Economic and Financial Terminology Part 2

Monetary and Fiscal Policy

Inflation and Monetary Policy  

1. Inflation and Money Supply

Price level in an economy is determined by the available goods and services and purchasing power or money supply available with the public

  • When there is a general rise in the price level in relation to a given level of available goods and services, it is called inflation. It could be due to Demand Pull or Cost Push conditions
  • A high level of inflation can have negative effects like instability in real value of money, discouragement to savings and investment and shortage of goods affecting the quality of life of poorer sections of the economy against the welfare objectives of the government
  • A low level inflation is good for developing countries like India to stimulate growth, income and employment in tune with a growing population
  • Deflation is the opposite of inflation a situation of decline in general price levels and occurs when the inflation rate falls below 0% (or it is negative inflation rate).  Deflation can occur owing to reduction in the supply of money or credit and also due to direct contractions in spending, either in the form of a reduction in government spending, personal spending or investment spending. Deflation often leads to increasing unemployment in an economy, since the process often leads to a lower level of demand in the economy.
  • Stagflation refers to economic condition where economic growth is very slow or stagnant and prices are rising. There is an increase in unemployment- accompanied by a rise in prices, or inflation.
  • In India inflation is mainly measured on a year to year basis and by changes in the important indices WPI and CPI.
  • WPI is prepared by Economic Advisor to GOI and DIPP under Ministry of Commerce on a weekly, monthly (weekly and monthly being provisional) and bimonthly (authentic) mainly by collecting data from manufacturing corporates and firms. The three major groups Primary Articles, Fuel & Power and Manufactured Goods have respective weights of 20%, 15% and 65% in the index. When all the three components are included it is called Headline Inflation and when only manufactured goods are included it is called Core Inflation. WPI is mainly used for trade, Fiscal and other economic policy purposes.
  • CPI compiled by the CSO, Ministry of Statistics and Programme Implementation, has three variants viz., CPI-Rural, CPI-Urban and CPI-Combined and includes five groups, Food & Beverages, Health & Education, Housing, Fuel and Bed, Footwear etc,. Housing is not included in the CPI Rural and the first two components carry a total weight of 76% in the combined index. CPI is used for monetary policy targeting by RBI and revision of Dearness Allowances of employees of Central and State governments, PSUs and corporates.
  • Consumer prices in India went up 6.07 percent year-on-year in July of 2016, accelerating for the fourth straight month It was the highest figure since August of 2014, as food cost rose further. On a monthly basis, consumer prices rose 0.77 percent. Inflation Rate in India averaged 7.64 percent from 2012 until 2016, reaching an all time high of 11.16 percent in November of 2013 and a record low of 3.69 percent in July of 2015.
  • In 2013, the consumer price index replaced the wholesale price index (WPI) as a main measure of inflation. In India, the most important category in the consumer price index is Food and beverages (45.86 percent of total weight). Housing accounts for 10 percent; Transport and communication for 8.6 percent; Fuel and light for 6.84 percent; Clothing and footwear for 6.5 percent; Medical care for 5.9 percent and education for 4.5 percent.
  • Consumer price changes in India can be very volatile due to dependence on energy imports, the uncertain impact of monsoon rains on its large farm sector, difficulties transporting food items to market because of its poor roads and infrastructure and high fiscal deficit.
  • Another important index is the Index of Industrial Production (IIP). Its major components are Manufacturing, Mining and Electricity. It is used for measuring volume changes in production, government policy planning, by Industries Associations and Research institutions.
  • Money supply is the availability of currency with the public.
  • It is measured by M0 or Reserve Money, M1 called Narrow Money and M3 known as Broad Money. M3/M0 is called Velocity of Money
  • Money supply is influenced by the level and growth of National Income and savings rate, Government’s Fiscal Policy and volume of Bank Credit influenced by Reserve Bank Of India’s Monetary Policy


  • It redistributes income; distorts relative prices; destabilises employment, tax, saving and investment policies and finally it may bring in recession and depression in an economy.

– Inflation redistributes wealth from creditors to debtors i.e. lenders suffer and borrowers benefit out of inflation. The opposite effect takes place when inflation falls (i.e. deflation).

