UPSC 1998 Indian Economy Questions with Answers

Explanation

The Economic Survey of India is published annually by the Ministry of Finance, Government of India. It is usually released just before the Union Budget and provides a comprehensive overview of the country’s economic performance in the previous year and outlook for the future. The Economic Survey is prepared by the Department of Economic Affairs under the Ministry of Finance and includes analyses of various economic sectors, fiscal policies, and key challenges the country faces.

Explanation

White goods are products for conspicuous consumption. They typically include large and costly household appliances such as refrigerators, washing machines, air conditioners, and other major home appliances. White goods typically refer to major household appliances that are traditionally white in color (although this is less of a defining characteristic now). These are durable consumer goods, often considered non-essential but associated with a certain level of comfort and lifestyle.

Explanation

The Statutory Liquidity Ratio (SLR) is the minimum percentage of a bank’s net demand and time liabilities (NDTL) that it must maintain in the form of liquid assets such as cash, gold, or government-approved securities. This requirement ensures that banks have sufficient liquidity to meet withdrawal demands and maintain financial stability. The Re-serve Bank of India (RBI) sets and regulates the SLR to control the expansion of bank credit and ensure the solvency of banks. As of December 6, 2024, the SLR is set at 18%. The RBI has the authority to adjust this rate as part of its monetary policy toolkit.

Explanation

As of 1998, the Reserve Bank of India (RBI) operated on an accounting year spanning from July to June. This system had been in place since March 11, 1940, when the RBI transitioned its accounting period from January-December to July-June. However, in 2020, the RBI decided to align its accounting year with the Government of India’s fiscal year, which runs from April to March. This change was implemented to enhance the effectiveness of monetary policy and fiscal operations. Consequently, the accounting year 2020-21 was a transitional period of nine months, from July 2020 to March 2021. Subsequently, from April 2021 onwards, the RBI adopted the April-March accounting cycle

Explanation

The correct order of these currencies in terms of higher value per Indian rupee (as per 1998 exchange rates) was:

1. US Dollar (USD) Highest

2. Canadian Dollar (CAD)

3. New Zealand Dollar (NZD)

4. Hong Kong Dollar (HKD) Lowest The US dollar had the highest exchange value, while the Hong Kong dollar was the lowest among the listed currencies.

Explanation

Statements 2 and 3 are correct: The exchange rate of a currency is primarily determined by:

Demand for goods/services provided by the country: If a country’s exports are in high demand, its currency appreciates in value due to increased foreign exchange inflows. Hence,

statement 2 is correct.

Stability of the government: Political stability and good governance boost investor confidence, strengthening the currency. Political instability can cause depreciation. Hence,

statement 3 is correct.

Statements 1 and 4 are incorrect:

The World Bank does not set exchange rates; currency values are determined by market forces under floating exchange rate systems. Economic potential does influence long-term currency value, but it is not a direct determinant of daily exchange rate fluctuations. As per the International Monetary Fund (IMF) Exchange Rate Policy Framework, exchange rates are mainly driven by trade demand, capital flows, inflation, and interest rates.

Explanation

As of 1998 and even in current times, the largest share of India’s imports, in terms of rupee value, came from the Asia and Oceania region. This was primarily due to India’s heavy dependence on crude oil and petroleum imports from West Asian (Middle Eastern) countries such as Saudi Arabia, Iran, Iraq, and the UAE. Additionally, India imported electronic goods, machinery, and chemicals from East Asian economies like China, Japan, and South Korea.

Explanation

Capital Account Convertibility (CAC) allows the unrestricted exchange of the Indian rupee with foreign currencies for transactions related to investment and financial assets, such as foreign direct investment (FDI), portfolio investment, and external borrowings. Unlike current account convertibility, which deals with trade in goods and services, Capital account convertibility enables cross-border capital flows without regulatory restrictions. India has partially implemented Capital Account Convertibility, with restrictions on foreign investments in specific sectors and external borrowings.

Explanation

The Human Poverty Index (HPI) was introduced in the Human Development Report (HDR) 1997 by the United Nations Development Programme (UNDP). HDI (Human Devel-opment Index) measures overall development based on three parameters: life expectancy, education (mean years of schooling and expected years of schooling), and per capita income. HPI (Human Poverty Index) focuses on deprivation in three areas:

Longevity (probability of not living beyond 40) Knowledge (adult illiteracy rate) Standard of living (access to clean water, healthcare, and underweight children)

Explanation

Option (c) is correct: A Price Index measures the average change in prices of a selected basket of goods and services over time, relative to a base year. In this context, with 1960 as the base year (index value set at 100), a current price index of 330 indicates that the weighted average price of the selected items has increased by 3.3 times since 1960.

Option (a), (b) and (d) are incorrect:

A price index is based on a specific basket of goods and services and not all items in the economy. Therefore, it does not imply that all items have increased in price by 3.3 times. The price index reflects the weighted average change in prices of the entire basket and not individual selected items. The price index pertains to a broad basket of goods and services and does not provide information about specific commodities like gold.