CAPF (AC) 2024 (Paper-1) (Questions 101-125)

The Reserve Bank of India (RBI) can increase the money supply through several tools:

• Lowering the Repo Rate: Reducing borrowing costs for banks, encouraging them to lend more and circulate more money.
• Open Market Operations (OMO): By buying government securities, the RBI injects liquidity into the economy.
• Reducing the Cash Reserve Ratio (CRR): Banks hold less with the RBI, freeing funds for lending.
• Quantitative Easing: RBI buys financial assets, increasing liquidity.
• Money supply can be decreased by reversing these actions.

The National Logistics Policy (NLP) was indeed launched in 2022 to improve the competitiveness of Indian goods and enhance economic growth and employment opportunities. The policy focuses on reducing logistics costs, improving efficiency in the logistics sector, and enhancing India's global trade competitiveness.

It aims to create a unified logistics interface platform, ease of logistics services, and human resource development in the logistics sector, rather than directly addressing fiscal or balance sheet issues.

• Non-rivalry and non-excludability are indeed two key characteristics of public goods. Non-rivalry means one person's consumption doesn't reduce availability for others, while non-excludability means it's difficult to prevent non-payers from consuming the good.
• Externalities can be both positive and negative. They exist when the actions of one person or entity affect the existence and well-being of another. Positive externalities generally have a positive effect, while negative ones have the opposite impact.
  But how do these economic factors affect market prices and market failure is unpredictable and can only be controlled partially. So saying presence Externalities help in maintaining optimal amount of goods in market is partially wrong.

The Fourteenth Finance Commission, which submitted its report in 2014 for the period 2015-2020, was the first to use the population data of 2011 in its tax devolution formula.

This was a significant shift from the previous practice of using 1971 population data. The change was controversial as it potentially benefited states with higher population growth rates.

This decision reflected the commission's attempt to balance the need for using more recent demographic data with concerns about penalizing states that had successfully controlled population growth. It marked a crucial change in the approach to fiscal federalism in India.

The Pradhan Mantri Mudra Yojana (PMMY). PMMY, launched in 2015, provides loans up to 10 lakhs to non-corporate, non-farm small/micro enterprises. It covers both term loans and working capital requirements. The scheme has three categories: Shishu (up to ₹50,000), Kishore (₹50,000 to 5 lakhs), and Tarun (5 lakhs to 10 lakhs).

PMMY aims to promote entrepreneurship by providing easy access to funding for small businesses. The scheme doesn't insist on collateral for loan sanction, making it accessible to a wider range of entrepreneurs, particularly those from underprivileged backgrounds.

The New Economic Policy of 1991 focused on privatization, liberalization, and globalization.

• Privatization involved selling public sector shares, disinvestment, and encouraging private sector control for industrial growth.
• Liberalization abolished license requirements for businesses, allowed banks to set interest rates, and enabled industries to import raw materials and expand production freely.
• Globalization aimed at integrating India with the global economy by reducing import-export duties, easing foreign trade restrictions, and allowing partial currency convertibility to attract foreign investments and foster international trade.

The National Monetisation Pipeline (NMP) aims to unlock the value of brownfield public sector assets by attracting institutional and long-term patient capital, which can be used for further public investments.

NMP targets 6 lakh crore through leasing core assets in sectors like roads, railways, power, oil and gas pipelines, telecom, and civil aviation over FY 2021-22 to 2024-25. The focus is on core assets, excluding non-core asset disinvestment.

Monetisation will involve instruments like public-private partnership concessions and Infrastructure Investment Trusts (InvIT), depending on sector, asset type, and investor profiles.

About Core Inflation

• It is the change in the costs of goods and services excluding the price variations in seasonal elements, such as those related to food and energy.
• Food and energy prices are exempt from this calculation because their prices can be too volatile or fluctuate wildly.
• Core inflation represents the long-term trend in the price level.
• It is used to determine the impact of rising prices on consumer income.
• To deal with such situations, many central banks use measures of core inflation that are designed to filter transitory price movements.
• If the increase in the price index is due to temporary shocks that could soon reverse themselves, it may not require any monetary policy action.
• On the other hand, prices of other commodities do not fluctuate as regularly as those of food and fuel: as such, increase in their prices could be taken relatively to be much more of a permanent nature.
• It follows logically for Central Banks to target only core inflation, as it reflects the demand-side pressure in the economy.
• Core inflation, by eliminating the volatile components from the headline helps in identifying the underlying trend in headline inflation and is believed to predict future inflation better.
• It is aconvenient guide to help the central bank achieve its objective of controlling total inflation.
• Whenever core inflation rises, Central Banks increase their key policy rates to suck excess liquidity from the market, and vice versa. It is, therefore, a preferred tool for framing long-term policy.

Capital receipts are government receipts that either create liabilities or reduce asset value, primarily sourced from loans to meet long-term development needs. They are non-recurring in nature.

• Debt Capital Receipts: These include market loans, securities issued to public sector banks, treasury bills, small savings, state pension schemes, external debt, and more. The government is liable to repay these debt receipts.
• Non-debt Capital Receipts: These do not create future liabilities and include loan recovery, disinvestment, and issuance of bonus shares.
• Non-debt receipts typically constitute over 75% of total budget receipts.