II. Direct exports from the SSI Sector account for
nearly 45% of total exports.
III. Besides direct exports, it is estimated that small-
scale industrial units contribute around 15% to
exports indirectly.
(a) I & II (b) I & III
(c) Only II (d) All the above
61. Consider the below statements:
I. Internal factors could be mismanagement, lack of
finance wrong dividend policy, not providing for
reserves or deliberate ‘milking’ of the unit by the
owners.
II. External factors could be wrong government
policy, power shortage, non-availability of raw
materials, transport problem, lack of technological
advancement and labour disputes.
Which statement is correct regarding industrial sickness?
(a) Only I (b) Only II
(c) Both I & II (d) None of the above
62. What are the aspects of Competition Act 2002?
I. Prohibition of anti competitive agreements
II. Prohibition of abuse of dominance
III. Regulation of combination (acquisitions, mergers
and amalgamations of certain size
IV. Establishment of Competition Commission of India
(CCI)
(a) I & II (b) II & III
(c) Only I (d) All the above
63. Which statement is correct regarding disinvestment
policy?
I. Citizens have every right to own part of the shares
of Public Sector Undertakings.
II. Public Sector Undertakings are the wealth of the
Nation and this wealth should rest in the hands of
the people.
III. While pursuing disinvestment, Government has
to retain majority shareholding, i.e. at least 51%
and management control of the Public Sector
Undertakings.
(a) I & II (b) II & III
(c) Only I (d) All the above
64. What are the approaches of disinvestment?
I. In all cases of disinvestment, the Government would
retain at least 31% equity and the management
control.
II. All cases of disinvestment are to be decided on a
case by case basis
III. The Department of Disinvestment is to identify
CPSEs in consultation with respective administrative
Ministries and submit proposal to Government
in cases requiring Offer for Sale of Government
equity.
(a) I & II (b) Only I
(c) II & III (d) All the above
65. Consider the following statements:
I. Economic infrastructure is located within the system
of production and distribution. Some of these are
the transport system, banking system and power.
II. Social infrastructure contributes to the production
process from outside the system. Some examples
are education, training, hospitals and housing.
Which statement is correct regarding Infrastructure?
(a) Only I (b) Only II
(c) Both I & II (d) None of these
66. Which statement is correct regarding energy?
I. Coal was the most important source of energy during
the Industrial Revolution. In the 20th century, it was
replaced by oil, which was an even cheaper source.
II. When the oil producing countries formed a cartel
(OPEC) and increased the price of crude oil from
$2.1 per barrel in 1973 to as much as $28 per barrel
in 1980, it hit the developing countries like India
the most.
(a) Only I (b) Only II
(c) I & II (d) None of these
67. Match the following power with their share of
percentage:
Column I Column II
I. Thermal a. 3%
II. Hydro b. 5%
III. Renewable energy c. 66%
IV. Nuclear d. 26%
(a) I – a, II – d, III – b, IV – c
(b) I – c, II – d, III – b, IV – a
(c) I – c, II – d, III – a, IV – b
(d) I – b, II – c, III – d, IV – a
68. Which sentence is correct regarding Power?
I. A major initiative to expedite power generation has
been the development of coal-based-Ultra Mega
Power Projects (UMPP) each with a capacity of
4000 MW or above.
II. Nine sites have been identified including four pithead
sites (Chhattisgarh, Jharkhand, Madhya Pradesh
and Odisha) and five coastal sites (Andhra Pradesh,
Gujarat, Karnataka, Maharashtra and Tamil Nadu).
III. The pithead units will get coal from captive mines
while the coastal plants will import coal.
(a) I & II (b) II & III
(c) Only III (d) All the above
69. Which statement is correct regarding railways?
I. The first train in India was started on a small rail
route of 34 kilometers between Bombay and Thane
on April 16, 1853.
II. The Indian Railway network has become the biggest
railway of Asia and the third in the world
III. Within the freight segment, bulk traffic accounts for
nearly 84% of revenue-earning freight traffic (in
physical terms), of which about 44% is coal.
(a) I & II (b) Only III
(c) II & III (d) All the above
70. Match the following length of various railway track:
Column I Column II
I. Broad Gauge a. 2537 km
II. Meter Gauge b. 54257 km
III. Narrow Gauge c. 7180 km
Industry and Infrastructure E-161
(a) I – b, II – c, III – a
(b) I – a, II – c, III - b
(c) I – b, II – a, III – c
(d) I – c, II – b, III – a
71. Which statement is correct regarding road transport?
I. India has one of the largest road networks in the
world aggregating to about 3.62 million km at
present.
