UPSC Essentials : Daily subject-wise quiz : Economy (Week 21)

QUESTION 1

Consider the following:

1. Purchase of immovable property.

2. Overseas deposits and maintenance of relatives abroad.

3. Buying Lotteries.

4. Investment in equity/debt.

How many of the above fall under the outflow Liberalised Remittances Scheme (LRS) category?

(a) Only one

(b) Only two

(c) Only three

(d) All four

QUESTION 2

With reference to the Surety Bonds, consider the following statements:

1. It is provided by the insurance company on behalf of the contractor to the entity.

2. It is aimed at supporting the implementation of small-scale project finance.

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 3

Which one of the following best describes the concept of ‘Small Farmer Large Field’? (PYQ 2023)

(a) Resettlement of a large number of people, uprooted from their countries due to war, by giving them a large cultivable land which they cultivate collectively and share the produce.

(b) Many marginal farmers in an area organize themselves into groups and synchronize and harmonize selected agricultural operations.

(c) Many marginal farmers in an area together make a contract with a corporate body and surrender their land to the corporate body for a fixed term for which the corporate body makes a payment of agreed amount to the farmers.

(d) A company extends loans, technical knowledge and material inputs to a number of small farmers in an area so that they produce the agricultural commodity required by the company for its manufacturing process and commercial production.

QUESTION 4

With reference to the Capital Expenditure, consider the following statements:

1. It is the money that is spent on building productive assets.

2. It refers primarily to disbursements that take place in the form of direct transfers, cash incentives and distribution of personal or household goods.

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 5

With reference to the Prompt Corrective Action (PCA) Framework, consider the following statements:

1. The PCA norm is a supervisory tool and is imposed when a bank breaches certain regulatory thresholds on capital-to-risk weighted assets ratio.

2. It is imposed due to its high net NPA and negative return of assets (RoA).

3. The PCA framework is not applicable to the deposit-taking NBFC.

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. (c)

FYI:

According to Reserve Bank of India (RBI) data, fund outflow under the RBI’s Liberalised Remittances Scheme (LRS) shot up to $3.89 billion (Rs 32,000 crore) in June as against $ 2.88 billion (Rs 23,900 crore) in May this year. LRS outflows in June 2022 were just $ 1.98 billion (Rs 16,430 crore).

There was a significant rise in LRS outflows under the categories of equity/ debt investment, purchase of immovable property, overseas deposits and maintenance of relatives abroad.

The government had since then postponed the implementation of TCS on remittances to October 1, 2023.

Under LRS, all resident individuals, including minors, can remit up to US $250,000 (approximately Rs 2.07 lakh crore) abroad per year without prior approval from the RBI.

Therefore, option (c) is the correct answer.

2. (a)

FYI:

In a bid to break the deadlock over the launch of Surety Bonds, the Ministry for Road Transport & Highways (MORTH) has asked insurance regulator IRDAI to develop a model product on Surety Bonds in consultation with general insurers.

The minister, who discussed several challenging issues that made Surety Bond a complete non-starter with the insurers, proposed to the IRDAI that it should design a model product having all the basic features that can be given to them for its launch.

A surety bond is provided by the insurance company on behalf of the contractor to the entity, which is awarding the project. When a principal breaks a bond’s terms, the harmed party can make a claim on the bond to recover losses. Hence, statement 1 is correct.

The bonds are aimed at supporting the implementation of large-scale project finance, particularly in the area of road projects of National Highway Authority of India (NHAI). Hence, statement 2 is not correct.

After the Union Budget, the IRDAI had come out with detailed norms on the issuance of Surety Bonds by the general insurers. However, the general insurance industry wanted changes in the Indian Contract Act and Insolvency and Bankruptcy Code (IBC) so that surety bonds can be at par with bank guarantees when it comes to recourse available to them in case of a default.

Therefore, option (a) is the correct answer.

3. (b)

FYI:

The Small Farmers, Large Field (SFLF) model is founded on the same principles of aggregation and achieving economics of scale, through strengthening backward and forward integration along the supply chain and lowering costs by synchronising key agricultural operations from field preparation to harvest.

The SFLF was conceptualised in Vietnam in 2011. One indicator of success is the total area under it rising from 8 hectares to 196,000 hectares between 2011 and 2015.

The SFLF model has taken different forms in Vietnam. Some are formal, with farmers physically pooling their land and setting up companies that operate like private businesses.

The shareholders here are farmers themselves. But there are also many informal SFLF entities, wherein farmers have retained their individual holdings and come together only for synchronisation and harmonisation of select agricultural operations to improve efficiency and lower costs.

Therefore, option (b) is the correct answer.

4. (a)

FYI:

Capital expenditure is the money that is spent on building productive assets such as roads and bridges and ports. Hence, statement 1 is correct.

According to revised estimates, the revenue expenditures have risen consistently in the past few years, from 1.2-1.3 per cent of GSDP on average before fiscal 2018 to 1.6 per cent in fiscal 2023.

According to Crisil, the revenue expenditure for ‘social welfare’ refers primarily to disbursements which take place in the form of direct transfers, cash incentives and distribution of personal or household goods. Hence, statement 2 is not correct.

However, these do not include spending on education, agriculture, public health and other key sectors, which are budgeted separately.

Therefore, option (a) is the correct answer.

5. (b)

FYI:

Reserve Bank of India had introduced a Prompt Corrective Action Framework (PCA) for Scheduled Commercial Banks in 2002 and the same has been reviewed from time to time based on the experience gained and developments in the banking system.

The objective of the PCA Framework is to enable Supervisory intervention at appropriate time and require the Supervised Entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health.

The PCA norm is a supervisory tool and is imposed when a bank breaches certain regulatory thresholds on capital-to-risk weighted assets ratio (CRAR), net NPAs and return on assets (RoA). Hence, statement 1 and 2 are correct.

The PCA Framework is applicable to the following category of NBFCs:

a. All Deposit-taking NBFCs [Excluding Government Companies] Hence, statement 3 is not correct.

b. All Non-Deposit Taking NBFCs in Middle, Upper and Top Layers

Therefore, option (b) is the correct answer.

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

Previous Daily Subject-Wise-Quiz

Daily subject-wise quiz — Polity and Governance (Week 21)

Daily Subject-wise quiz — History, Culture, and Social Issues (Week 21)

Daily subject-wise quiz — Environment, Geography, Science and Technology (Week 21)

Daily subject-wise quiz — Economy (Week 20)

Daily subject-wise quiz – International Relations (Week 20)

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