Question Discussion & Solution

The correct answer is All of the above.

Key Points

• Meaning of Economic Reforms:
  • Economic reforms refer to the fundamental changes that were launched in 1991 with the plan of liberalising the economy and quickening its rate of economic growth.
  • The Narasimha Rao Government, in 1991, started the economic reforms in order to rebuild internal and external faith in the Indian economy.
  • The reforms intended at bringing in larger cooperation of the private sector in the growth method of the Indian economy.
  • Policy changes were proposed with regard to technology up-gradation, industrial licensing, removal of restrictions on the private sector, foreign investments, and foreign trade.
  • The essential features of the economic reforms are – Liberalisation, Privatisation, and Globalisation, commonly known as LPG.
• Need for Economic Reforms
  • Poor performance of the industrial sector. Hence statement 1 is correct.
  • Adverse balance of payments. Hence statement 2 is correct.
  • The rise in the fiscal deficit. Hence statement 3 is correct.
  • Inflation. Hence statement 4 is correct.
  • The Gulf War

The correct answer is Inflation.

Key Points

• Inflation:
  • ​Inflation is an increase in the level of prices of the goods and services that households buy.
  • It is measured as the rate of change of those prices.
  • The well-known indicator of inflation is the Consumer Price Index (CPI), which measures the percentage change in the price of a basket of goods and services consumed by households.
  • Inflation refers to the increase in the prices of the goods and services of daily use, such as food, housing, clothing, transport, recreation, consumer staples, etc.
  • Inflation is calculated in India by the Ministry of Statistics and Program Implementation.

Additional Information

• Deflation: 
  • ​It is also called negative inflation.
  • During a deflationary period, prices fall in the same way as they arise in the case of inflation: continuously and in a generalized manner.
• Stagflation:
  • ​Stagflation is the extreme economic situation, a peculiar combination of stagnant growth and rising inflation leading to high unemployment.
  • Causes of Stagflation:
    • ​Government expansion of the money supply.
    • Decreasing level of Productivity.
    • Supply-side shock.
    • Increasing structural Unemployment.
    • Central bank raising Interest rates.
    • A sudden increase in oil prices.
  • Hyperinflation:​
    • It is the situation when the price of goods and services rises uncontrollably over a definite time period.
    • It is also called Rapid Inflation.

The correct answer is Cash reserve ratio.

Key Points

• The Cash Reserve Ratio (CRR) refers to the share of Net Demand and Time Liabilities that banks have to hold as balances with the RBI.
• The objective of CRR is to keep inflation under control.
• During high inflation in the economy, the central bank raises the CRR to lower the bank’s loanable funds.
• The current Cash Reserve Ratio is 4.00% (as of June 2021).
• The current Reverse repo rate is 3.35% (as of June 2021).
• The Central bank has the authority to regulate monetary policies.
• The Ministry of Finance has the authority to regulate fiscal policies.

Additional Information

• Marginal Standing facility:
  • MSF is a facility under which scheduled commercial banks can borrow an additional amount of overnight money from the RBI by dipping into their SLR portfolio up to a limit at a penal rate of interest. 
  • This provides a safety wall against unanticipated liquidity shocks to the banking system.
  • The MSF is a scheme launched by RBI in 2011-12.
  • Under MSF banks can borrow funds up to 1% of their net demand and time liability.
  • The minimum amount for which RBI receives application is Rs. 1 crore and afterwards in multiples of rupees 1 crore.
• ​SLR is a kind of reserve that commercial banks need to maintain before crediting their money to borrowers.
  • Regulating the SLR rates is a component of RBI's monetary policy.
  • Reserve Bank of India sets the limit for banks (under Banking Regulation Act, 1949) to hold a certain proportion of their assets as SLR.
• Repo Rate:- It is a rate at which the central bank (RBI) lends money to its clients against the government securities.
• Reverse Repo- It is the rate at which the central bank (RBI) borrows money from its clients.
  • Reverse Repo is used in India as a tool in which banks will give their surplus fund to RBI for a short-term period and earn money.
  • The repo rate is always higher than the reverse repo rate.
  • Repo and Reverse repo rates are decided by the Monitory policy committee (MPC) of RBI.

The correct answer is Walra.

 Key Points

• Jhum cultivation also called Walra and burn agriculture is a form of crop-growing farming activity.
  • In the North-East states, agriculture is primarily based on Jhum cultivation.
  • It is an agricultural system where a farming community slashes secondary forests on a planned location, burns the slash, and cultivates the land for a limited number of years.
  • The land is then left unused and the farming community moves to the next location to repeat the process till they return back to the starting point.
  • It has frequently been claimed that jhum has led to the loss of valuable natural resources of the region.
  • The practice involves clearing vegetative/forest cover on slopes of hills, drying and burning it before the onset of monsoon, and cropping on it thereafter. 

Additional Information

• The shifting agriculture practiced by the tribes belonging to Dungarpur and Banswara districts in south Rajasthan.
• During May and June, the existing vegetation is cleared by burning.
  • Then grains are shown before the monsoon arrives.
  • Thus cultivating a patch of land for a few years, they move to a new patch of land and the cycle continues.
  • Once the place is left after harvesting, it remains unattended for 10-20 years to have its vegetation back.
  • It is believed that soil fertility is restored during this fallow period.

The correct answer is 1 only

Key Points

• Small Industries Development Bank of India (SIDBI)
  • SIDBI is the principal development financial institution for the promotion, financing and development of the Micro, Small and Medium Enterprises (MSME) sector in India.
  • It was established on April 2, 1990, through an Act of Parliament (thus, it is a statutory body).
  • It is headquartered in Lucknow, Uttar Pradesh.
  • SIDBI aims to facilitate and strengthen credit flow to MSMEs and address both financial and developmental gaps in the MSME eco-system across the country. Hence statement 1 is correct.
  • It coordinates functions of institutions engaged in similar activities.
  • Currently, the shares of SIDBI are held by Central Government and 29 other institutions including public sector banks (PSBs), insurance companies owned and controlled by Central Government.

• Functions of SIDBI:
  • It aims at emerging as a single-window to meet the developmental and financial needs of MSMEs in order to make them globally competitive, strong, vibrant and to protect the institution as a customer-friendly financial body. 
  • It also aims at enhancing the wealth of shareholders through the modern technology platform.
  • It is involved in the promotion and development of the MSME sector.
  • It is the principal institution for the development, promotion and financing of the MSME sector and for the coordination of functions of the institutions engaged in similar activities.
  • SIDBI retained its position in the top 30 Development Banks of the World in the ranking of The Banker, London.
     
• Note: Statement 2 is not correct, because SIDBI does not provide all type of loan to the agriculture sector.