Day-576 | Daily MCQs | UPSC Prelims | ECONOMICS

Answer: A
Explanation
Statement 1 is incorrect: In 2014, the BRICS countries established the Contingent Reserve Arrangement (CRA), an agreement among the BRICS’ central banks for mutual support during a sudden currency crisis. CRA helps the member countries to forestall short-term liquidity pressures. It complements existing international arrangements (from IMF) as an additional line of defence. It is expected to serve the needs of emerging economy in boosting access to additional foreign exchange reserves, should such situation arise.
Statement 2 is incorrect: New Arrangement to Borrow (NAB) is a mechanism of IMF, which constitutes a second line of defence. Through the NAB, certain member countries and institutions stand ready to lend additional resources to address challenges to the international monetary system. In the wake of the Mexican financial crisis, the major industrial countries agreed, at the Halifax economic summit of 1995, to establish an “emergency financing mechanism.” Consequently, NAB was adopted by the IMF Executive Board on January 27, 1997.
Statement 3 is correct: The Extended Fund Facility (EFF) of IMF provides financial assistance to countries facing serious medium-term balance of payments problems because of structural weaknesses that require time to address. Generally, it is used by advanced and emerging market countries, but low-income countries sometimes use the EFF together with the Extended Credit Facility (ECF).

Answer: D
Explanation:
Statement D is correct.
Singapore-washing is a recent phenomenon being observed, wherein Chinese firms relocate their headquarters or parent companies to Singapore to mitigate geopolitical risks and the scrutiny they face in countries where they invest.
This move has gained popularity as US-China relations grow increasingly strained, with repercussions on trade, investment, and technology.
Merits of ‘Singapore Washing’ for Chinese firms.
• It facilitates smoother access to international markets and capital, given Singapore’s standing as a robust financial hub with solid ties to both the US and China.
• Allows companies to evade the regulatory hurdles and political unpredictability in China, which encompass antitrust probes, data security regulations, and crackdowns on internet platforms.
• Bolsters their reputation and credibility on the global stage due to Singapore’s well-regarded legal system and commendable governance record.
After the Sino-India border face-off in 2020, India too tightened its foreign direct investment guidelines for investment from China.

Answer: C
Explanation
Statement C is correct.
The Pillar II model rules, also referred to as “Global Anti-Base Erosion” (GloBE) rules are a part of solution to address the tax challenges of the digitalisation of the economy.
• 140 countries have agreed to enact a two-pillar solution. Pillar one will ensure a fairer distribution of profits and taxing rights among countries with respect to large MNCs.
• Pillar II rules are designed to ensure large multinational enterprises pay a minimum level of tax on the income arising in each jurisdiction where they operate.
• The OECD has recommended that the pillar II rules become effective in 2024, with the exception of the Undertaxed Profit Rule (UTPR), which is recommended to become effective in 2025.
• The European Union member states formally adopted the Minimum Tax Directive on December 15, 2022 and member states shall transpose the directive into their domestic law by December 31, 2023.
• This ensures base erosion and profit shifting (BEPS) by MNCs is prevented.
Additional information: What is BEPS?
Base Erosion and Profit shifting (BEPS) refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax. Developing countries’ higher reliance on corporate income tax means they suffer from BEPS disproportionately.

Answer: B
Explanation
• Statement 1 is correct: Cotton is one of the most important commercial crops cultivated in India. It accounts for around 23% of the total global cotton production and plays a major role in sustaining the livelihood of an estimated 6 million cotton farmers and 40-50 million people engaged in related activity such as cotton processing & trade.
• Statement 2 is also incorrect: About 67% of Indian’s cotton is produced on rain-fed areas and 33% on irrigated lands. In terms of productivity, India comes at 39th rank.
• Statement 3 is correct: Globally, India accounts for the largest area under cotton production. India has been a top producer of cotton in the world; however, its production has suffered due to factors like pink ballworm infestation, less sowing due to El Nino effects. According to Cotton Association of India (CAI) estimates, cotton production in 2023-24 marketing season would be at its lowest in 15 years. Effectively, it is China which has assumed the top position in cotton production.
• Statement 4 is incorrect: India is the only country which grows all four species of cotton namely, G. Arboreum & G. Herbaceum (Asian cotton), G. Barbadense (Egyptian cotton) and G. Hirsutum (American Upland cotton).
Additional information:
Of late, the government is undertaking a lot of initiatives to increase and promote cotton production. The government has started a pilot project in 10 states involving 15,000 farmers to increase production of the best-quality cotton by adopting global agricultural practices. The government also launched Kasturi cotton, which is an initiative for new standards in Indian cotton. Also, Cotton Textiles Export Promotion Council has introduced a blockchain-based technology to enable traceability of garments and fabrics made of Kasturi cotton using QR codes.

Answer: D
Explanation
Statement 1 is incorrect: Despite the nationalisation of banks in 1969, the financial inclusion in rural areas remained inadequate. Subsequently, in 1975, Narsimhan Working Group suggested formation of Regional Rural Banks (RRBs) in order to increase the credit availability in the unbanked regions of the country.
As per the RRB Act, 1976, 50% ownership of RRBs shall be held by the central government, 15% by the concerned state government and 35% by the sponsor bank.
Statement 2 is incorrect: RRBs accumulated huge losses and the performance of commercial banks in rural lending in terms of branch expansion and recruiting technically qualified staff for rural branches was found to be better than RRBs. The Agricultural credit Review committee (ACRC) headed by Khusro in 1989 recommended that the RRBs and their branches can be merged with their sponsor. Following a series of amalgamations, the number of RRBs fell to 43 in 2021-22 from 196 in 2004-05.
Recently, the government has decided to exempt mergers of RRBs from the requirement of clearance from the Competition Commission of India.
Statement 3 is incorrect: RRBs with a net worth of at least Rs 300 crore over the previous three years would be eligible to list on the bourses provided they also fulfil certain other conditions.