UPSC 2019 Prelims Questions with Answers

Explanation

Statement 1 is correct: The Reserve Bank of India (RBI) directed payment system providers to ensure that all payment system data is stored only in India. This is part of the data localization policy.

Statement 2 is incorrect: The RBI’s directive does not require payment systems to be owned or operated by public sector enterprises only. The policy applies to all payment system providers regardless of whether they are public or private entities. It focuses on the localization of data storage rather than ownership structures.

Statement 3 is incorrect: The directive does not require payment system providers to submit audit reports to the Comptroller and Auditor General of India. Instead, they are required to submit a System Audit Report (SAR) conducted by CERT-IN empaneled auditors to the RBI not later than December 31.

Explanation

The Inter-Creditor Agreement (ICA) was signed by Indian banks and financial institutions to expedite the resolution of stressed assets involving amounts of 50 crore or more under consortium lending arrangements. The ICA was part of the "Sashakt" committee recommendations which proposed a five-pronged strategy to tackle NPAs. The ICA provides a structured framework for multiple lenders to collaborate and resolve stressed assets efficiently. Key features include:

Majority Decision Binding: If 66% of the lenders by value agree on a resolution plan, it becomes binding on all participating lenders. This was done to prevent individual holdouts from delaying resolutions. Timely ReAns: The agreement emphasizes prompt action, setting specific timelines to finalize and implement resolution plans. Asset Management Approach: It encourages the formation of independent asset management companies to manage and turn around distressed assets.

Explanation

Banks Board Bureau recommends for selection of heads - Public Sector Banks and Financial Institutions and helps banks in developing strategies and capital raising plans. Bank Board Bureau was established as an independent organisation in February 2016 based on the suggestions of the RBI appointed Nayak Committee. It was part of the Indradhanush Plan. It suggested the selection of full-time directors and non-ex-ecutive chairs for Public Sector Banks (PSBs) and state-owned financial institutions. Note: Now, Financial Services Institutions Bureau (FSIB) was put in place by the Government in place of BBB for recommending candidates for PSBs heads

Explanation

Statement 1 is correct: There is no bar on how many offices can be exempted from the purview of the law. In the past the Supreme Court also held that the Parliament (Prevention of Disqualification) Amendment Act, 2006 exempting 55 offices occupied by members of Parliament from disqualification was constitutionally valid.

Statement 2 is correct: Parliament has also enacted the Parliament (Prevention of Disqualification) Act, 1959, which has been amended five times to expand the exempted list. Amended was made in the following years: 1960, 1977, 1993, 2006, 2013.

Statement 3 is incorrect: The expression ‘office of profit’ is mentioned in the Articles 102(1)(a) and 191(1)(a) of Constitution but it has neither been ‘defined’ in the Indian Constitution nor in the Representation of the People Act, 1951.

Explanation

A bank’s assets are what it owns and what generates income for the bank. They represent how the bank uses the funds it has mobilized. A bank’s liabilities are what it owes to others. They represent the sources of funds that the bank uses to acquire assets and conduct its business. A commercial bank’s balance sheet, assets and liabilities are categorized as follows:

Assets:

Advances: These are loans and credits extended to customers, generating interest income for the bank. Investments: Holdings in government securities, bonds, and other approved securities that earn returns. Money at Call and Short Notice: Short-term funds lent to other banks or financial institutions, typically repayable on demand or within a short period. Liabilities:

Deposits: Funds accepted from the public, including savings, current, and fixed deposits, which the bank is obligated to repay. Hence, option (b) is correct.

Explanation

In India, independent regulators in sectors like telecommunications, insurance, and electricity play a crucial role in ensuring that these sectors function efficiently and fairly.

Statement 1 is correct: Ad Hoc Committee set up by Parliament:

Temporary committees formed for specific purposes, including reviewing regulators.

Statement 2 is correct: Parliamentary Department Related Standing Committee: Main body responsible for scrutinizing independent regulators in sectors like telecommunications, insurance, and electricity.

Statement 3 is incorrect: Finance Commission: Primarily deals with financial devolution between the Union and States, not regulatory reviews.

Statement 4 is incorrect: Financial Sector Legislative Reforms Commission (FSLRC): Was a one-time commission (2011) to review financial sector laws, not independent regulators.

Statement 5 is incorrect: NITI Aayog: Works as a policy think tank, but does not formally review regulators.

Explanation

Option (d) is correct: P-Notes, short for Participatory Notes, are financial instruments that let foreign investors indirectly invest in the Indian stock market without registering with the market regulator Securities and Exchange Board of India (SEBI). P-Notes act like a substitute for underlying Indian company shares. Essentially, P-Notes act as a proxy for direct investment. The overseas investor buys a P-Note from the FPI, and the FPI invests the underlying funds in Indian securities on behalf of the P-Note holder. Benefits for foreign investors include avoiding the hassle of registering with SEBI and offering anonymity. Options (a), (b) and (c) are incorrect:

Certificate of Deposits (CDs) are short-term debt instruments issued by banks to raise funds. They are not related to foreign investment in the stock market. Commercial Paper is also a short-term debt instrument issued by companies to raise working capital. It is also not directly used for foreign investment in the stock market. Promissory Note is a written promise to pay a specific sum of money at a certain date. While it can be used in various financial transactions, it’s not the instrument used for indirect foreign investment in the stock market through FPIs

Explanation

An expansionary monetary policy may lead to lower interest rates and thus flight of foreign capital from India (which would get better returns abroad). Also, such a policy may fuel inflation and higher imports through higher government spending and further cause a slide of the rupee. Options (a), (b) and (c) are incorrect: As these include the likely measures the Government/ RBI would take to stop the slide of the Indian rupee:

Curbing imports of nonessential goods-and promoting exports would help control imports and thus the depreciation of the rupee. Masala bonds were brought in to curb the slide of rupee since the borrowing is rupee-dominated and does not put pressure on our currency through borrowing dollars. Easing external commercial borrowing (ECBs) will lead to higher borrowing abroad and would temporarily bridge the deficit of forex in India preventing the slide of rupee.

Explanation

Atal Innovation Mission (AIM) by NITI Aayog is Government of India’s flagship initiative to promote a culture of innovation and entrepreneurship in the country and was setup in 2016. Towards this end AIM has taken a holistic approach to ensure creation of a problem-solving innovative mindset in schools and creating an ecosystem of entrepreneurship in universities, research institutions, private and MSME sector.

Explanation

Statement 1 is incorrect: The Indian Patents Act, 1970 (as amended in 2005) explicitly excludes biological processes for the production or propagation of plants and animals from patentability. The Act states that "plants and animals in whole or any part thereof, including seeds, varieties, and species, and essentially biological processes for the production or propagation of plants and animals" are not patentable.

Statement 2 is incorrect: India had an Intellectual Property Appellate Board (IPAB), which was established in 1958 to handle disputes related to patents, trademarks, and copyrights. However, IPAB was abolished in 2021 under the Tribunals Reforms (Rationalisation and Conditions of Service) Ordinance, 2021. After its abolition, patent, trademark, and copyright appeals are now handled by the High Courts.

Statement 3 is correct: Under the Indian Patents Act, 1970, plants and plant varieties cannot be patented. Instead, plant varieties are protected under the PPVFR Act, 2001, which grants breeders’ rights but not patents.