The 2020 Codex
Questions 61 to 70 (Set A)
In India, which of the following can be considered as public investment in agriculture?
1. Fixing Minimum Support Price for agricultural produce of all crops
2. Computerization of Primary Agricultural Credit Societies
3. Social Capital development
4. Free electricity supply to farmers
5. Waiver of agricultural loans by the banking system
6. Setting up of cold storage facilities by the governments
Select the correct answer using the code given below:
The Secret Whisper
Official Key: (c) 2, 3 and 6 only
This question tests the critical economic distinction between Revenue Expenditure (Subsidies/Transfers) and Capital Expenditure (Investments).
- Free electricity, loan waivers, and MSP interventions (1, 4, 5) are consumption subsidies. They are money spent that disappears immediately without creating any lasting productive asset. They are NOT investments.
- Computerization of PACS, Social Capital development (building co-ops/FPOs), and setting up cold storage (2, 3, 6) create long-term physical, institutional, or human assets that yield productive returns over many years. This is the true definition of Public Investment.
The Capital Sieve
The Safety Gauge
What is the importance of the term "Interest Coverage Ratio" of a firm in India?
1. It helps in understanding the present risk of a firm that a bank is going to give loan to.
2. It helps in evaluating the emerging risk of a firm that a bank is going to give loan to.
3. The higher a borrowing firm's level of Interest Coverage Ratio, the worse is its ability to service its debt.
Select the correct answer using the code given below:
The Secret Whisper
Official Key: (a) 1 and 2 only
The Interest Coverage Ratio (ICR) measures a company's ability to pay interest on its outstanding debt. It is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expenses.
Statements 1 and 2 are True: Banks strictly use this metric to evaluate whether a firm is currently too risky to lend to, and by tracking the ratio over time, they can spot emerging risks of default.
Statement 3 is False: This is an inversion trap. If a firm earns ₹100 and owes ₹10 in interest, its ICR is 10. If it earns ₹100 but owes ₹50 in interest, its ICR drops to 2. Therefore, a higher Interest Coverage Ratio indicates a better ability to service debt, not worse.
Route: [REALM 121: Financial Institutions] & [REALM 149: Non-Performing Assets]Which of the following factors/policies were affecting the price of rice in India in the recent past?
1. Minimum Support Price
2. Government's trading
3. Government's stockpiling
4. Consumer subsidies
Select the correct answer using the code given below:
The Secret Whisper
Official Key: (d) 1, 2, 3 and 4
The Indian rice market is massively distorted and regulated by government intervention at every single step of the supply chain:
- 1. Minimum Support Price: Sets an artificial floor price. Private traders cannot easily buy below this level.
- 2. Govt Trading: The FCI buys massive quantities directly from the market (Open-ended procurement) and also sells via Open Market Sale Scheme (OMSS), directly dictating market liquidity.
- 3. Govt Stockpiling: Hoarding millions of tonnes in buffer stocks artificially reduces the free-floating supply available in the open market, pushing up retail prices.
- 4. Consumer Subsidies: Distributing practically free rice via the PDS (NFSA) drastically alters consumer demand and prevents market-clearing equilibrium.
The Gravity of the State
The Regional Ledger
Consider the following statements:
1. The value of Indo-Sri Lanka trade has consistently increased in the last decade.
2. "Textile and textile articles" constitute an important item of trade between India and Bangladesh.
3. In the last five years, Nepal has been the largest trading partner of India in South Asia.
Which of the statements given above is/are correct?
The Secret Whisper
Official Key: (b) 2 only
Statement 1 is False: "Consistently" is the trap word. Indo-Sri Lankan trade fluctuated significantly during the 2010s due to Sri Lanka's internal political crises and shifting tariff structures, showing no straight linear growth.
Statement 3 is False: Bangladesh is by far India's largest trading partner in South Asia, not Nepal. (India exports heavily to Bangladesh, making it one of our few major trade surplus partners).
Statement 2 is True: The Indo-Bangladesh trade dynamic is heavily anchored by textiles. India exports massive amounts of raw cotton and yarn to Bangladesh, which their booming garment industry uses to manufacture finished apparel.
Route: [REALM 30: India–Bangladesh Relations] & [REALM 194: Global Trade Agreements]In which one of the following groups are all the four countries members of G20?
The Secret Whisper
Official Key: (a) Argentina, Mexico, South Africa and Turkey
This is a pure memory test of the Group of 20 members (19 countries + EU). Let's eliminate the intruders:
- Option B: Malaysia and New Zealand are NOT members.
- Option C: Iran and Vietnam are NOT members.
- Option D: Singapore is NOT a member (though it is frequently invited as a guest by the host nation).
Only Option A contains four actual sovereign members of the G20.
Route: [REALM 09: G20 & India]The Inner Circle
The Short-Term Swipe
Under the Kisan Credit Card scheme, short-term credit support is given to farmers for which of the following purposes?