– With the rise in inflation, lending institutions feel the pressure of higher lending. Institutions don’t revise the nominal rate of interest as the ‘real cost of borrowing’ (i.e. nominal rate of interest minus  inflation) falls by the same percentage with which inflation rises.

  • Rising inflation indicates rising aggregate demand and indicates comparatively lower supply and higher purchasing capacity among the consumers. Usually, higher inflation suggests the producers to increase their production level as it is generally considered as an indication of higher demand in the economy.
  • Investment in the economy is boosted by the inflation (in the short-run) because of two reasons:

(A) Higher inflation indicates higher demand and suggests enterpreneurs to expand their production level, and

(B) Higher the inflation, lower the cost of loan

(C) Holding money does not remain an intelligent economic decision (because money loses value with rise in inflation)

(D) In the long-run, higher inflation depletes the saving rate in an economy. Just the opposite situation arises when inflation falls or shows falling traits with decreasing saving, in the

(E) short-run and increasing saving in the long-run, respectively.

(F) On tax structure of the economy, inflation creates two distortions:

(a) Tax-payers suffer while paying their direct and indirect taxes. As indirect taxes are imposed ad valorem (on value), increased prices of goods make tax-payers to pay increased indirect taxes (like  cenvat, vat, etc. in India).

(b) Due to inflation, direct tax (income tax, interest tax, etc.) burden of the tax-payers also increases as tax-payer’s gross income moves to the upward slabs of official tax brackets (but the real value of money does not increase due to inflation; in fact, it falls).

This problem is also known as bracket creep — i.e. inflation-induced tax increases.  (Some economies as in the US and many European countries) have indexed their tax provisions to neutralise this distortion on the direct tax payers.

(G) With every inflation the currency of the economy depreciates (loses its exchange value in front of a foreign currency) provided it follows the flexible currency regime. Though it is a comparative matter, there might be inflationary pressure on the foreign currency against which the exchange rate is compared.

(H) With inflation, exportable items of an economy gain competitive prices in the world market. Due to this, the volume of export increases (keep in mind that the value of export decreases here) and thus export income increases in the economy. It means export segment of the economy benefits due to inflation. Importing partners of the economy exert pressure for a stable exchange rate as their imports start increasing and exports start decreasing

(I) Inflation gives an economy the advantage of lower imports and import-substitution as foreign goods become costlier. But in the case of compulsory imports (i.e. oil, technology, drugs, etc.) the economy  does not get this benefit and loses more foreign currency instead of saving it.

(J) In the case of a developed economy, inflation makes trade balance favourable while for the developing economies inflation is unfavourable for their trade balance. This is because of composition of their foreign trade. The benefit to export which inflation brings in to a developing economy is usually lower than the loss they incur due to their compulsory imports which become costlier due to inflation.

(K) Inflation increases employment in the short-run but becomes neutral or even negative in the long run

(L) Inflation increases the nominal (face) value of the wages while their real value falls. That is why there is a negative impact of inflation on  the purchasing power and living standard of the wage employees.

(M) Inflation has a neutralizing impact on the self-employed people in the short-run. But in the long run they also get affected as the economy as a whole gets affected.

(N) On Economy

Experiences of the world economies in the late 1980s that a particular level of inflation is healthy for an economy. This specific level of inflation was called as the ‘range’ of inflation and every economy needs to calculate its own range. Inflation beyond both the  limits of the range is never healthy for any economy. In the case of India it is considered 4 to 5 per cent which is also known as the ‘comfort zone’ of inflation in India.

Similarly for Australia, New Zealand, the USA, Canada and the

European Union the healthy range today is 1 to 3 per cent. This is why every economy today utilises inflation targeting as part of it monetary policy.

Annual Average inflation based on CPI

(Av of month wise inflation )

2016 5.70 %                  2006 5.79 %

2015 5.88 %                  2005 4.25 %

2014 6.37 %                  2004 3.77 %

2013 10.92 %              2003 3.81 %

2012 9.30 %                2002 4.31 %

2011 8.87 %                  2001 3.77 %

2010 12.11 %              2000 4.02 %

2009 10.83 %               1999 4.84 %

2008 8.32 %                 1998 13.17 %

2007 6.39 %                 1997 7.25 %

(Data for 2016 average of first 6 months)

It may be observed that the years of low inflation were the years of high growth and the years of near ten or double digit inflation were the years of low growth rates.

