The 2020 Codex
Questions 51 to 60 (Set A)
With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?
The Secret Whisper
Official Key: (b) It is a largely non-debt creating capital flow.
Foreign Direct Investment (FDI) involves a foreign entity taking an ownership stake (equity) in an Indian company. Because it is equity, it does not create debt that the country is obligated to repay with interest (unlike External Commercial Borrowings or bonds). This makes FDI highly stable and desirable—a non-debt creating capital flow.
Note: Option A is false because FDI can easily be in unlisted companies. Option C is false because equity doesn't require debt-servicing. Option D describes Foreign Portfolio Investment (FPI), not FDI.
Route: [REALM 170: FDI in India] & [REALM 49: Foreign Investment & Resource Mob.]The Equity Shield
The Deficit Scale
With reference to the international trade of India at present, which of the following statements is/are correct?
1. India's merchandise exports are less than its merchandise imports.
2. India's imports of iron and steel, chemicals, fertilisers and machinery have decreased in recent years.
3. India's exports of services are more than its imports of services.
4. India suffers from an overall trade/current account deficit.
Select the correct answer using the code given below:
The Secret Whisper
Official Key: X (Dropped by UPSC)
UPSC officially dropped this question due to ambiguity in the options provided in the actual exam, but the economic logic is clear:
- 1 is True: India has a chronic trade deficit in merchandise (goods)—we import far more than we export.
- 2 is False: Imports of these raw materials and capital goods had actually increased to support domestic infrastructure.
- 3 is True: India runs a massive surplus in the services sector (thanks to IT and BPO exports).
- 4 is True: Because the massive deficit in goods outweighs the surplus in services, India historically suffers from an overall Current Account Deficit.
The most logically correct option would have been 1, 3, and 4, which was missing from the official options A,B,C,D (they had 1,3,4 as D in some sets, but ambiguity led to a drop).
Route: [REALM 166: BOP Performance of India] & [REALM 130: Trade Balance & External Sector]The term 'West Texas Intermediate', sometimes found in news, refers to a grade of
The Secret Whisper
Official Key: (a) Crude oil
West Texas Intermediate (WTI) is a specific grade of crude oil. Because crude oil properties differ globally, oil markets use specific benchmarks to price it. The three main global benchmarks are WTI (drilled in the USA, known for being 'light and sweet'), Brent Crude (from the North Sea, the most widely used global benchmark), and Dubai Crude (the benchmark for Middle Eastern oil sent to Asia).
Route: [REALM 69: Petroleum]The Black Gold
The Borrowers
In the context of the Indian economy, non-financial debt includes which of the following?
1. Housing loans owed by households
2. Amounts outstanding on credit cards
3. Treasury bills
Select the correct answer using the code given below:
The Secret Whisper
Official Key: (d) 1, 2 and 3
In macroeconomics, debt is classified by who owes it. Financial debt is debt owed by financial institutions (like a bank borrowing from another bank or from the RBI). Non-financial debt comprises credit instruments issued by governmental entities, households, and businesses that are not in the financial sector.
- 1 & 2: Housing loans and credit card debts are owed by Households (non-financial sector).
- 3: Treasury Bills are debt instruments owed by the Government (also non-financial sector).
In India, why are some nuclear reactors kept under "IAEA Safeguards" while others are not?
The Secret Whisper
Official Key: (b) Some use imported uranium and others use domestic supplies
This stems directly from the 2008 Indo-US Civil Nuclear Agreement. India agreed to a Separation Plan. To be allowed to purchase uranium from the Nuclear Suppliers Group (NSG) for civilian energy generation, India had to put the civilian reactors that process this imported uranium under the stringent monitoring (safeguards) of the International Atomic Energy Agency (IAEA).
Conversely, India kept its strategic/military reactors (which use purely domestic uranium reserves) completely out of IAEA safeguards to maintain its sovereign nuclear weapons program.
Route: [REALM 467: India’s Nuclear Policy] & [REALM 461: Nuclear Reactors & Types]The Separation Plan
The Goods Gatekeeper
With reference to Trade-Related Investment Measures (TRIMS), which of the following statements is/are correct?
1. Quantitative restrictions on imports by foreign investors are prohibited.
2. They apply to investment measures related to trade in both goods and services.
3. They are not concerned with the regulation of foreign investment.
Select the correct answer using the code given below:
The Secret Whisper
Official Key: (c) 1 and 3 only
TRIMS is a World Trade Organization (WTO) agreement.
Statement 1 is True: The agreement strictly prohibits measures that distort trade, including quantitative restrictions (like telling a foreign car maker they can only import exactly 100 engines a year).
Statement 2 is False: This is the major trap. Article 1 of the TRIMS Agreement explicitly states that it applies only to investment measures related to trade in goods, not services (Services are covered under GATS).