II. Three initiatives in the road sector were begun in
recent years: The National Highway Development
Project (NHDP), Pradhan Mantri Bharat Jodo
Pariyojana (PMBJP) and Pradhan Mantri Gram
Sadak Yogana (PMGSY)
III. NHDP dealt with building high quality highways.
The PNBJP dealt with linking up major cities to the
NHDP Highways. The PMGSY addressed rural
roads.
(a) I & II (b) II & III
(c) Only I (d) All the above
72. Which statement is correct regarding shipping?
I. Indian overseas fleet ranks the 17th the world in
terms of tonnage, with 659 ships totalling 77 lakh
gross registered tonnage (GRT).
II. 102 Indian shipping companies are in operation of
which 65 are engaged only in coastal shipping.
III. The public sector Shipping Corporation of India
(SCI) has a fleet of 112 vessels aggregating three
million GRT.
(a) I & II (b) Only II
(c) II & III (d) All the above
73. Which statement is incorrect regarding civil aviation?
I. There are 20 scheduled airline operators using 334
aircraft.
EXERCISE-1
1. (a) 2. (c) 3. (d) 4. (d) 5. (b)
6. (d) 7. (b) 8. (b) 9. (c) 10. (d) exporters to import machinery and equipment at
11. (a) ONGC is India’s largest petrochemical company.
IPCL is the second largest petrochemical company.
12. (a) Rourkela Steel Plant (RSP) is the first intergrated
steel plant in the public sector in India. It was set up
with German collaboration with an installed capacity
of 1 million tonnes.
13. (c) 14. (b) 15. (a)
16. (b) In India, ‘Report on Currency and Finance’ is the
annual publication of Reserve Bank of India.The
report highlights the evaluation or devaluation of
rupee as a currency along with it other aspects and
projects the financial condition of the economy.
17. (b) The Export Promotion Capital Goods (EPCG)
scheme was one of the several export-promotion
II. It is expected that another 350 aircraft will be added
during the next five years.
III. An Airport Economic Regulatory Authority (AERA)
is being set up to ensure healthy competition
among operators and settlement of disputes among
operators as well as between them and passengers.
(a) I & II (b) Only ii
(c) II & III (d) All the above
74. What are the points covered in new telecom policy?
I. Rural Tele-density – To improve rural teledensity
from the current level of around 39 to 70 by the
year 2017 and 100 by the year 2020.
II. Broadband – “Broadband For All” at a minimum
download speed of 2 Mbps
III. Domestic Manufacturing – Making India a global
hub
IV. Convergence of Network, Services and Devices
(a) I & II (b) Only II
(c) II & III (d) All the above
75. Which statement is correct regarding information
technology?
I. The IT industry is the biggest private sector
employer in India, and it added 230,000 employees
in 2014-15, thus making the total number of jobs in
the industry close to 3.5 million.
II. The IT sector also accounted for 9.5% of the gross
domestic product. The IT industry holds the largest
share of total services exports at 38%.
(a) Only I (b) Only II
(c) Both I & II (d) None of these
initiatives launched by the government in the early
‘90s. The basic purpose of the scheme was to allow
affordable prices so that they can produce quality
products for the export market.
18. (b) Oil sector majors, ONGC Videsh (OVL) and the
Oil India-IndianOil (OIL-IOC) combine have
bagged an oil block each in Libya. This will enhance
exploration possibilities for the Indian companies in
northern Africa.
19. (c) NASSCOM is the organisation of companies of
Information Technology.
20. (c) 21. (a) 22. (a) 23. (b) 24. (d) 25. (c)
26. (b) 27. (c) 28. (a) 29. (d) 30. (c) 31. (d)
32. (d) 33. (a) 34. (c)
35. (c) Oil and gas industry is the largest contributor to
excise revenues in India followed by steel industry.
E-162 Industry and Infrastructure
36. (c) PKI stands for Public Key Infrastructure. The
Reserve Bank of India released a draft report on
making payment system effective to secure a safe,
secure, efficient, robust and sound payment system
in the country.
37. (c) Disguised unemployment is a situation when people
do not have productive full-time employment,
but are not counted in the official unemployment
statistics.
38. (c) The Balance of Payments(BoPs) accounts are an
accounting record of all monetary transactions
between country and the rest of the world. These
transactions include payment for the country’s
exports and imports of goods, services, financial
capitals and financial transfers.
