Security Market in India: UPSC Previous Year Questions (Indian Economy)

Explanation

As of the latest updates, the Securities Transaction Tax (STT) in India remains a significant source of revenue for the government. Introduced in 2004, STT is a direct tax levied on the purchase and sale of securities listed on recognized stock ex-changes.

Option (a) is correct: In India, taxes on stock exchange and futures market transactions fall under the Securities Trans-action Tax (STT), which is levied by the Union Government under the Securities Transaction Tax Act, 2004. The tax is imposed on the purchase or sale of listed securities, including equities and derivatives.

Statement 1 is correct: The Union Government levies and collects the STT, as per the provisions of the Finance Act (2004).

Statement 2 is incorrect: State governments do not collect STT. Instead, stamp duties on share transfers are collected by states, but not the transaction tax.

Explanation

Financial inclusion refers to providing affordable and accessible financial services, such as savings accounts, credit, and insurance, to all segments of society, especially the underprivileged and rural populations.

Statement 1 is correct: In 1969 and 1980, the Government of India nationalized several major commercial banks. This move aimed to shift the focus from "class banking" to "mass banking," thereby extending banking services to the underprivileged and rural sectors. Post-nationalization, these banks expanded their branch networks into rural areas, providing financial services to previously unbanked populations.

Statement 2 is correct: RRBs were established under the Regional Rural Banks Act of 1976 to develop the rural economy by providing credit and other facilities to small and marginal farmers, agricultural laborers, artisans, and small entrepreneurs. The primary objective was to bridge the credit gap in rural areas and integrate them into the formal banking system, thereby promoting financial inclusion.

Statement 3 is correct: The Lead Bank Scheme, introduced by the Reserve Bank of India, assigned specific banks the responsibility of acting as a consortium leader in particular districts. These lead banks were tasked with adopting villages to ensure the provision of banking services and credit facilities. This initiative aimed to promote financial inclusion by fostering a banking relationship with rural communities and addressing their specific financial needs.

Explanation

Option (c) is correct: Special Drawing Rights (SDR) is considered artificial currency as it is not a physical currency but a reserve asset created by the International Monetary Fund (IMF). It serves as a unit of account for IMF member countries and is used for international transactions and reserve management. The value of SDR is determined based on a basket of five major currencies: US Dollar, Euro, Chinese Yuan, Japanese Yen, and British Pound. Options (a), (b) and (d) are incorrect: ADR (American Depository Receipts) and GDR (Global Depository Receipts) are not currencies but financial instruments used by companies to raise capital from foreign markets. ADRs are financial instruments that represent shares of a foreign company, but they are traded on U.S. stock exchanges (like NYSE or NASDAQ). They allow U.S. investors to invest in non-U.S. companies without dealing with foreign markets or currencies. Example: An Indian company like Infosys can issue ADRs to let American investors buy its shares in the U.S. GDRs are similar to ADRs but are traded on multiple international markets, such as the London or Luxembourg stock exchanges. They help companies raise capital from investors worldwide, not limited to the U.S. Example:

Reliance Industries might issue GDRs to attract investors from Europe, Asia, or other regions.