Day-560 | Daily MCQs | UPSC Prelims | ECONOMICS

Answer: B
Explanation:
Statement 1 is correct: The purpose of OMSS is to dispose of surplus stocks of wheat and rice held by FCI. This moderates the prices in the open market
Statement 2 is incorrect: It is administered by the Ministry of Consumer Affairs, Food and Public Distribution.
Statement 3 is correct: FCI conducts weekly auctions for the OMSS for wheat on the platform of the National Commodity and Derivatives Exchange Limited (NCDEX).
Statement 4 is incorrect: States were previously allowed to procure food grains through the OMSS without participating in the auctions, for their needs.
However, the Centre has recently discontinued the OMSS for state governments. It has given three reasons for the discontinuation of OMSS for State governments:
● It claims that the OMSS can be more successful in curbing the inflationary trend in food grains if the grain is released through the market rather than through States/the PDS.
● The government argued that it needs to maintain adequate food grain stock in the central pool as it expects lower procurement this year. This is because the output of some crops has been hit due to adverse weather events like untimely rains and high temperatures.
● The central government has cited its obligation towards consumers who are not covered by the NFSA but are affected by fluctuations in retail prices of food grains. It argued that while the state governments will allocate food grains to the NFSA beneficiaries, as well as for beneficiaries of state-specific schemes, the interest of general consumers has been ignored.
Additional information:
Open Market Sale Scheme (OMSS):-
It was launched to enhance the supply of food grains (ensuring food security) during the lean season and thereby moderate the open market prices (controlling inflation), especially in the deficit regions.
Salient Features of OMSS:-
● Under the OMSS, the FCI from time to time sells surplus food grains from the central pool,
especially wheat and rice in the open market to traders, bulk consumers, retail chains, etc., at predetermined prices.
● The FCI does this through e-auctions where open market bidders can buy specified quantities.
● FCI conducts weekly auctions for the OMSS for wheat on the platform of the National Commodity and Derivatives Exchange Limited (NCDEX).
● NCDEX: a commodity exchange platform in India that provides a platform for trading in various agricultural and other commodities.
● States are also allowed to procure food grains through the OMSS without participating in the auctions, for their needs.

Answer: A
Explanation:
Statement 1 is correct: A large and persistent Current Account Deficit (CAD) can make a country vulnerable to economic instability due to uncomfortable values of imports This can result in a sharp drop in the value of the country’s currency, making imports more expensive and leading to inflation. For example, Pakistan and Sri Lanka are experiencing high inflation in the domestic economy due to high levels of Current Account Deficit.
Statement 2 is incorrect: High surpluses in the Capital Account means more foreign exchange reserves are coming into the country in the form of foreign investments and borrowings by the government. This increases the demand for local currency which leads to its appreciation.

Answer: A
Explanation:
Statement 1 is correct: Headline Inflation is the measure of total inflation within an economy. It includes price rise in food, fuel and all other commodities. But Core inflation does not consider the inflation in food and fuel which are more volatile components. Thus, Headline inflation is more volatile than core inflation.
Statement 2 is correct and is the correct explanation of statement 1: Since inflation in food and fuel is excluded in the core inflation. This makes it more stable as compared to headline inflation. Food and fuel prices are governed by international as well as domestic production capacities which can fluctuate more frequently.
Additional information:
● Headline inflation is not adjusted to remove highly volatile figures, including those that can shift regardless of economic conditions.
● Headline inflation is often closely related to shifts in the cost of living, which provides useful information to consumers within the marketplace.
● The headline figure is not adjusted for seasonality or for the often-volatile elements of food and energy prices, which are removed in the core Consumer Price Index (CPI).
Core Inflation
● Core inflation is the change in the costs of goods and services but does not include those from the food and energy sectors.
● This measure of inflation excludes these items because their prices are much more volatile.

Answer: D
Explanation:
Eligible beneficiaries under the scheme for credit support from the banking system:
● Individual farmers who are owners/cultivators
● Sharecroppers, tenant farmers
● Self-Help Groups of sharecroppers, farmers, tenant farmers etc
● Farmers involved in the production of crops or activities such as animal husbandry.
● Fish farmers, fishers, SHGs, JLGs, and women groups
● Fishermen who own a registered boat or any other type of fishing vessel and possess the necessary license or permissions for fishing in estuaries or the sea.
● Poultry farmers and even those who raise sheep, rabbits, goats pigs etc.
● Dairy: Farmers, dairy farmers, SHGs, JLGs, and tenant farmers who own, lease, or rent sheds.
Additional information:
● The scheme was introduced in 1998 for providing adequate and timely credit support from the banking system, under a single window with flexible and simplified procedures to the farmers for their cultivation and other needs like purchase of agriculture inputs such as seeds, fertilizers, pesticides etc. and draw cash for their production needs.
● The scheme was further extended for the investment credit requirement of farmers viz. allied and non-farm activities in the year 2004.
● In the Budget-2018-19, government announced the extension of the facility of Kisan Credit Card (KCC) to fisheries and animal husbandry farmers to help them to meet their working capital needs.
Implementing Agencies: Commercial Banks; Regional Rural Banks (RRBs); Small Finance Banks; Cooperatives
Objectives:
● To meet the short-term credit requirements for cultivation of crops.
● Post-harvest expenses.
● Produce marketing loan.
● Consumption requirements of farmer households.
● Working capital for maintenance of farm assets and activities allied to agriculture.
● Investment credit requirement for agriculture and allied activities.

Answer: B
Explanation:
Statement 1 is incorrect: Expansionary monetary policy results in a reduction in the bank deposit interest rates. When the rate of interest provided by banks keeps falling, bonds which provide a fixed interest rate for a longer duration will become more attractive. This may drive up the demand for bonds and thus may result in an increase in bond prices.
Statement 2 is correct: Expansionary monetary policy can result in depreciation of currency. This is because of more supply of local currency as compared to foreign currency.
Statement 3 is correct: Since there is more liquidity in the market, this lowers the borrowing cost. Thus, it boosts consumer spending. As demand for goods and services rises, more goods and services are produced which boosts employment.
Additional information:
Expansionary monetary policy is implemented by lowering key interest rates thus increasing market liquidity (money supply). High market liquidity usually encourages more economic activity.
● Increase in Foreign bond prices: Even though the demands for bonds as such may increase, the lower interest rates may make domestic bonds less attractive. So, the demand for domestic bonds may fall and the demand for foreign bonds may rise.
● Increase in exports and BoP: A lower exchange rate may cause exports to increase, imports to decrease and the balance of trade to increase.
● Higher Capital Investment: Lower interest rates lead to higher levels of capital investment.
When the RBI adopts the Expansionary Monetary Policy, the central bank.
● Decrease Policy Rates (Interest Rates) like Repo, Reverse Repo, MSF, Bank Rate etc.
● Decrease Reserve Ratios like Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)
● Buys government securities from the market as part of Open Market Operations (OMO) – providing liquidity in the market.