2. RBI’s Monetary Policy and Control

  • Monetary Policy Objectives are Price stability (control of inflation), ensuring adequate availability of credit for growth and financial system stability (for ensuring smooth monetary policy transmission)
  • RBI adopts quantitative and qualitative tools – CRR, SLR, LAF, Bank Rate, OMO and MSS
  • DL include Current Deposits. DL portion of savings deposits, margins against LC/LG, Balances in overdue FD, outstanding cash certificate, RD, TT, MTs,  and DDs, unclaimed Deposits, Cr balances in CC and deposits held as security for loan payable on demand
  • TL include FDs, cash certificate, cumulative and RDs, TL portion of savings bank deposits, staff security deposits, margins against LC not payable on demand, deposits held as securities for advances and India Development Bonds
  • CRR

Objective – ensure liquidity and  solvency of banks

– To be maintained at fortnightly average basis

– on a daily basis it should be minimum 95% of the average balance

– with Amendment to RBI Act – RBI can fix without minimum or max for CRR under RBI Act for Scheduled banks. For other banks it is fixed under Sec 18 of BR Act – minimum 3%.

– W.e.f  January 2002 RRBs also to maintain CRR as applicable for SCBs   

  • SLR impacts on the loan resources of a bank

– RBI prescribes limits – minimum at its discretion and maximum 40%- under Sec 24 of BR Act

– Assets approved by RBI – listed in 2009 – are

1. Cash

2. Gold valued at not more than current market price

3. Unencumbered investments in

i) Dated securities issued by GOI under Mkt Borrowing or MSS

ii) Treasury Bills of GOI

iii) State Development Loans (SDL) of State Govts under Market borrowing programme

iv) deposit and unencumbered approved securities u/s 11 of BR Act by Foreign Banks

iv) Balances in excess of CRR maintained with RBI by a Schedules Bk

Note:  Securities i) to iii) if acquired under LAF are not eligible for SLR

  • An increase in CRR and SLR could lead to lesser bank credit and purchasing power in the economy resulting in reduction in price level or inflation. The opposite effect on inflation happens when RBI reduces these rates.
  • Liquidity Adjustment Facility helps banks to manage their day to day liquid funds position due to seasonal and short term variations through short term borrowings from and investments with RBI.

– Introduced during June 2000 in phases

– objective – to ensure smooth transition and keeping pace with technological up


– Reverse Repo and Repo auctions are conducted daily except Saturdays

– Minimum bid 5 crores and multiples of 5 crores

– 7-day and 14-day Repo operations discontinued from Nov 2004

– Limit 0.25% of NDTL wef 1 Ap 2014

– All banks (except RRBs) and PDs having current account and SGL account with RBI

are eligible

– Repos and Reverse Repos in transferable GOI dated securities and TBs are eligible as


  • New 7 day(non reporting Fridays) and 14 day(reporting Fridays) repo auctions are held on Fridaysn introduced in October 2013 – auction conducted on e-Kuber

                         – eligibility – Max 0.75% of NDTL

– minimum bid Rs.1 crore and multiples    

  • REPO rate is the rate at which RBI gives short term loans to banks against the collateral of non SLR securities
  • Reverse REPO is the rate of interest paid by RBI on short term deposits of banks for which RBI gives government securities as collateral.
  • RBI uses REPO rate to influence the bank’s cost of funds, which could influence the banks’ interest rates on loans to customers. An increase in REPO rate should therefore make loans costlier for borrowers and restrain bank credit expansion. This will reduce inflation through controlling money supply in the economy.
  • Reverse REPO helps RBI to absorb from the system excess short term liquid funds with banks and thus control inflation in the short term
  • Marginal Standing Facility is an overnight loan facility to banks available upto a limit of 2% of NDTL and even SLR securities could be pledged for MSF.