1. Working capital for maintenance of farm assets
2. Purchase of combine harvesters, tractors and mini trucks
3. Consumption requirements of farm households
4. Post-harvest expenses
5. Construction of family house and setting up of village cold storage facility
The Secret Whisper
Official Key: (b) 1, 3 and 4 only
The core logic lies in the phrase "short-term credit." The Kisan Credit Card (KCC) functions like a standard credit card for daily/seasonal agricultural expenses.
- Allowed (1, 3, 4): It explicitly covers short-term needs like working capital (seeds/fertilizers), post-harvest expenses, and even has a small built-in component for the basic consumption requirements of the farming household.
- Not Allowed (2, 5): Buying heavy machinery (tractors/combines), building a family house, or setting up a cold storage facility are massive capital investments. These require long-term agricultural term loans with different interest structures, collateral, and repayment horizons, not a KCC swipe.
Consider the following statements:
1. The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).
2. The WPI does not capture changes in the prices of services, which CPI does.
3. Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.
Which of the statements given above is/are correct?
The Secret Whisper
Official Key: (a) 1 and 2 only
Statement 1 is True: In the CPI (Combined) basket, Food and Beverages hold a massive weightage of nearly 46%. In the WPI, primary food articles only account for about 15%, because WPI is dominated by manufactured goods (~64%).
Statement 2 is True: WPI (measured at the factory gate) strictly tracks only physical goods. CPI (measured at the retail consumer level) tracks goods AND services (like housing, education, healthcare, transport).
Statement 3 is False: This is a massive inversion. Historically, the RBI used WPI. However, following the Urjit Patel Committee recommendations in 2014, the RBI permanently shifted its monetary policy anchor to CPI (Consumer Price Index), because it reflects the actual cost of living experienced by the common citizen.
Route: [REALM 119: Inflation Targeting] & [REALM 214: Inflation & Price Stability]The Inflation Baskets
The Final Deltas
Consider the following pairs:
| River | Flows into |
|---|---|
| 1. Mekong | Andaman Sea |
| 2. Thames | Irish Sea |
| 3. Volga | Caspian Sea |
| 4. Zambezi | Indian Ocean |
Which of the pairs given above is/are correctly matched?
The Secret Whisper
Official Key: (c) 3 and 4 only
Pair 1 is False: The Mekong River (flowing through China, Myanmar, Laos, Thailand, Cambodia, and Vietnam) empties into the South China Sea, not the Andaman Sea.
Pair 2 is False: The River Thames flows through London and empties eastward into the North Sea, not westward into the Irish Sea.
Pair 3 is True: The Volga is the longest river in Europe and drains entirely into the endorheic basin of the Caspian Sea.
Pair 4 is True: The Zambezi River (famous for Victoria Falls) flows eastward across southern Africa and empties into the Indian Ocean via the Mozambique Channel.
Route: [REALM 71 TO 76: The Contemporary Master Atlas]Consider the following statements:
1. In the case of all cereals, pulses and oil-seeds, the procurement at Minimum Support Price (MSP) is unlimited in any State/UT of India.
2. In the case of cereals and pulses, the MSP is fixed in any State/UT at a level to which the market price will never rise.
Which of the statements given above is/are correct?
The Secret Whisper
Official Key: (d) Neither 1 nor 2
This question plays on two absolute myths about the MSP system.
Statement 1 is False ("Unlimited"): While procurement of rice and wheat by FCI is generally open-ended (unlimited) in major producing states, the procurement of pulses and oilseeds under the Price Support Scheme (PSS) is strictly capped (usually at 25% of the total production of the state) to limit government financial exposure.
Statement 2 is False ("Market price will never rise"): MSP acts as a floor price (a safety net), not a ceiling. During times of shortage, poor monsoons, or high global demand, the open market price of cereals and pulses frequently rises well above the MSP level.
Route: [REALM 121: Minimum Support Price (MSP)] & [REALM 123: MSP Implementation]The Floor & The Cap
The Money Market Grid
With reference to the Indian economy, consider the following statements:
1. 'Commercial Paper' is a short-term unsecured promissory note.
2. 'Certificate of Deposit' is a long-term instrument issued by the Reserve Bank of India to a corporation.
3. 'Call Money' is a short-term finance used for interbank transactions.
4. 'Zero-Coupon Bonds' are the interest bearing short-term bonds issued by the Scheduled Commercial Banks to corporations.
Which of the statements given above is/are correct?
The Secret Whisper
Official Key: (c) 1 and 3 only
This tests standard Money Market definitions:
- Statement 1 is True: Commercial Paper (CP) is an unsecured, short-term debt instrument issued by corporations to finance payroll, accounts payable, and inventories.
- Statement 3 is True: Call Money is the market where banks borrow and lend money to each other, typically on an overnight basis (1 day) to meet sudden liquidity or reserve (CRR) shortfalls.
- Statement 2 is False: A Certificate of Deposit (CD) is a short-to-medium-term instrument issued by Commercial Banks or Financial Institutions, NOT the RBI.
- Statement 4 is False: Zero-Coupon Bonds, by their very name, do not bear any interest (coupon). They are issued at a deep discount and redeemed at par. They are also mostly issued by the government or massive corporations, not standard commercial banks to corps.