UPSC 2016 Indian Economy Questions with Answers

Explanation

Drip irrigation is a type of micro-irrigation system that applies small amounts of water and fertilizer uniformly across a specific area. Examples of drip irrigation methods include surface drip irrigation, subsurface drip irrigation (SDI), drip tape, and micro-sprinklers.

Option 1 is correct: Drip irrigation delivers water directly to the plant’s root zone, reducing water availability for weeds, which helps in minimizing weed growth.

Option 2 is incorrect: Some of the disadvantages of Drip Irrigation are sensitivity to clogging, problem of moisture distribution, salinity hazards and high cost compared to furrow.

Option 3 is correct: Drip irrigation generally doesn’t contribute to significant erosion since water is delivered at low pressures and in controlled amounts, unlike surface irrigation where water flow can lead to erosion.

Explanation

UDAY (Ujwal DISCOM Assurance Yojana), launched in November 2015, aims to address the financial and operational inefficiencies of power distribution companies (DIS-COMs). It seeks to improve their financial health by allowing state governments to take over 75% of their debt and service the remaining through bonds. The scheme focuses on reducing Aggregate Technical and Commercial (AT&C) losses to 15% by 2019, lowering power generation costs through energy efficiency, and enhancing service delivery with uninterrupted power supply and timely billing for consumers.

Explanation

Through the amendment in Mines & Minerals (Devel-opment & Regulation) (MMDR) Act, in 2015, Government of India has made provision for establishment of District Mineral Foundation in all the districts affected by mining.

Statement 1 is incorrect: DMFs are not directly involved in promoting mineral exploration activities. Their focus is on the welfare of affected communities and areas, not on exploration or mining activities.

Statement 2 is correct: The main purpose of DMFs is to protect the interests of persons and areas affected by mining operations. They use funds collected from miners to implement various developmental and welfare projects, such as healthcare, education, sanitation, and infrastructure, in mining-affected areas.

Statement 3 is incorrect: DMFs do not have any role in authorizing State Governments to issue licenses for mineral exploration. Licensing and regulation of mining activities are handled by the respective State Governments and the Central Government under the provisions of the Mines and Minerals (Development and Regulation) Act, 1957.

Explanation

Statement 1 is incorrect: Bitcoin operates on a decentralized blockchain technology, which eliminates the need for any central authority such as central banks to track transactions. The system is maintained by miners who validate transactions and add them to the public ledger called the blockchain. While central banks are increasingly exploring the implications of cryptocurrencies and some are even considering issuing their own digital currencies (CBDCs), they do not currently track Bitcoin transactions.

Statement 2 is correct: Anyone with a Bitcoin wallet (which generates a Bitcoin address) can send and receive Bitcoins to and from any other Bitcoin address, anywhere in the world. A Bitcoin address functions as a public key, similar to a digital bank account number. This address can be shared to receive payments. Sending or receiving bitcoins requires no intermediary, allowing for peer-to-peer transactions across borders which is often faster and cheaper than traditional banking systems.

Statement 3 is correct: Bitcoin transactions are pseudo-anonymous which means that while wallet addresses are visible on the blockchain but the users’ identities are not directly linked to those addresses. This makes Bitcoin ideal for privacy-conscious users. This anonymity is a key feature that has attracted some users to Bitcoin, but it has also raised concerns about its potential use in illicit activities.

Explanation

Gold Monetization Scheme and Sovereign Gold Bond Scheme were introduced to lower the physical demand for gold and remove the estimated 20,000 tonnes of the precious metal from households where it was sitting inert. Sovereign Gold Bonds (SGBs) are government securities denominated in grams of gold issued by the RBI on behalf of the Government.

Statement 1 is correct: Sovereign Gold Bond Scheme was launched along with the Gold Monetisation Scheme in November 2015. India has a strong cultural affinity for gold, and a significant amount of gold is held by households in the form of jewelry, bars, and coins. The objective is to reduce India’s gold imports and bring all the gold lying idle with individuals and households and put it to productive use in the economy.

Statement 2 is incorrect: Neither the SGB nor the GMS is explicitly designed to promote FDI in the gold and jewellery sector. Their primary focus is on domestic gold mobilization and reducing reliance on imports. While a more organized gold market resulting from these schemes could create a conducive environment for investment, promoting FDI is not a stated objective of these schemes.

Statement 3 is correct: By offering a non-physical form of gold investment, the scheme aims to curb the demand for imported gold thus reducing the country’s import bill. The SGB scheme offers investors bonds denominated in grams of gold. These bonds provide returns linked to the market price of gold along with periodic interest payments.