– Introduced in May 2011

– On all working days except Saturdays

– Repayable next day – loan taken on Fridays on next Monday

– conducted as `Hold in Custody’ Repo similar LAF Repo.

  • Bank Rate is the rate of interest at which RBI is prepared to buy or rediscount eligible Bills of Exchange or other commercial papers in specific sectors of bank finance. But RBI relies more on REPO and Reverse REPO for transmission effect of its policy rates
  • Open Market Operation is the outright sale and purchase of government securities by RBI to increase (through purchase) or decrease (through sale) liquidity position of banks in the medium term period of one to three years, respectively to increase or decrease bank credit and hence purchasing power in the economy to correspondingly increase or decrease price levels
  • Market Stabilization Scheme is the arrangement for large flow of foreign exchange through borrowings or grants received by Government of India, which would be put is special accounts and released periodically as required by government.

– Launched in Feb 2004

– Issued as TBs and dated securities

  • Effective from 1 April 2015, RBI conducts bi monthly Monetary Policy review exercise and makes adjustments in the policy rates.
  • Before the implementation of the recommendations of the Urjit Patel Committee on Monetary Policy, RBI was following a multiple indicator approach. The Committee recommended that RBI’s policy rate should target control of inflation based on CPI and also recommended an inflation rate of 4% as ideal for India and a range of 4 +/- 2% as the range for RBI’s policy rates.
  • For the first time in India, as is the practice in several countries, RBI entered into an agreement with Government of India in February 2015, RBI should control inflation, through monetary policy, below 6% by January 2016 and below 6% from 1 April 2016 and all subsequent financial years. This approach is known as inflation targeting of Monetary Policy. A committee to supervise the implementation was also formed

– The provisions of amended RBI Act regarding constitution of MPC was brought into force on June 27, 2016

– The six-member Committee — tasked with bringing “value and transparency to monetary policy decisions” — will comprise three members from RBI, including the Governor, who will be the ex-officio chairperson, a Deputy Governor and one officer of the central bank.

– The other three members will be appointed by the Centre on the recommendations of a search-cum-selection committee to be headed by the Cabinet Secretary.

– “These three members of MPC will be experts in the field of economics or banking or finance or monetary policy and will be appointed for a period of four years and shall not be eligible for re-appointment,” according to the statement.

– The Committee is to meet four times a year and make public its decisions following each meeting.

Inflation Trend 

  • CPI increased 5.76 percent year-on-year in May of 2016. It is the highest figure since August of 2014. Inflation Rate in India averaged 7.70% from 2012 until 2016, reaching an all time high of 11.16 % in November of 2013 and a record low of 3.69% in July of 2015. Inflation Rate in India is reported by the Ministry of Statistics and Programme Implementation (MOSPI), India.
  • In the latest Bi Monthly Policy Rate Announcement on 7 June 2016, RBI did not make any change in the key policy rates.

As on 1 September 2016 the policy rates are

Policy Rates

Repo Rate                 6.50 %

Reverse Repo Rate     6.00 %

MSF Rate                  7.00 %

Bank Rate                 7.00 %

Reserve Ratios

CRR                   4%

SLR                   21%

  • RBI kept key policy rates on hold, expressing concerns over rising inflation at its second bimonthly monetary policy review of the financial year