39. (d) A tight monetary policy is a course of action
undertaken by Central bank to constrict spending in
an economy, or to curb inflation when it is rising too
fast. The increased bank rate increases the cost of
borrowing and effectively reduces its attractiveness.
40. (d) Taxes on tooth paste come under GST which is
administered by State government.Sales tax is paid
to sales tax authority in the state from where the
goods are moved.
41. (b) Venture capital (VC) is a long term financial capital
provided to early-stage, high-potential, growth start
up companies or new companies.
EXERCISE-2
1. (d) 2. (a)
3. (c) On 27 January 2005, the Government had decided to
constitute a ‘National Investment Fund’ (NIF) into
which realization from sale of minority shareholding
of the Government in CPSEs would be channelised.
This fund is managed by professionals and a part of
it is used for use in social sector – like education,
health care and employment.
4. (b) October 2003.The goal is to combat the monopoly
5. (a) Minerals and Metals Trading Corporation Limited
(MMTC) is one of the two biggest foreign exchange
earner for India. It is a leading international trading
company with a turnover of over 68,885 crore
rupees in 2010–11. It is the largest international
trading company of India and the first Public Sector
Enterprise to be accorded the status of FIVE STAR
EXPORT HOUSE by Govt. of India for long
standing contribution to exports. MMTC is the
largest non-oil importer in India.
6. (c) 7. (d) 8. (b)
9. (c) Tata steel is the asia’s first privately owned
integrated iron and steel plant. It is the first company
outside Japan to get the Doming Application Prize
in 2008 for excellence in total quality management.
Tata Steel started provident fund for its employees
as early as in 1920, however, it became a law for
all employers under the Provident Fund Act only in
1952.
10. (c) MMTC Ltd., Metals and Minerals Trading
Corporation of India, is one of the two highest
earners of foreign exchange for India and India’s
largest public sector trading body. Neelanchal Ispat
Nigam Limited (NINL), is a company promoted by
MMTC Ltd, Industrial Promotion and Investment
Corporation of Orissa limited (IPICOL).
11. (c) Navratna was the title given originally to 9
Public Sector Enterprises (PSEs) identified by the
government in 1997 as public sector companies
that have comparative advantages enjoying greater
autonomy to compete in the global market so as
to support in their drive to become global giants.
However, the number of PSEs (Public Sector
Enterprises) having Navaratna status is now more
than 15 industries.
12. (c) The first petrochemical industry in India was started
with the establishment of National Organic Chemical
Industry Limited in 1961. The company manufacture
various organic and inorganic chemicals. The real
thrust of Petrochemical industry in India came
with the establishment of Indian Petrochemical
Corporation Limited (IPCL) at Baroda on March
22, 1969, with a view to promote and encourage
the use of plastics in India.
13. (c) Miniratna public sector enterprises can be a joint
venture, set subsidiary company or overseas office
but with certain conditions i.e Miniratna-I is up to
` 500 crore or equal to their net worth, whichever
is lower. Miniratna-II: is up to ` 300 crore or up
to 50% of their net worth, whichever is lower. Till
now less than 50 public sector enterprises have been
given Miniratna status by the Indian government.
14. (b) In terms of capital goods, India still depends on the
import has not attained self sufficiency in almost all
consumer goods.
15. (d) Competition Commission of India is a body of
the government of India responsible for enforcing
the Competition Act, 2002 throughout India and
to prevent activities that have an adverse effect
on competition in India. It was established on 14
tendencies and faster the competition among public
sector enterprises. CCI (Competition Commission
of India) consists of a chairperson and 6 members
appointed by the central government.
16. (a) 17. (d) 18. (c) 19. (c)
20. (d) 21. (a) 22. (a) 23. (a)
24. (d) The Reserve Bank of India is the main monetary
authority of the country and beside that, in its
capacity as the central bank, acts as the bank of
the national and state governments. Some times it
happens that some of the banks close down due to
non recovery of loans or such other issues. In such
conditions people have to suffer as their money
is with the bank then. For this reason there is
provision for winding up of the banking company
under the Banking Regulation Act, 1949. The power
of winding up of Bank lies in the hand of Reserve
Bank of India.
25. (c) Land development bank started financing long term
loan for more significant rural development activities
like rural and cottage industries, rural artisans etc.
The main purpose of RRB’s is to mobilize financial
Industry and Infrastructure E-163
resources from rural / semi-urban areas and grant
loans and advances mostly to small and marginal
farmers, agricultural laborers and rural artisans.
