UPSC Essentials: Daily subject-wise quiz — Economy (Week 4)

QUESTION 1

With reference to the report “State Finances – A Study of Budgets of 2022-23”, consider the following statements:

1. It is released by Department of Economic Affairs, Ministry of Finance.

2. As per the report, the debt-to-GDP ratio had risen in 2022-23 from 2020-21 – a year when states had struggled to manage the economic fallout of the pandemic.

Which of the above statements is/are not correct?

(a) Only 1

(b) Only 2

(c) Both 1 and 2

(d) Neither 1 nor 2

QUESTION 2

With reference to the Government-Securities (G-sec), consider the following statements:

1. G-secs are instruments that governments use to borrow money.

2. The yields of the G-sec remain the same over time.

3. G-secs are the safest investments as the yield is the lowest risk-free interest rate in any economy.

Select the correct answer using the codes given below:

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

QUESTION 3

Consider the following statements about AT1 bonds:

1. These are the secured bonds that are issued by banks.

2. They have no maturity date.

3. These bonds are used by the banks to bolster their tier-1 capital.

Select the correct answer using the codes given below:

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

QUESTION 4

With reference to the sugar sector in India, consider the following statements:

1. The export of sugar is carried out through the Agricultural and Processed Food Products Export Development Authority (APEDA), under the Ministry of Food Processing Industries.

2. The sugar marketing year runs from April to March.

3. The Central Government has withdrawn customs duty on sugar export to encourage the sugar industry.

Select the correct answer using the codes given:

(a) 1 and 3 only

(b) 1 and 2 only

(c) 3 only

(d) 1, 2 and 3

QUESTION 5

Which of the following can be the reason(s) behind the weakening of the Rupee?

1. Rising export cost

2. Increasing current account deficit

3. Increase in crude oil prices

Select the correct answer using the codes given below:

(a) 1 and 2 only

(b) 2 only

(c) 1, 2 and 3

(d) 2 and 3 only

QUESTION 6

With reference to the production of palm oil, consider the following statements:

1. India accounts for over 80 per cent of the global palm oil output.

2. The yield of palm oil per hectare of land is higher than any other oil seed worldwide.

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

QUESTION 7

Consider the following statements about the Agreement on Fisheries Subsidies (AFS):

1. It was adopted during the 12th ministerial conference of the World Trade Organisation (WTO).

2. The objective of AFS is to address Sustainable Development Goal (SDG) 14.6 to prevent harmful fisheries subsidies provided by countries towards marine fishing.

3. It prohibits subsidies for fishing on unregulated high seas.

Select the correct answer using the codes given below:

(a) 1 and 3 only

(b) 2 only

(c) 2 and 3 only

(d) 1, 2 and 3

QUESTION 8

With reference to the “One Nation One Fertilizer” scheme, consider the following statements:

1. The companies are allowed to display their name, brand, logo, and other relevant product information only on one-fourth space of their bags.

2. It will introduce one single brand “Bharat” for all subsidised fertilizers.

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

ANSWERS TO MCQs

1. (c)

FYI:

— Reserve Bank of India (RBI) released the report “State Finances – A Study of Budgets of 2022-23” which shows gross fiscal deficit (GFD) of states is budgeted to narrow to 3.4 per cent of gross domestic product (GDP) in 2022-23 from 4.1 per cent in 2020-21. Hence, statement 1 is not correct.

— The report said states have budgeted for higher revenue receipts in 2022-23, driven primarily by state goods and services tax (SGST), excise duties, and sales tax collections.

— As per the report, the debt-to-GDP ratio had fallen from 31.1 per cent in 2020-21 – a year when states had struggled to manage the economic fallout of the pandemic — to 29.5 per cent in 2022-23. The Fiscal Responsibility and Budget Management review committee, headed by N K Singh, had recommended a debt-to-GDP ratio of 20 per cent for states. Hence, statement 2 is not correct.

Therefore, option (c) is the correct answer.

2. (c)

FYI:

— G-secs, or government securities or government bonds, are instruments that governments use to borrow money.

— G-secs are different from everyday lending between two private individuals or entities:

(a) G-secs carry the lowest risk of all investments. After all, the chances of the government not paying back your money are almost zero. It is thus the safest investment one can make.

(b) G-Secs are different in the manner in which they are structured, and how their effective interest rates are calculated.

Calculation of  G-sec yields

— G-sec yields change over time, often several times during a single day. This happens because of the manner in which G-secs are structured.

— Every G-sec has a face value, coupon payment, and price. The price of the bond may or may not be equal to the face value of the bond.

Example: Suppose the government floats a 10-year G-sec with a face value of Rs 100 and a coupon payment of Rs 5. If one were to buy this single G-sec from the government, it would mean that one would give Rs 100 to the government today and the government would promise to –

(1) Return the sum of Rs 100 at the end of tenure (10 years)

(2) Pay Rs 5 each year until the end of this tenure.

— If G-sec yields (say for a 10-year bond) are going up, it would imply that lenders are demanding even more from private sector firms or individuals; that’s because anyone else is riskier when compared to the government. If G-sec yields start increasing, lending to the government is becoming riskier.

— If a government’s finances are sorted, more and more people want to lend money to such a G-sec. This, in turn, leads to bond prices going up and yields coming down.

Therefore, option (c) is the correct answer.

3. (b)

FYI:

— AT1 bonds are unsecured bonds that have perpetual tenors. In other words, these bonds, issued by banks, have no maturity date.