5 Key points on RBI’s July Monetary Policy statement: (Courtesy: ET 6 June 2016)

  • Inflation remains a concern: Reduction in inflation pressures for two consecutive months to March after a period of steady rise was interrupted once again in April. Retail inflation measured by the consumer price index (CPI) rose sharply due to more than seasonal jump in food prices. “The inflation surprise in the April reading makes the future trajectory of inflation somewhat more uncertain,” the central bank said in the policy statement. “The inflation projections given in the April policy statement are retained, though with an upside bias,” RBI said. A higher inflation will act as a hurdle in any move by the central bank to cut interest rates further.
  • RBI maintains accommodative stance: In its bimonthly money policy statement of April 2016, RBI stated that it would watch macroeconomic and financial developments in the months ahead with a view to responding as and when the space opens up, but it maintained an accommodative stance. Incoming data since then shows a sharper-than-anticipated upsurge in inflationary pressures emanating from a number of food items, as well as a reversal in commodity prices.”Given the uncertainties, RBI will stay on hold, but the stance of monetary policy remains accommodative. RBI will monitor macroeconomic and financial developments for any further scope for policy action,” the RBI note said.
  • Outlook on growth: Domestic conditions for growth are improving gradually, mainly driven by consumption demand, which is expected to strengthen with a normal monsoon and the implementation of the Seventh Pay Commission award. On a reassessment of balance of risks, therefore, the GVA growth projection for 2016-17 has been retained at 7.6 per cent with risks evenly balanced.
  • More monetary transmission needed: RBI pushed for more monetary transmission from banks to support the revival of growth which continues to be critical. “The government’s reform measures on small savings rates combined with the Reserve Bank’s refinements in the liquidity management framework should help the transmission of past policy rate reductions into lending rates of banks,” the central bank said. The revival of growth which continues to be critical.RBI will shortly review the implementation of the marginal cost of lending rate framework by banks. Timely capital infusions into constrained public sector banks will also aid credit flow.
  • Global growth remains a concern: Since the first bimonthly statement of the financial year in April 2016, global growth is uneven and struggling to gain traction. “World trade remains muted in an environment of weak demand,” said the RBI statement. In the United States, growth was slow once again in Q1 because of contracting industrial activity and exports. Recent indicators of labour market activity have also weakened. The US dollar continues to mirror changes in expectations of monetary policy action by the Fed. In the euro area, by contrast, Q1 GDP rose strongly on the back of robust consumer spending and recovering employment and business conditions. In Japan, growth surprised on the upside in Q1, with the economy escaping a technical recession, but industrial activity remains weak and deflationary pressures are building.

3. Budget :

The budget is the annual financial statement of income and expenditure of a government, firm or corporate. Union budget consists of 3 parts – actual data for the previous financial year, provisional data for the current financial year and estimated provisions for the oncoming financial year.

  • Revenue receipts and Capital Receipts:

Revenue receipts are either Tax Revenue Receipts (direct and indirect tax collections) or Non Tax Revenue receipts ( income from sources other than taxes like profits and dividends from PSUs, interest receipts on internal and external lending, income from Fiscal and General services (power distribution, irrigation, banking, etc). All non revenue receipts like recovery of past loans issued by the Government, borrowings by the Government and long term capital accruals such as Provident Fund, Postal Deposits and other savings schemes collections are known as capital receipts.

  • Fiscal Policy

The policy of the government relating to the use of taxes and expenditure to influence the economic growth of the country. According to Keynesian principles governments can influence macroeconomic productivity levels by increasing or decreasing tax levels and public spending. This influence, in turn, curbs inflation (generally considered to be healthy when between 2-3%), increases employment and maintains a healthy value of money.

  • Revenue Deficit

A mismatch in the expected revenue and expenditure can result in revenue deficit. Revenue deficit arises when the government’s actual net receipts is lower than the projected receipts. On the contrary, if the actual receipts are higher than expected one, it is termed as revenue surplus. A revenue deficit does not mean actual loss of revenue.(courtesy : ET beaureau)

  • Primary Deficit

Primary deficit is one of the parts of fiscal deficit. While fiscal deficit is the difference between total revenue and expenditure, primary deficit can be arrived by deducting interest payment from fiscal deficit. Interest payment is the payment that a government makes on its borrowings to the creditors. (courtesy : ET bureau)

  • Fiscal Deficit

The difference between total revenue (total of revenue and capital receipts) and total expenditure (revenue + capital expenditure) of the government when it is negative, is termed as fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included. Generally fiscal deficit takes place due to either revenue deficit or a major hike in capital expenditure. Capital expenditure is incurred to create long-term assets such as factories, buildings and other development. A deficit is usually financed through borrowing from either the central bank of the country or raising money from capital markets by issuing different instruments like treasury bills and bonds. Government spending, inflation and lower revenues are important factors in fiscal deficit.

