IAS Pre Exam 2015 Current Affairs Practice Test-5


May  2015                                                                   Ajit Kumar (Wisdom IAS, New Delhi)
                     Read Union  Budget 2015-2016 through MCQ- Set-3
 (1) According to the Union Budget 2025-16 the CAPEX of the public sector units is expected to be Rs. 3,17,889 crore, an increase of approximately Rs.80,844 crore over RE 2014-15. The CAPEX inclueds-
(I) The money invested by a company to acquire or upgrade fixed, physical, non-consumable assets 
(II) The day-to-day costs of operation
Select the answer from the codes given below-
(a)    I only                        (b) II only
(c) I and II                     (d) None  of the above
Expl: A capital expenditure (CAPEX) is money invested by a company to acquire or upgrade fixed, physical, non-consumable assets, such as buildings and equipment or a new business.  There are two types of CAPEX – those that are invested in to maintain existing levels of operation within a company and those that are invested in something new to foster future growth. Customarily, regardless of the manner of investment, Capex is money spent with the intent of initiating future cash flow and a substantial return on investment (ROI). Capex’s counterpart, operational expenditures (Opex), refers to the day-to-day costs of operation.
(2) Which of the following statements are correct regarding the National Investment and Infrastructure Fund (NIIF)?
(I) An annual flow of Rs. 20,000 crore has been proposed
(II) This will enable the  infrastructure investment trusts (InvITs) to raise debt
(III) The  infrastructure investment trusts (InvITs)  can invest as equity, in infrastructure finance companies such as the IRFC and NHB.
Select the answer from the codes given below-
(a)    I only                        (b) II only
(c) I and II                     (d) All  of the above
Expl: The Budget 2015-16 proposes to establish a National Investment and Infrastructure Fund (NIIF), and find monies to ensure an annual flow of Rs. 20,000 crore to it.  This will enable the  infrastructure investment trusts (InvITs) to raise debt, and in turn, invest as equity, in infrastructure finance companies such as the IRFC and NHB. The infrastructure finance companies can then leverage this extra equity, many fold.  Thirdly, I also intend to permit tax free infrastructure bonds for the projects in the rail, road and irrigation sectors. Fourth, the PPP mode of infrastructure development has to be revisited, and revitalised.  The major issue involved is rebalancing of risk. In infrastructure projects, the sovereign will have to bear a major part of the risk without, of course, absorbing it entirely. 
(3) Which of the following budget proposals pertains to Ease of doing business ?
(I) Implementation of GST
(II) GAAR deferred by 2 years and its application to be done on a prospective basis
(III) Corporate tax rates aim to be moderated and simplified
(IV) Reduce the number of clearances
Select the answer from the codes given below-
(a)    I,II,III                        (b) II,II,IV
(c) I, III,IV                      (d) All of the above
Expl:  Also proposed a plug-and-play model wherein all clearances and linkages will be put in place before a project is awarded. They have started this initiative with five new UMPPs with the aim of extending this to other infrastructure projects over time.  Launched an e-biz portal, which integrates regulatory permissions at one source.  Various tax exemptions to be withdrawn.
(4) Atal Innovation Mission (AIM)-
(I) is an Innovation Promotion Platform involving academics, entrepreneurs, and researchers
(II) will draw upon national and international experiences to foster a culture of innovation, R&D and scientific research in India
(III) will promote a network of world-class innovation hubs
Select the answer from the codes given below-
(a)    I only                        (b) I and II
(c) I and III                      (d) All of the above
Expl:  The Union Finance Minister Shri Arun Jaitley has stated his intentions to establish the ATAL Innovation Mission(AIM) in NITI. Presenting the General Budget 2015-16 in the Lok Sabha here today, the Finance Minister stated that AIM will be an Innovation Promotion Platform involving academics, entrepreneurs and researchers and draw upon national and international experiences to foster a culture of innovation, R&D and scientific research in India. Shri Jaitley said that the platform will also promote a network of world-class innovation hubs and Grand Challenges for India. Initially a sum of Rs.150 crore wail be earmarked for this purpose.
(5) Self-Employment and Talent Utilisation (SETU)-
(I) is a Techno-Financial, Incubation and Facilitation Programme
(II) will support all aspects of start-up businesses, and other self-employment activities, particularly in technology-driven areas.
