UPSC 2004 Indian Economy Questions with Answers

Explanation

Assertion (A) is false: India does export natural rubber, although in limited quantities. While India is primarily a net importer of natural rubber to meet domestic demand, it also exports small amounts, especially of certain grades like RSS (Ribbed Smoked Sheets). Reason(R) is True: In the early years of 2000s, India was a major producer of natural rubber, and around 97% of its domestic demand for natural rubber was met from domestic production.

Explanation

Statement 1 is correct: The government provides higher and more stable Minimum Support Prices (MSP) for food grains like rice and wheat, which incentivizes farmers to prioritize these crops over oilseeds.

Statement 2 is correct: In 2004-2005, much of India’s oilseed farming depended on monsoon rains, making it sensitive to weather changes. The Economic Survey 2004-05 noted that irregular rainfall in 2004 caused a big drop in the production of rainfed crops like oilseeds and pulses. Most oilseed farming in India still relies on rainfall.

Statement 3 is correct: By 2004, India was producing 650,000 tons of rice bran oil from 4 million tons of rice bran through solvent extraction. However, this was only half of the potential, as the country’s paddy production could generate 9.8 million tons of rice bran annually, but only 5 million tons were processed. The untapped potential of rice bran oil and other non-tradition-al edible oils, like tree-borne oils, contributed to higher import dependence. By 2004, India produced 650,000 tons of rice bran oil from 4 million tons of rice bran, but only half of its 9.8 million-ton potential was utilized. Limited use of non-traditional edible oils like rice bran and tree-borne oils increased import dependence.

Statement 4 is incorrect: Oilseed’s import is not necessarily cheaper to import oilseeds. The import dependency is more because of inadequate domestic production rather than cost advantage.

Explanation

Statement 1 is correct: The government sets specific procurement targets for each crop season based on factors like estimated production, buffer stock requirements and market conditions. In case, there is no procurement target, the government allows the procurement agencies like the FCI to buy flexibly from the farmers.

Statement 2 is incorrect: The Government of India announces MSP for a variety of crops, including cereals, pulses, oilseeds, and commercial crops like cotton and jute.

Statement 3 is correct: Under the Targeted public Distribution System (TPDS), wheat and rice are allocated to States/Union Territories by the Government of India at uniform Central Issue Prices (CIP) for distribution to different categories, such as Antyodaya Anna Yojana (AAY) and Below Poverty Line (BPL) families.

Explanation

Statement 1 is correct: The National Housing Bank, the apex institution of housing finance in India. It was established on July 9, 1988, under the National Housing Bank Act of 1987. It was initially set up as a wholly-owned subsidiary of the Reserve Bank of India (RBI). However, in 2019, the ownership structure of NHB underwent a significant change. The Government of India acquired the entire stake from the RBI, making NHB a wholly-owned entity of the Government. Given that the question pertains to the year 2004 so the statement is correct.

Statement 2 is correct: The Small Industries Development Bank of India (SIDBI) was established on April 2, 1990, through an Act of Parliament. It was initially incorporated as a whollyowned subsidiary of the Industrial Development Bank of India (IDBI). The Shares of SIDBI are now held by the Government of India and twenty-two other institutions / public sector banks / insurance companies owned or controlled by the Central Government. Its key functions are:

Serves as the Principal Financial Institution for the MSME sector. Promotes, finances, and facilitates the development of Micro, Small, and Medium Enterprises (MSMEs). Provides credit, refinance, and developmental support to small industries. Plays a vital role in employment generation and inclusive economic development. Its operations support the government’s initiatives for the growth of small scale industries.

Explanation

The Kelkar Committee Report (2002) did not recommend raising the personal income tax exemption limit specifically for widows to Rs. 1.20 lakh. Instead, the report focused on simplifying the tax system and broadening the tax base. Key recommendations included:

Abolition of Wealth Tax to streamline the tax structure. Elimination of standard deduction for salaried employees to simplify personal income tax calculations. Exemption from tax on dividends and capital gains from listed equities to encourage market participation. The report emphasized promoting economic grow-th by reducing distortions in the tax system and encouraging compliance.

Explanation

The services sector has attracted the highest Foreign Direct Investment (FDI) inflows into India in the decade leading up to 2004. This includes banking, insurance, IT, and business process outsourcing (BPO). The liberalization of FDI norms, IT boom, and rapid urbanization contributed to significant investments in financial services, telecommunications, and IT-enabled services. As per Reserve Bank of India (RBI) and Department for Pro-motion of Industry and Internal Trade (DPIIT) reports, the services sector remained the largest recipient of FDI inflows, consistently contributing over 15-20% of total FDI inflows.