MCQ’s - Economics Day 66

MCQ’s - EconomicsDay 66

- By Ankit Agrawal

ankitmay28

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1. In India, deficit financing is used for raising resources for

1. Economic development2. Redemption of public debt3. Adjusting the balance of payments4. Reducing the foreign debt

• This is a continuation from yesterday. This question was asked by UPSCin the past

• It is important to get conceptual clarity on certain topics and hencemany related questions were even asked yesterday

• Deficit financing is a pragmatic tool of economic development and hasbeen used by Indian government to obtain necessary resources tofinance its developmental objectives

2. Consider the following about Indian Debt Profile:

A. As per IMF in 2018, India's debt is lower than the best or emergingmarket economies in the world

B. In India, private debt in 2017 was 54.5 per cent of the GDP and thegeneral government debt was 70.4 per cent of the GDP, a total debt ofabout 125% of the GDP, according to the latest IMF figures. Incomparison, debt of China was 247 per cent of the GDP.

Which of the above is correct?1. A only2. B only3. Both A and B4. Neither A nor B

• Both the statements are correct

• India's debt is below the average of advanced economies and belowthe average of emerging market economies,

• The IMF is very much stressing that global debt at USD 182 trillion in2017 is at a new record high

• Read more at:https://economictimes.indiatimes.com/news/economy/finance/indias-debt-lower-than-best-emerging-market-economies-imf/articleshow/66147583.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

3. Consider the following statements related to India’s external debt:

1. At end-March 2020, India’s external debt was placed at US$ 558.5 billion, recording an increase of US$ 15.4 billion over its level at end-March 2019

2. At end-March 2020, long-term debt (with original maturity of above one year) was placed at US$ 451.7 billion, recording an increase of US$ 17.0 billion over its level at end-March 2019

Which of the above is correct?A. 1 onlyB. 2 onlyC. Both 1 and 2D. Neither 1 nor 2

3. Consider the following statements related to India’s external debt:

1. At end-March 2020, India’s external debt was placed at US$ 558.5 billion,recording an increase of US$ 15.4 billion over its level at end-March 2019

2. At end-March 2020, long-term debt (with original maturity of above oneyear) was placed at US$ 451.7 billion, recording an increase of US$ 17.0billion over its level at end-March 2019

Which of the above is correct?A. 1 onlyB. 2 onlyC. Both 1 and 2D. Neither 1 nor 2

• Both the statements are correct.

• The data showed valuation gains due to the appreciation of the U.S.dollar against the Indian rupee and other major currencies were at$16.6 billion. “Excluding the valuation effect, the increase in externaldebt would have been $32 billion instead of $15.4 billion at end-March 2020 over end-March 2019,” it said.

• The next question will further drill down into specifics of India’sexternal debt

4. Consider the following components of India’s external Debt:

1. Non-resident deposits2. Short-term trade credit3. Commercial borrowings

Rank the above in decreasing order of their share of India’s external debt:?1. 1232. 3123. 3214. 231

• Commercial borrowings remained the largest component of externaldebt, with a share of 39.4 per cent, followed by non-resident deposits(23.4 per cent) and short-term trade credit (18.2 per cent).

• RBI release: https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=50021

5. The Finance Minister in his Budget speech of 2011-2012 announced theformation of The Financial Sector Legislative Reforms Committee (FSLRC)to rewrite and harmonise financial sector legislations, rules and regulations.Who was its chairman?

A. Raghuram RajanB. Justice BN SrikrishnaC. C RangarajanD. Percy Mistry

• The Finance Minister in his Budget speech of 2011-2012 announced theformation of FSLRC to rewrite and harmonise financial sector legislations,rules and regulations. The resolution notifying the FSLRC was issued by thegovernment in March 2011.

• Chaired by Justice BN Srikrishna, the Commission has a diverse mix ofexpert members drawn from the fields of finance, economics, publicadministration, law, etc

• The Financial Sector Legislative Reforms Commission (FSLRC) was asked tocomprehensively reviewe and redraw the legislations governing India’sfinancial system. The Commission submitted its report containing ananalysis of the current regulatory architecture and a draft Indian FinancialCode to replace the bulk of the existing financial laws

• Next question will relate to its findings

6. Consider the following about key recommendations of FSLRC:

A. It proposed a Unified Financial Authority (UFA) by suggesting that SEBI,IRDA, PFRDA (Pension Fund Regulatory and Development Authority) andthe Forward Markets Commission (FMC) be merged under oneregulator—UFA

B. It also proposed that RBI (Reserve Bank of India) should continue to bethe banking regulator.


• Both the statements are correct

• The FSLRC submitted its report in March 2013. It came up with itsrecommendation spread over two volumes and 439 pages. The Commission hasproposed an Indian Financial Code Bill 2013 to create a Unified Financial Authority(UFA) and bring about reforms in financial sector regulations. The panel suggestedthat SEBI, IRDA, PFRDA (Pension Fund Regulatory and Development Authority)and the Forward Markets Commission (FMC) be merged under one regulator—UFA.