(III) The budget sets aside Rs. 1,000 crore initially in NITI Aayog for this purpose.  
Select the answer from the codes given below-
(a)    I only                        (b) I and II
(c) I and III                      (d) All of the above
Expl:  Finance minister stated that “we are now seeing a growing interest in start-ups. Experimenting in cutting edge technologies, creating value out of ideas and initiatives and converting them into scalable enterprises and businesses is at the core of our strategy for engaging our youth and for inclusive and sustainable growth of the country.” He said concerns such as a more liberal system of raising global capital, incubation facilities in our Centres of Excellence, funding for seed capital and growth, and ease of Doing Business etc need to be addressed to create lakh of jobs and hundreds of billion dollars in value. The Minister said, with this objective in mind, SETU is being set up. 
(6) Measures announced in the budget  to curb black money include-
(I) New bill in the current budget session on black
(II)  Benami Transactions (Prohibition) Bill to enable confiscation of benami property especially in real estate.
(III) Quoting of PAN mandatory for any purchase or sale exceeding Rs1 lac.
(IV) New measures to incentivize credit or debit card transactions, and disincentivise cash transactions soon
Select the answer from the codes given below-
(a)    I,II,III                        (b) II,II,IV
(c) I, III,IV                      (d) All of the above
Expl: New bill in the current budget session on black money to specifically deal with black money stashed abroad.  Concealment and/or non-disclosure in IT return of foreign assets will be liable to rigorous imprisonment.  Penalty at 300% of tax on concealed income.
(7) The objectives of the e-Biz Portal are to-
(I) provide a secure one stop shop for all investment and business related information and services 24x7 on a single portal.
(II) eliminate the need of physically interface with various regulatory authorities
(III) allow a single payment to be made electronically against the composite application form
(IV) significantly reduce the difficulties faced by investors and business es in compling with regulatory requirements and improve the  ease of doing business
Select the answer from the codes given below-
(a)    I,II,III                        (b) II,II,IV
(c) I, III,IV                      (d) All of the above
Expl:  eBiz is a transformational project taking e-Governance beyond online transactions. The vision of eBiz is to transform the business environment in the country by providing efficient, convenient, transparent and integrated electronic services to investors, industries, and business throughout the business life‐cycle. This projects aims to create a business and investor friendly ecosystem in India by making all business and investment related regulatory service across Central, State and local governments available on a single portal, thereby obviating the need for an investor or a business to visit multiple offices or a plethora of websites. It is envisaged that the services offered on  eBiz will eventually cover the entire life cycle of a business‐right from its establishment, through its ongoing operations , to even its possible closure.
The core value of this transformational project lies in a shift in the Government’s service delivery approach from being department‐centric to customer‐centric. eBiz will create a 24x7 facility for information and services and will also offer joined‐up services where a single application submitted by a customer, for a number of permissions, clearances, approvals and registrations, will be routed automatically across multiple governmental agencies in a logical manner. An inbuilt payment gateway will also add value by allowing all payments to be collected at one point and then apportioned, split and routed to the respective heads of account of Central /State / Parastatal agencies along with generation of challans and MIS reports. This payment gateway is the first of its kind designed in India and can become a universal payment gateway for all eGovernance applications.  
It  creates a plateform for multi-government agencies to croo validate their information
(8) Public Debt Management Agency (PDMA) -
(a) will bring both India’s external borrowings and domestic debt under one roof. 
(b) will also reduce the conflict of interest for the central bank that can focus more on the inflation management
(c) will minimise  the cost of raising and servicing public debt over the long term within an acceptable level of risk at all times, under the superintendence of the central government
(d) All of the above
Expl:  The Constitution of India gives the executive branch of Government the powers to borrow upon the security of the Consolidated Fund of India. Prior to the setting up of Public Debt Management Agency (PDMA), Reserve Bank as an agent of the Government (both Union and the States) used to implement the borrowing program. The Reserve Bank draws the necessary statutory powers for debt management from Section 21 of the Reserve Bank of India Act, 1934. While the management of Union Government's public debt is an obligation for the Reserve Bank, the Reserve Bank undertakes the management of the public debts of the various State Governments by agreement.