— They have a call option, which can be used by the banks to buy these bonds back from investors.

— These bonds are typically used by banks to bolster their core or tier-1 capital.

— AT1 bonds are subordinate to all other debt and only senior to common equity. Mutual funds (MFs) were among the largest investors in perpetual debt instruments.

Therefore, option (b) is the correct answer.

4. (c)

FYI:

— India’s sugar production fell 6 per cent to 311 lakh tonnes till April 15 of the 2022-23 marketing year ending September, mainly due to lower output in Maharashtra.

— The export of sugar is carried out through the Agricultural and Processed Food Products Export Development Authority (APEDA), under the Ministry of Commerce.

— The sugar marketing year runs from October to September.

— The sugar production in Uttar Pradesh rose to 96.6 lakh tonnes from October 1, 2022-April 15, 2023, against 94.4 lakh tonnes in the year-ago period.

— Maharashtra’s sugar production fell to 105 lakh tonnes from 126.5 lakh tonnes, while output in Karnataka declined to 55.3 lakh tonnes from 58 lakh tonnes.

— The Central Government has withdrawn customs duty on the export of sugar to encourage the sugar industry.

Therefore, option (c) is the correct answer.

5. (d)

FYI:

— Since the time Russia invaded Ukraine, the rupee has depreciated about 4% cent while currencies in other emerging markets have depreciated 4-7%. Domestically, we are witnessing an outflow of funds as investors move funds to high-yielding investment instruments.

— The US Federal Reserve’s decision to tighten the monetary policy and hike interest rates has led foreign portfolio investors (FPI) to pull out Rs 168,000 crore since January 2022.

— The rise in import costs and a growing current account deficit are the key reasons for the weakening of the rupee.

— The jump in Brent crude oil prices to 14-year highs and the ongoing conflict in Ukraine triggered the recent fall.

Impact

— The lower rupee against the dollar keeps import bills higher, pushing inflation even higher. Higher inflation is detrimental to the overall market.

— If the rupee does not strengthen, FPI outflows will continue, which is another negative factor for the market.

— A strong dollar is good for export-oriented companies but bad for import-oriented industries like oil, gas, and chemicals.

— The oil and other imported components will get costlier, which will further lead to even higher inflation. India imports nearly 80% of its fuel requirements. Auto, real estate, and infrastructure sectors would be the worst hit whereas IT and banks will be impacted positively.

— Exporters may benefit as the depreciation in currency improves the competitiveness of Indian goods and services. However, since most of the competing currencies are also depreciating against the US dollar, the benefit could be limited.

Therefore, option (d) is the correct answer.

6. (b)

FYI:

— Palm oil is the world’s most consumed vegetable oil. It is used as an edible oil in processed foods like chocolate bars, ice cream, instant noodles, and margarine. Cosmetics, soaps, shampoos, and detergents also use palm oil derivatives.

— The yield of palm oil per hectare of land is higher than any other oilseed in the world.

— Palm oil production also provides employment in rural areas, as currently over one million workers, three million smallholders, and many more households are involved in palm oil production across the world.

— Traditional growers in Indonesia and Malaysia account for more than 80% of the global palm oil output, and are focusing on replacing old oil palm trees that are cumbersome to harvest and less productive, while India and Thailand are trying to expand acreage.

Therefore, option (b) is the correct answer.

Other Source: (http://www.wwfindia.org)

7. (d)

FYI:

— The WTO Agreement on Fisheries Subsidies was adopted at the 12th Ministerial Conference (MC12) which marks a major step forward for ocean sustainability by prohibiting harmful fisheries subsidies.

— The aim of AFS as echoed by Sustainable Development Goal (SDG) 14.6 is to address harmful fisheries subsidies provided by countries towards marine fishing and to save the world’s fish stocks from further depletion.

— The AFS prohibits three kinds of subsidies:

(a) Illegal, unreported, or unregulated (IUU) fishing.

(b) Fishing of already over-exploited stocks.

(c) Fishing on unregulated high seas.

— As part of special and differential treatment, developing countries like India have been given a two-year transition period for phasing out the first two kinds of subsidies within their Exclusive Economic Zone (EEZ).

Therefore, option (d) is the correct answer.

Other Source: (http://www.wto.org)

8. (b)

FYI:

— The Ministry of Chemicals and Fertilisers has decided to implement One Nation One Fertiliser by introducing a “Single Brand for Fertilisers and Logo” under the fertilizers subsidy scheme named “Pradhanmantri Bhartiya Janurvarak Pariyojna” (PMBJP).

— The single brand name for UREA, DAP, MOP, and NPK would be BHARAT UREA, BHARAT DAP, BHARAT MOP, and BHARAT NPK respectively

— Under the new “One Nation One Fertiliser” scheme, companies are allowed to display their name, brand, logo, and other relevant product information only on one-third space of their bags.

— The “Bharat” brand and Pradhanmantri Bharatiya Jan Urvarak Pariyojana logo will have to be shown on the remaining two-thirds space.

Therefore, option (b) is the correct answer.

Previous Quizzes:

Polity and Governance (Week 2)

History, Culture, and Social Issues (Week 2)

UPSC Weekly Quiz (Current Affairs)

UPSC Essentials: Daily subject-wise quiz — Economy (Week 2)

International Relations (Week 2)

International Relations (Week 3)

Tomorrow’s Quiz: International Relations

The UPSC Essentials Indian Express is now on Telegram. Click here to join our YouTube channel and stay updated with the latest updates.