  • Monetised Deficit

The portion of the fiscal deficit covered by government borrowing from RBI is called monetized deficit. Other borrowings of the government within the country come from the savings of the economy routed through banks, members of the public, corporate, insurance and savings funds like insurance, pension funds, Post office deposits etc; but borrowings from RBI leads to creation of new money which increases the money supply and consequently the inflation in the economy.

  • Deficit Financing

The practice of the government to spend more than what it receives as revenue. This could be achieved either by lowering the taxes or by increasing the expenditure. This is adopted to stimulate economic activity in times of recession.

  • FRBM Act 2003

The Fiscal Reforms and Budgetary management Act came into effect on July 5, 2004.


  1. Govt to take measures to reduce fiscal and revenue deficit so as to eliminate Revenue Deficit by March 31, 2008 (revised by UPA govt to March 31, 2009) and thereafter build up revenue surplus.
  2. Govt not to borrow from RBI except by WMA (Ways and Means Advances are temporary borrowings of Govt from RBI on the basis of the limit on aggregate borrowings fixed by RBI in consultation with the Govt.)
  3. Rules to be framed for annual reduction of RD by 0.5% pa and FD by 0.3% With this approach BD should have been brought down to 3% of GDP long ago but has not been achieved till date. In the Budget for 2015-16 the present government announced that the target of 3% would be achieved in 3 years. Accordingly the FD targets are 3.9%, 3.5% and 3 % for FYs 2015-16, 2016-17 & 2017-18 respectively.

         IMF  Views:

  1. In most countries the government sector is directly responsible for a large part of economic activity and, through its spending and resource mobilization, indirectly influences the way resources are used in the private sector. In many cases, poor fiscal management has been a major factor underlying such problems as high inflation, a large current account deficit, and sluggish or negative output growth. In such circumstances, fiscal policy is usually at the center of an overall adjustment strategy.
  2. Fiscal adjustment attacks these problems in two major ways:

(1) through its impact on broad macroeconomic variables, such as the level and composition of aggregate demand, the national savings rate, and the growth of monetary aggregates; and

(2) through its more microeconomic impact on the efficiency of resource allocation in the economy and the buildup of essential institutions and infrastructure.

  1. Inflation

Government spending that is not financed by tax or nontax revenue can contribute to excess aggregate demand and thus inflation. This is particularly likely when government spending is financed through the creation of money.

  1. A certain level of monetary financing of the fiscal deficit may be noninflationary. Specifically, to the extent that growing economies like India need more money to facilitate transactions, that interest rates are falling (and other assets becoming less attractive), and that financial markets are developing (and the economy becoming increasingly monetized), the money supply can be expanded in a noninflationary way to meet increasing money demand.
  2. However, the scope for noninflationary financing is usually limited. Once the private sector is content with its money holdings, increasing the supply of money in the economy will encourage the private sector to spend more. This drives up prices until the desired ratio between money and spending is restored.
  3. To the extent that government borrowing from the banking sector contributes to an excessive rate of monetary growth, it will have inflationary implications. When a government finances its deficit by inflation-inducing monetary creation, it is said to collect an “inflation tax.”
  4. In the short term, a government may be able to resort quite extensively to financing its operations from the inflation tax, since prices do not immediately adjust fully to an increase in money growth. However, over time, the scope for collecting the inflation tax is limited, since, when inflation rises, households and businesses will tend to decrease their real money holdings as they seek alternatives that hold their value better in such an environment. Moreover, high inflation can also have a negative impact on real tax revenue from explicit taxes if there are collection lags, and the net resource gain may not be great.

Some model Objective Type Questions

1. When RBI wants to reduce liquidity in the Banking system:

(A) It increases the CRR

(B) it increases the MSF rate

(C) it increases the Repo Rate d. it increases the reverse repo rate

Select the option

i) a, b, and c

ii) a, c, and d

iii)  b,c, and d

iv) a, b, c, and d

Click here to view Answer
iv) a, b, c, and d

2. Which of the following is not included as part of SLR assets:

a) Cash in Hand

b) gold owned by the bank

c) investment in un-encumbered approved govt. securities

d) investment in quoted shares

Click here to view Answer
d) investment in quoted shares 

3. Consider the following statements regarding the “Taylor Rule”.

(A) A rule that suggests appropriate adjustments to interest rates, based on various economic factors such as inflation and employment rate.