26. ( a) Those who benefit from higher inflation are debtors
and those who suffer from it are creditors. If one has
substantial debt, each rupee one has to repay would
be worth less than when it was borrowed. In this
way, one pays back less in real terms.
27. (d) Currency/cash is the most liquid ,then the demand
deposits (current accounts), then the saving deposits
with bank and finally the least liquid is the time
deposits with the bank (fixed deposits).
28. (c) Besides giving access to banking, it also enables
government subsidies and social security benefits
to be directly credited to the accounts of the
beneficiaries, enabling them to draw the money
from the bank saathi or business correspondents in
their village itself.
29. (b) Because Reserve requirements are designed as
“precautionary measures” and not to stop banks
from “excessive” profit. This eliminates (c) and
(d).
30. (a) Industries – Industrial centres
(A) Pearl fishing – Tuticorin
(B) Automobile industry– Pune
(C) Ship building – Marmagao
(D) Engineering goods– Pinjore
31. (a)
32. (d) Defense and strategic industries were to be the
exclusive domain of the government. Existing units
in basic and key industries could continue in the
private sector but no fresh private investment in
these sectors was to be allowed. Twenty important
industries were allowed in private sector but under
strict supervision of the state. All industries not
covered by the above three categories were allowed
in the private sector under general supervision of the
state.
33. (d) 34. (d) 35. (a)
36. (b) 12 industrial areas were put under this category. This
category also carried the provision of compulsory
licensing. This provision led to the establishment of
the so- called ‘Licence- Quota- Permit raj’ in the
economy.
37. (c) The policy of 1956, for the first time, recognized
the contribution of small scale industries in the
growth of the Indian economy. It laid stress on
rational distribution of national income and effective
utilization of resources. This policy is considered
one of the most important industrial policies of
India as it decided the nature and scope of the Indian
economy till the reforms of 1991.
38. (c) The Foreign Exchange and Regulation Act (FERA)
was passed in 1973. This resulted in a tremendous
shift in the foreign investment policy of the
Government of India. Foreign Investment was
allowed in only those industries that were directly
into exports.
39. (d) The policy listed out the various Appendix 1
industries that could be started by large business
houses so that small industries were not driven out
of business. The establishment of small and medium
industries was encouraged. Private industries were
encouraged to set up production units in rural areas
and in backward areas with a vision to give thrust
for the economic development of those areas.
40. (c) Exemption from licensing was allowed for all start
ups and for those with an investment worth ` 2.5
crores in fixed assets and a right to import up to
30% of the total value of plant and machinery.
Foreign equity investment was allowed up to 40%.
Geographical restrictions and investment cap for
small industries were removed.
41. (a)
42. (d) Deregulating Indian industry. Allowing the industry
freedom & flexibility in responding to market forces
and providing a policy regime which facilitates and
fosters growth of Indian industry.
43. (d)
44. (a) Micro Enterprises are those enterprises which have
investment up to ` 25 lakh. Small Enterprises are
those enterprises with investment above 25 lakh
and up to 5 crores. Medium Enterprises are those
enterprises which have investment above ` 5 crores
and up to ` 10 crores.
45. (a) Micro Enterprises investment includes companies
with investment up to ` 10 lakh. Small Enterprises
need an investment above 10 lakh and up to 2
crore. Medium Enterprises are those enterprises
which have an investment above 2 crore and up to 5
crore.
46. (d) Cottage industry is run by family members on full
or part time basis. It possesses negligible capital
investment. The production is done by hands and
no wage earning person is employed in cottage
industry.
47. (c) Small industrial units employ wage earning labour
and production is done by the use of modern
techniques. Capital investment is also present in
small industries.
48. (a) The industries established in rural areas having
population below 10,000 and having less than Rs.
15,000 as fixed capital investment per worker will
be termed as village industries. KVIC and state
village Industries Board provide economic and
technical assistance in establishing and operating
these industrial units.
49. (a) Cotton Industry in India is the most organized
industry which contributes to about 4% of GDP,
14% of manufacturing value and 13.5% to total
export earnings.
50. (d)
51. (d) Large scale iron and steel production was started
in 1907 by TISCO established at Jamshedpur. In
1919, Indian Iron and Steel Company (IISCO) was
established at Burnpur. Both TISCO and IISCO are
E-164 Industry and Infrastructure
private sector companies. The first public sector
company was ‘Vishwashwaraiya Iron and Steel
Works at Bhadravati’.
52. (c) The PSEs in India are basically categorized under
four broad types based on their ownership structure.
These include: departmental undertakings, statutory
corporations, government-owned companies and
autonomous bodies set up as registered societies.