Explanation

Statement 1 is correct: The Reserve Bank of India’s guidelines for licensing Payments Banks specify that entities such as existing non-bank Prepaid Payment Instrument (PPI) issuers, mobile telephone companies, supermarket chains, and others owned and controlled by residents are eligible to promote Payments Banks. This initiative aims to leverage their extensive customer bases and distribution net-works to enhance financial inclusion.

Statement 2 is incorrect: Payments Banks are permitted to issue ATM or debit cards but are not allowed to issue credit cards. This restriction aligns with their mandate to provide basic banking services without engaging in credit risk activities. The restriction on credit cards is a key differentiator between Payment Banks and traditional banks.

Statement 3 is correct: As per RBI guidelines their primary role is to accept demand deposits, provide payment and remittance services, and distribute financial products like insurance and mutual funds, thereby promoting financial inclusion without assuming credit risk.

Explanation

Statement 1 is correct: Core Banking Solution (CBS) is a centralized platform that connects all branches of a bank, allowing customers to access and manage their accounts from any branch, ATM, or online. It’s a software application that integrates various banking operations and provides a unified view of customer information. Statements 2 and 3 are incorrect:

The implementation of Core Banking Solutions is primarily driven by individual banks aiming to improve operational efficiency and customer service. Core Banking Solutions are unrelated to the processes of bank mergers or acquisitions. They are technological systems that enable centralized operations and do not pertain to the takeover procedures of banks with significant non-performing assets.

Explanation

MCLR is the lowest interest rate a bank can charge for loans. It helps banks calculate the minimum interest rate for different types of loans. The Reserve Bank of India (RBI) introduced the MCLR system on April 1, 2016, to make monetary policy transmission more effective and increase transparency in setting interest rates. It replaced the base rate system, which had been used since July 2010.

Statement 1 is correct: Bringing transparency in the methods followed by various banks for the determination of interest rate is one of the key objectives of MCLR regime. Before banks used various methods to set lending rates which lead to opacity and confusion for borrowers. MCLR introduced a standardized, transparent calculation method, requiring banks to disclose its components, helping borrowers better understand their loan rates.

Statement 2 is correct: By standardizing the methodology for calculating lending rates, the MCLR guidelines aim to ensure that interest rates are "fair" to Borrowers and Banks:

The transparent methodology prevents banks from arbitrarily charging high interest rates. The MCLR framework allows banks to factor in their actual cost of funds when determining lending rates, ensuring that they can maintain profitability.

Explanation

A budget deficit occurs when government expenses exceed revenue. It can be used as an indicator of the financial health of a country. It is a term more commonly used to refer to government spending and receipts rather than businesses or individuals. When a budget deficit occurs, it means that the current expenses surpass the income generated from regular operations. To correct its nation’s budget deficit, often referred to as a fiscal deficit, a government may cut back on certain expenditures or increase revenue-generating activities.

Statement 1 is correct: Reducing the revenue expenditure will certainly help in bridging the gap. Reducing revenue expenditure (such as government spending on salaries, interest payments, and subsidies) directly reduces the fiscal deficit. By controlling unproductive expenditure, the government can balance its budget more effectively.

Statement 2 is incorrect: Introducing new welfare schemes will most likely result in increasing expenditure and so will expanding industries which would require capital infusion. These steps will increase the budget deficit.

Statement 3 is correct: Rationalizing subsidies (for instance, by cutting unnecessary subsidies or targeting them better) can help reduce the fiscal deficit. Subsidies consume a significant portion of government revenue, and streamlining them would lead to savings.

Statement 4 is incorrect: Reducing import duties can reduce government revenue (as import duties are a source of income). This could increase the fiscal deficit if the loss in revenue isn’t compensated by other measures or increased economic activity.

Explanation

Capital Budget consists of capital receipts (like disinvestment, borrowing, loans from public or foreign governments, Reserve Bank of India, etc) and capital expenditure (like expenditure on development of machinery, health facilities, etc). Capital budgeting implies setting targets for projects/schemes to ensure maximum profitability.

Statement 1 is correct: Capital Expenditure includes the expenditure on the acquisition of land, building, machinery, equipment, creating assets such as roads and hospitals, repayment of government borrowings.

Statement 2 is correct: Capital receipts components are Loan borrowings, disinvestments, funds received from the issue of shares or debentures, etc.

Statement 3 is correct: Loans, and advances by the central government to state and union territory governments, etc. are also included in the capital budget of the Government of India.