Statement 3 is True: TRIMS is purely about ensuring free trade of goods crossing borders. It is not concerned with regulating Foreign Direct Investment (FDI) policies, equity caps, or how a country manages foreign capital inflows.
Route: [REALM 187: WTO & India]If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do?
1. Cut and optimize the Statutory Liquidity Ratio
2. Increase the Marginal Standing Facility Rate
3. Cut the Bank Rate and Repo Rate
Select the correct answer using the code given below:
The Secret Whisper
Official Key: (b) 2 only
An expansionary monetary policy means the RBI wants to pump liquidity (money) into the market to spur growth. To do this, they make borrowing cheaper and free up bank funds.
Statement 1: Cutting the SLR frees up money that banks would otherwise have to lock up in safe government bonds, allowing them to lend more. (They WOULD do this).
Statement 3: Cutting the Repo Rate makes loans cheaper for banks and consumers. (They WOULD do this).
Statement 2: Increasing the Marginal Standing Facility (MSF) rate makes emergency borrowing for banks more expensive, which forces banks to raise interest rates, choking off money supply. This is a contractionary move. Therefore, this is what the RBI would NOT do.
Route: [REALM 113: Monetary Policy] & [REALM 114: Instruments of Monetary Policy]The Liquidity Valve
The Rural Shift
With reference to the Indian economy after the 1991 economic liberalization, consider the following statements:
1. Worker productivity (per worker at 2004-05 prices) increased in urban areas while it decreased in rural areas.
2. The percentage share of rural areas in the workforce steadily increased.
3. In rural areas, the growth in non-farm economy increased.
4. The growth rate in rural employment decreased.
Which of the statements given above is/are correct?
The Secret Whisper
Official Key: (b) 3 and 4 only
This requires analyzing the structural transformation of India post-1991 (often citing NITI Aayog working papers).
Statement 1 is False: Worker productivity increased in both urban and rural areas due to mechanization and technological spillover. It did not decrease.
Statement 2 is False: As urbanization accelerated, the percentage share of rural areas in the total workforce decreased (from around 76% to below 70%), not increased.
Statement 3 is True: The rural non-farm sector (construction, rural manufacturing, services) grew significantly to absorb labor moving out of pure agriculture.
Statement 4 is True: The absolute growth rate of employment in rural areas sharply decreased compared to the pre-1991 era, leading to the phenomenon of "jobless growth" in the villages.
Route: [REALM 227: Post-Reform Growth] & [REALM 228: Reform Outcomes & Unresolved Challenges]Consider the following statements:
1. In terms of short-term credit delivery to the agriculture sector, District Central Cooperative Banks (DCCBs) deliver more credit in comparison to Scheduled Commercial Banks and Regional Rural Banks.
2. One of the most important functions of DCCBs is to provide funds to the Primary Agricultural Credit Societies.
Which of the statements given above is/are correct?
The Secret Whisper
Official Key: (b) 2 only
Statement 1 is False: Commercial Banks (like SBI, PNB, HDFC) are the behemoths of agricultural finance. Driven by Priority Sector Lending targets, Scheduled Commercial Banks deliver roughly 75-80% of all short-term agricultural credit. DCCBs and RRBs account for a much smaller fraction.
Statement 2 is True: The rural cooperative credit structure in India is a 3-tier system. At the top is the State Cooperative Bank. In the middle (at the district level) is the DCCB. At the absolute grassroots level are the Primary Agricultural Credit Societies (PACS). The primary function of the DCCB is to act as a clearinghouse and provide funds downward to the PACS, which then lend directly to the farmers.
Route: [REALM 237: Cooperative Credit Societies in India] & [REALM 238: Primary Agricultural Credit Societies]The Three-Tier Pyramid
The Digital Shield
In India, under cyber insurance for individuals, which of the following benefits are generally covered, in addition to payment for the loss of funds and other benefits?
1. Cost of restoration of the computer system in case of malware disrupting access to one's computer
2. Cost of a new computer if some miscreant wilfully damages it, if proved so
3. Cost of hiring a specialized consultant to minimize the loss in case of cyber extortion
4. Cost of defence in the Court of Law if any third party files a suit
Select the correct answer using the code given below:
The Secret Whisper
Official Key: (b) 1, 3 and 4 only
This is a test of applying strict definitions to a modern product.
Statements 1, 3, and 4 are True: Cyber insurance policies strictly cover digital liabilities. This includes hiring IT experts to remove malware and restore data (1), hiring negotiators or experts during ransomware/extortion attacks (3), and paying your legal defense fees if a client sues you because their data was leaked from your hacked system (4).
Statement 2 is False: Willful physical damage to a computer (e.g., someone breaking into your house and smashing your laptop with a hammer) is covered under standard Property/Homeowners Insurance, absolutely not under Cyber Insurance.
Route: [REALM 501: Cyber Crime & Cyber Security] & [REALM 156: Insurance Sector in India]