53. (a) Departmental undertakings are primarily meant
to provide essential services such as railways.
They function under the control of the respective
ministries of Government of India (GoI).
54. (c) Statutory corporations are public enterprises
that came into existence by a Special Act of the
Parliament. The Act defines the powers and
functions, rules and regulations governing the
employees and the relationship of the corporation
with government departments.
55. (a) Government-owned or controlled companies refer
to companies in which 51% or more of the paid up
capital is held by the central or any state government
(partly or wholly by both). It is registered under the
Indian Companies Act and is fully governed by the
provisions of this Act.
56. (a) Autonomous bodies are set up whenever it is felt
that certain functions need to be discharged outside
the governmental set up with some amount of
independence and flexibility without day-to-day
interference from the governmental machinery.
57. (d) During the first five-year plan (1950-51 to 1955-56)
there were only five CPSEs with a total financial
investment (Including equity plus long-term loans)
of ` 290 million, whereas at present, in 2015,
there are as many as 290 CPSEs, wherein, 169 are
Holding CPSEs and 121 are the subsidiaries. As
of Mar 31, 2012, the total financial investment of
CPSEs was 7,292.3 billion, showing a CAGR of
around 12% during the same period.
58. (a) 59. (d)
60. (b) 45%-50% of the Indian Exports is contributed by SSI
Sector. Direct exports from the SSI Sector account
for nearly 35% of total exports. Besides direct
exports, it is estimated that small-scale industrial
units contribute around 15% to exports indirectly.
61. (c) Internal factors could be mismanagement, lack of
finance wrong dividend policy, not providing for
reserves or deliberate ‘milking’ of the unit by the
owners. External factors could be wrong government
policy, power shortage, non-availability of raw
materials, transport problem, lack of technological
advancement and labour disputes.
62. (d) The Act mainly covers the following aspects: (i)
Prohibition of anti competitive agreements; (ii)
Prohibition of abuse of dominance; (iii) Regulation
of combination (acquisitions, mergers and
amalgamations of certain size); (iv) Establishment
of Competition Commission of India (CCI); and (v)
Functions and powers of CCI.
63. (d)
64. (d) In all cases of disinvestment, the Government would
retain at least 51% equity and the management
control. All cases of disinvestment are to be
decided on a case by case basis. The Department of
Disinvestment is to identify CPSEs in consultation
with respective administrative Ministries and submit
proposal to Government in cases requiring Offer for
Sale of Government equity.
65. (c)
66. (c) Coal was the most important source of energy during
the Industrial Revolution. In the 20th century, it was
replaced by oil, which was an even cheaper source.
When the oil producing countries formed a cartel
(OPEC) and increased the price of crude oil from
$2.1 per barrel in 1973 to as much as $28 per barrel
in 1980, it hit the developing countries like India the
most.
67. (b) the share of hydro power is 26 per cent, thermal 66
per cent, renewable energy sources 5 per cent and
nuclear 3 per cent.
68. (d) A major initiative to expedite power generation has
been the development of coal-based-Ultra Mega
Power Projects (UMPP) each with a capacity
of 4000 MW or above. Nine sites have been
identified including four pithead sites (Chhattisgarh,
Jharkhand, Madhya Pradesh and Odisha) and five
coastal sites (Andhra Pradesh, Gujarat, Karnataka,
Maharashtra and Tamil Nadu). The pithead units
will get coal from captive mines while the coastal
plants will import coal.
69. (d)
70. (a) At present, the Indian Railway consists of an
extensive network spread over 63974 km comprising
Broad Gauge (54257 km) Meter Gauge (7180 km)
and Narrow Gauge (2537 km).
71. (d)
72. (d) Indian overseas fleet ranks the 17th the world in
terms of tonnage, with 659 ships totalling 77 lakh
gross registered tonnage (GRT). 102 Indian shipping
companies are in operation of which 65 are engaged
only in coastal shipping. The public sector Shipping
Corporation of India (SCI) has a fleet of 112 vessels
aggregating three million GRT.
73. (a) An Airport Economic Regulatory Authority (AERA)
is being set up to ensure healthy competition among
operators and settlement of disputes among operators
as well as between them and passengers.
74. (d)
75. (c) The IT industry is the biggest private sector
employer in India, and it added 230,000 employees
in 2014-15, thus making the total number of jobs in
the industry close to 3.5 million. The IT sector also
accounted for 9.5% of the gross domestic product.
The IT industry holds the largest share of total
services exports at 38%.