Prior to the setting up of PDMA, the jurisdiction of various institutions responsible for public debt management is given below:
(a) Reserve Bank of India – Domestic Marketable Debt i.e., dated securities, treasury bills and cash management bills.
(b) Ministry of Finance (MOF); Office of Aid and accounts Division – external debt
(c) Ministry of Finance; Budget Division and Reserve Bank of India – Other liabilities such as small savings, deposits, reserve funds etc.
For monetary and fiscal coordination, there is a cash and debt management committee which meets regularly. The members comprise of officials from RBI and MOF.
The Central Government’s Budget for 2007-08 announced setting up an autonomous debt Management Office (DMO) and, in the first phase, a Middle Office was set up in September 2008 in the Ministry of Finance to facilitate the transition to a full-fledged DMO. The Middle Office would be merged into the Debt Management Office (DMO), when it is established. The functionalities presently carried out by RBI and Ministry of Finance will be undertaken by the Middle Office in a phased manner to ensure a smooth transition from the existing arrangements.
To take forward the process of financial sector legislative reforms, the Government has proposed to move the Public Debt Management Agency of India Bill, 2012 in the Parliament. However, instead of moving a separate bill, Government has introduced the creation of Public Dent Management Agency (PDMA) through the Finance bill 2015. Consequent amendments to RBI Act and Government Securities Act is also proposed and the latter is repealed. The agency is set up with the objective of minimizing the cost of raising and servicing public debt over the long term within an acceptable level of risk at all times, under the superintendence of the central government. Alternatively one could say, this is now the legal objective of public debt management policy in India.
Rationale   One basic reason for the creation of an PDMA is separation of debt management from monetary management so that any conflict of interest between the two is avoided .
 The argument presupposes that RBI can focus on monetary policy without any conflicting responsibility. This is prima facie remarkably true since interest rate setting, as also use of other instruments such as Cash Reserve Ratio (CRR) and Open Market Operations (OMO) by the RBI can be clouded by debt management objectives. One inherent conflict in the RBI's operations is that it is really difficult to distinguish its monetary operations from debt management operations. The liquidity augmenting measures when undertaken are intended apparently to ease monetary conditions to enable the banking system to expand its credit portfolio to productive sectors of the economy. But, at times, it would appear that the measures were intended to ensure that the increasing appetite of the government to borrow from the market sailing through smoothly. Once the PDMA is set up, the RBI is expected to be relieved of this inherent conflict in its operations. While avoiding such conflicts, it also needs to be 5 recognised that the two functions are indeed complementary. Therefore, the broad approach should be independent functioning of debt management consistent with fiscal and monetary policy stances and objectives but with close coordination.
(9) Indian Financial Code (IFC) has been proposed by-
(a) Justice Srikrishna Committee
(b) A.C Shah Commottee
(c) Abid Hussain Committee
(d) B. Eradi Committee
Expl:  A.C Shah Commottee is on  NBFC. Abid Hussain Committee is on Developmentof Capital Market. B. Eradi Committee is on Insolvency and wind-up laws.
The Financial Sector Legislative Reforms Commission (FSLRC), undr Justice B.N. Srikrishna, constituted by the Ministry of Finance in March 2011, was asked to comprehensively review and redraw the legislations governing India’s financial system.  According to the FSLRC, the current regulatory architecture is fragmented and is fraught with regulatory gaps, overlaps, inconsistencies and arbitrage.  To address this, the FSLRC submitted its report to the Ministry of Finance on March 22, 2013, containing an analysis of the current regulatory architecture and a draft Indian Financial Code to replace the bulk of the existing financial laws.
The Draft Indian Financial Code
The draft Code is a non-sectoral, principles-based law bringing together laws governing different sectors of the financial system.  It addresses nine components, which the FSLRC believes any financial legal framework should address:
(i) Consumer protection: Regulators should ensure that financial firms are doing enough for consumer protection.  The draft Code establishes certain basic rights for all financial consumers and creates a single unified Financial Redressal Agency (FRA) to serve any aggrieved consumer across sectors.  In addition, the FSLRC considers competition an important aspect of consumer protection and envisages a detailed mechanism for cooperation between regulators and the Competition Commission.