• However, RBI (Reserve Bank of India) will continue to be the banking regulator.The new UFA would subsume watchdogs for insurance, capital markets, pensionand commodities while letting the RBI continue its supervisory role over thebanking industry.

• Use these recommendations when asked a related question

• Other findings can be read: https://www.prsindia.org/report-summaries/financial-sector-legislative-reforms-commission

7. Consider the following about Forward Markets Commission (FMC):

1. The Forward Markets Commission (FMC) was the chief regulator ofcommodity futures markets in India

2. The government has merged commodities market regulator ForwardMarkets Commission (FMC) with Sebi with effect from 2015

Select the correct answer using the code given below:1. 1 only2. 2 only3. Both 1 and 24. Neither 1 nor 2

• We have already covered SEBI in Day 29 and 30. Hence, directly moving towardsFMC

• The government notified the merger of commodities market regulator ForwardMarkets Commission (FMC) with Sebi with effect from September 28, 2015

• "Forward Contracts Regulation Act (FCRA) 1952 gets repealed and Regulation ofCommodity Derivatives Market will shift to Securities and Exchange Board ofIndia (Sebi) under Securities Contracts Regulation Act (SCRA) 1956 with effectfrom 28th September, 2015," the Finance Ministry said in a statement.

• A unified regulator for commodities and capital markets will help streamlinemonitoring of commodity futures trading and curb wild speculations.

• Read more: https://www.sebi.gov.in/media/press-releases/sep-2015/finance-minister-unveils-merger-of-fmc-with-sebi_30729.html

8. Consider the following about Insurance Regulatory and DevelopmentAuthority of India (IRDAI):

A. The Insurance Regulatory and Development Authority of India or theIRDAI is the apex body responsible for regulating and developing theinsurance industry in India.

B. It is an autonomous body. It was established by an act of Parliamentknown as the Insurance Regulatory and Development Authority Act,1999


• We will cover static information related to regulators

• Insurance Regulatory and Development Authority (IRDA) was constitutedas an autonomous body to regulate and develop the insurance industry.

• The IRDAI was incorporated as a statutory body in April, 2000. The keyobjectives of the IRDA include promotion of competition so as to enhancecustomer satisfaction through increased consumer choice and lowerpremiums, while ensuring the financial security of the insurance market.

9. Which of the following committee recommendations led to the formationof the IRDAI:

A. Sengupta CommitteeB. Parekh CommitteeC. Malhotra CommitteeD. Rangarajan Committee

• Following the recommendations of the Malhotra Committee report, in 1999,the Insurance Regulatory and Development Authority (IRDA) was constituted asan autonomous body to regulate and develop the insurance industry.

• https://www.irdai.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo4&mid=2

• The Insurance Regulatory & Development Authority of India (IRDAI) was set upas a statutory body in the year 2000 based on the recommendations of theMalhotra Committee. It is headquartered at Hyderabad, Telangana State,India.

• In 1993, the Govt. of India set up a committee under the chairmanship of Shri. RN Malhotra, former Governor of RBI, to propose recommendations for reformsin the insurance sector. The objective was to complement the reforms initiatedin the financial sector.

• https://www.mintwise.com/irdai

10. Consider the following about Pension Fund and Regulatory DevelopmentAuthority (PFRDA):

A) PFRDA is a statutory body established by an Act of Parliament to promoteold age income security by establishing, developing and regulatingpension funds

B) PFRDA shall consist of a Chairperson and not more than six members, ofwhom at least three shall be Whole-Time Members, to be appointed bythe Central Government.


• The Pension Fund Regulatory & Development Authority Act waspassed on 19th September, 2013 and the same was notified on 1stFebruary, 2014.

• The Preamble of the Pension Fund Regulatory & DevelopmentAuthority Act, 2013 describes the basic functions of the PFRDA as –“…. to promote old age income security by establishing, developing and regulating pension funds, to protect the interests of subscribers to schemes of pension funds and for matters connected therewith or incidental thereto.”

• Read more from its website:https://www.pfrda.org.in/index1.cshtml?lsid=66

• Tomorrow we will cover some more information on PFRDA

MCQ’s - EconomicsDay 66

- By Ankit Agrawal

MCQ’s - Economics Day 66

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