(B) The rule indicates that if inflation or employment rates are higher than desired, interest rates should be increased in response to these conditions, and the opposite action should be taken under the opposite conditions.

Select the incorrect statement/statements using the code given below:

(a) Only A

(b) Only B

(c) Both A and B          

(d) None of the above

Click here to view Answer
(c) Both A and B 

Both the statements are correct about the Rule. The US Federal Reserve Board seems to take this rule under consideration (as many other central banks of the world) but does not always follow its suggestions when adjusting the interest rate. This rule was developed by John Taylor, a 20 th century economist. 

4. Consider the following statements about the idea of ‘inclusive growth’.

(A) The idea of ‘inclusive growth’ entered into the domain of planning with  the Eleventh plan.

(B) This is not only about economics but also about ‘social’ inclusion.

(C) The main idea behind inclusive growth to include SCs, STs, OBCs, minorities and women in the country’s development process.

(D) The 3rd Generation of Economic Reforms runs parallel to the idea of inclusive growth.

Select the correct statements using the code given below:

(a) A, B and C

(b) B, C and D

(c) A, C and D

(d) A, B, C and D

Click here to view Answer
(d) A, B, C and D

The 3rd generations of economic reforms articulated the idea of ‘decentralised’ development planning-parallel to the idea of inclusive growth. The concept got reference while the government decided to go for the 2nd and 3rd generation of economic reforms (in the year 2000-01)-the benefits of reforms were found to be non-inclusive in nature. 

5. The RBI- appointed ‘Committee on Comprehension Financial Services for Small Households’ has recently submitted its report. Consider the following statements with regard to the report of the committee.

(A) A universal bank account to all Indian above the age of 18 years.

(B) A banking system with ‘payments banks’ for deposits and payments and ‘wholesale banks’ for credit outreach.

(C) ‘Priority sector lending’ target to be increased to 50 percent.

(D) A state-level ‘regulatory commission’ for supervision of all NGOs and money service business.

Select the correct advices using the code given below:

(a) A, B and C

(b) B, C and D

(c) A, C and D

(d) A, B, C and D

Click here to view Answer
(d) A, B, C and D 

6. Consider the following statements about ‘effective revenue deficit’:

(A) “Effective revenue deficit is western idea of public finance management, which India used it for the first time in the union budget 2011-12.

(B) It is modified kind of revenue deficit which excludes that part of revenue deficit by which assets have been created.

(C) Effective revenue deficit of India for 2016-17 was aimed at zero by the Union Budget 2013-14.

(D) Revenue deficit for the year 2016-17 has been targeted to be 1.5 percent by the Union Budget 2013-14.

Select the correct statements using the code given below:

(a) A, B and C

(b) B, C and D

(c) A, C and D

(d) A, B, C and D

Click here to view Answer
(b) B, C and D

The idea was for the first time used by the GoI in the Union Budget 2011-12, but it was not borrowed from the Western nations-this an Indian idea. Government stopped using it in 2014-15. Other statements are correct about it. 

7. Consider the statements about tenets of the ‘three arrows’ of the Abenomics which was recently in news.

(A) A massive fiscal stimulus activated by quantitative easing targeted at increasing the rate of inflation.

(B) Boost to investment in public works and infrastructure to promote jobs and R and D.

(C) Structural reforms to boost country’s global competitiveness.

(D) It follows ideas started by J.M. Keynes, whose most famous contemporary admirer is the Nobel Economist Paul Krugman.

Select the correct statements using the code below:

(a) A, B and C

(b) B, C and D

(c) A, C and D

(d) A, B, C and D

Click here to view Answer
(d) A, B, C and D

Abenomics is the name given to a suite of measures introduced  by the Japanese Prime Minister Shinzo Abe after his December 2012 re-election to the post he has held since 2007. Such measures by a government to boost growth is not possible in the case of the recession-hit economies of the Western world-the Japanese economy has an edge over them due to its low levels of inflation and fiscal deficit.