(ii) Micro-prudential regulation: Regulators should monitor and reduce the failure probability of a financial firm. The draft Code specifies five powers for micro-prudential regulation: regulation of entry, regulation of risk-taking, regulation of loss absorption, regulation of governance and management, and monitoring/supervision.
(iii) Resolution: In cases of financial failure, firms should be swiftly and sufficiently wound up with the interests of small customers. A unified resolution corporation, dealing with various financial firms, should be created to intervene when a firm is close to failure.  The resolution corporation would charge a fee to all firms based on the probability of failure.
(iv) Capital controls: While the FSLRC does not hold a view on the sequencing and timing of capital account liberalisation, any capital controls should be implemented on sound footing with regards to public administration and law.  The FSLRC sees the Ministry of Finance creating the ‘rules’ for inbound capital flows and the RBI creating the  ‘regulations’ for outbound capital flows. All capital controls would be implemented by the RBI.
(v) Systemic risk: Regulators should undertake interventions to reduce the systemic risk for the entire financial system. The FSLRC envisages establishing the Financial Stability and Development Council (FSDC) as a statutory agency taking a leadership role in minimizing systemic risk.
(vi) Development and redistribution: Developing market infrastructure and process would be the responsibility of the regulator while redistribution policies would be under the purview of the Ministry of Finance.
(vii) Monetary policy: The law should establish accountability mechanisms for monetary policy.  The Ministry of Finance would define a quantitative target that can be monitored while the RBI will be empowered with various tools to pursue this target. An executive Monetary Policy Committee (MPC) would be established to decide on how to exercise the RBI’s powers.
(viii) Public debt management: The draft Code establishes a specialised framework for public debt management with a strategy for long run low-cost financing.  The FSLRC proposes a single agency to manage government debt. 
(ix) Contracts, trading and market abuse: The draft Code establishes the legal foundations for contracts, property and securities markets.
Regulators With respect to regulators, the FSLRC stresses the need for both independence and accountability.  The draft Code adopts ownership neutrality whereby the regulatory and supervisory treatment of a financial firm is the same whether it is a private or public company.  The draft Code seeks to move away from the current sector-wise regulation to a system where the RBI regulates the banking and payments system and a Unified Financial Agency subsumes existing regulators like SEBI, IRDA, PFRDA and FMC, to regulate the rest of the financial markets.
Regulators will have an empowered board with a precise selection-cum-search process for appointment of members.  The members of a regulatory board can be divided into four categories: the chairperson, executive members, non-executive members and Government nominees.  In addition, there is a general framework for establishing advisory councils to support the board.  All regulatory agencies will be funded completely by fees charged to the financial system.  Finally, the FSLRC envisages a unified Financial Sector Appellate Tribunal (FSAT), subsuming the existing Securities Appellate Tribunal (SAT), to hear all appeals in finance.
(10) In Budget 2015-16 a gold monetisation scheme has been introduced. Which of the following statements is/are correct regarding it?
(I) The scheme allows depositors of gold to earn interest
(II) The scheme is aimed at tapping the precious metal for productive purposes as well as to bring down India's gold imports
(III) Under the scheme banks/other dealers would not be able to monetize this gold.
Select the answer from the codes given below-
(a)    I only                        (b) I and II
(c) I and III                      (d) All of the above
Expl: India is one of the largest consumers of gold in the world and imports as much as 800-1000 tonnes of gold each year.  Though stocks of gold in India are estimated to be over 20,000 tonnes, mostly this gold is neither traded, nor monetized. The Budget 2015-16 proposes to:
(i) Introduce a Gold Monetisation Scheme, which will replace both the present Gold Deposit and Gold metal Loan Schemes.  The new scheme will allow the depositors of gold to earn interest in their metal accounts and the jewelers to obtain loans in their metal account.  Banks/other dealers would also be able to monetize this gold.
(ii) Also develop an alternate financial asset, a Sovereign Gold Bond, as an alternative to purchasing metal gold.  The Bonds will carry a fixed rate of interest, and also be redeemable in cash in terms of the face value of the gold, at the time of redemption by the holder of the Bond.  (iii) Commence work on developing an Indian Gold Coin, which will carry the Ashok Chakra on its face.  Such an Indian Gold Coin would help reduce the demand for coins minted outside India and also help to recycle the gold available in the country. 

Friday, 15th May 2015, 07:34:01 AM

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