UPSC Essentials | Daily subject-wise quiz : Economy MCQs on windfall tax, microcredit, NBFCs and more (Week 56)

1. It is levied as a cess under the central excise department.

2. It is revised in every six months.

3. The windfall tax on petrol is zero.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(c) All three

(d) None

QUESTION 2

With reference to the Nutrient-based subsidy, consider the following statements:

1. The nutrient-based subsidy (NBS) system was instituted in the year 2010.

2. It was introduced to promote balanced fertilisation.

3. The NBS system failed as it excluded urea.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(c) All three

(d) None

QUESTION 3

Consider the following statements about microcredit:

1. Microcredit agreements require any sort of collateral.

2. It usually targets low-income individuals, to help them to become self-sufficient.

Which of the statement(s) given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

QUESTION 4

Consider the following:

1. Purchase of government securities

2. Open market operations

3. Repo rate

How many of the above are used by the Reserve Bank of India (RBI) to inject liquidity?

(a) Only one

(b) Only two

(c) All three

(d) None

QUESTION 5

With reference to the Non-Banking Financial Company (NBFC), consider the following statements:

1. It is a company registered under the Companies Act, 1956.

2. They can accept demand deposits.

3. NBFCs form part of the payment and settlement system.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(c) All three

(d) None

ANSWERS TO THE MCQs

1. (b)

FYI:

— The government has cut windfall tax on domestically produced crude oil to Rs 8,400 per tonne from Rs 9,600 per tonne.

— This is the 19th revision of the windfall tax, which was first imposed on July 1, 2022, due to a surge in global crude prices caused by the ongoing Russia-Ukraine war.

— The windfall tax on petrol and aviation turbine fuel (ATF) continues to be zero. Hence, statement 3 is correct.

— The windfall tax is levied in the form of cess under the central excise department. Hence, statement 1 is correct.

— It is revised every fortnight based on global crude oil prices. Hence, statement 2 is not correct.

— The government started levying windfall gains to tax super-normal profits of oil producers and fuel exporters. It had mandated that companies sell the equivalent of 50 per cent of their gasoline exports and 30 per cent of their diesel exports domestically in the current fiscal year.

Therefore, option (b) is the correct answer.

2. (c)

FYI:

— Balanced fertilisation — discouraging farmers from applying too much urea, di-ammonium phosphate (DAP) or muriate of potash (MOP), which only have primary nutrients in high concentrations — is likely to be a key policy goal for the government taking over after the Lok Sabha elections.

— Fertilisers are essentially crop food, containing the nutrients required for plant growth and grain yield. Balanced fertilisation entails supplying these primary (N, phosphorus-P, and potassium-K), secondary (sulphur-S, calcium, magnesium), and micronutrients (iron, zinc, copper, manganese, boron, and molybdenum) nutrients in the appropriate proportions, based on soil type and the crop’s own requirements at various growth stages.

— The previous United Progressive Alliance (UPA) government implemented the nutrient-based subsidy (NBS) system in April 2010, with the goal of promoting balanced fertilisation. Hence, statements 1 and 2 are correct.

— Under it, the government set a per-kg subsidy for N, P, K, and S. The subsidy for any fertiliser was thus tied to its nutrient content. The fundamental aim was to encourage product innovation and transition farmers away from urea, DAP (18% N and 46% P content), and MOP (60% K) in favour of complex fertilisers including N, P, K, S, and other nutrients in balanced proportions and at lower concentrations.

— NBS met their initial goal. Between 2009-10 and 2011-12, DAP and MOP consumption fell, but NPKS complexes and single super phosphate (SSP) usage increased (16% P and 11% S). However, NBS failed simply because it excluded urea. Hence, statement 3 is correct.

Therefore, option (c) is the correct answer.

3. (b)

FYI:

— Microcredit refers to the granting of very small loans to impoverished borrowers, with the aim of enabling the borrowers to use that capital to become self-employed and strengthen their businesses.

— The basic idea behind microcredit is that a small loan will give people who normally live outside the scope of the institutions that underpin the mainstream economy access to the larger economy.

— Microcredit agreements frequently do not require any sort of collateral, and sometimes may not even involve a written agreement, as many recipients of microcredit are often illiterate. Hence, statement 1 is not correct.

— Microcredit is a subset of microfinance, which provides financial services to people who do not have access to traditional financial services.

— Microfinance activities typically target low-income people to assist them in becoming self-sufficient. In this way, microfinance activities also aim to alleviate poverty. Hence, statement 2 is correct.

Therefore, option (b) is the correct answer.

4. (c)

FYI:

— India’s non-banking financial companies (NBFC) sector, also known as the shadow banking system, is experiencing turmoil as a result of a series of defaults by Infrastructure Leasing and Financial Services (IL&FS) and the subsequent liquidity crunch.

— The liquidity pressure suffered by NBFCs has sparked a disagreement between the government and the Reserve Bank of India, with the Finance Ministry advocating for simpler cash flows and the RBI insisting that there is enough money in the system.

— There are broadly two types of liquidity frameworks – the ‘corridor’ system and the ‘floor’ system.

— In a corridor system, the central bank maintains standing facilities to lend reserves and receive bank deposits. The deposit rate provides a floor for the overnight money market rate since no bank will lend money in the market at a lower interest rate than what it can earn from the central bank. Similarly, the lending rate sets a limit on the overnight money market rate, as no bank will typically borrow money at a greater rate than what the central bank charges (with the requisite collateral). Normally, the policy rate is in the middle of the corridor, and the central bank must modify its liquidity supply to keep the target rate within it.

— In a floor system, the key policy rate is the same as the central bank’s deposit rate, or the lower bound of the corridor. In the floor system, the inter-bank rate is insensitive to the supply of reserves since the central bank can issue any quantity of reserves to the banking system without affecting the inter-bank rate. Thus, under the floor system, the deposit rate becomes the effective policy rate.

— There are various methods used by government to inject liquidity such as open market operations, repo rate, and by purchasing government securities.

Therefore, option (c) is the correct answer.

5. (a)

FYI:

— A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by the government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business, but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale. Hence, statement 1 is correct.

— NBFCs lend and make investments, therefore their activities are similar to those of banks; nevertheless, there are a few differences, as detailed below.

i. The NBFC cannot receive demand deposits. Hence, statement 2 is not correct.

ii. NBFCs are not part of the payment and settlement system and cannot issue cheques drawn on themselves. Hence, statement 3 is not correct.

iii. NBFC depositors do not have access to the Deposit Insurance and Credit Guarantee Corporation’s deposit insurance facility, as banks do.

Therefore, option (a) is the correct answer.

(Other Source: http://www.rbi.org.in)

Previous Daily Subject-Wise-Quiz

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Daily Subject-wise quiz — History, Culture, and Social Issues (Week 56)

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