QUESTIONS

1. Which of the following is not correct 2. It is operated by all the branches of

regarding the concept of ‘Place of Scheduled Commercial Banks only.
Effective Management (PoEM)’? Select the correct answer using the code given
below:
(a) It aims to determine a foreign company’s
residential status. (a) 1 only
(b) It helps to assess if companies are setting up (b) 2 only
shell subsidiaries abroad to evade taxes.
(c) Both 1 and 2
(c) The shift to POEM signifies a shift from
an objective criterion for tax residence to (d) Neither 1 nor 2
subjective criteria.
(d) PoEM guidelines are not applicable in 5. Consider the following statements
India. regarding Pradhan Mantri Rojgar

RE
Protsahan Yojana (PMRPY):
2. Recently, the Reserve Bank of India has 1. Under the scheme, the employer is
set up an Expert Committee to review incentivized by the government for
the current framework for the Micro, increasing the employee base in the
establishment through payment of EPF
Small and Medium Enterprises. Who
(Employees’ Provident Fund) contribution.
is the chairman of the committee?
(a)
(b)
C. Rangrajan
Bimal Jalan
O 2. It is implemented by Ministry of Social
Justice and Empowerment.
3. Employees with salary greater than 15,000
V. K. Shunglu per month are eligible under the scheme.
SC
(c)
(d) U. K. Sinha Which of the above statements is/are incorrect?
(a) 1 and 3 only
3. Which of the following are the impacts (b) 2 and 3 only
of Circular Economy? (c) 2 only
1. Fewer Greenhouse Gas Emissions
(d) 1, 2 and 3
2. Healthy and Resilient Soils
GS

3. Employment growth
6. Recently, there has been a controversy
4. Increased potential for economic growth over India’s new GDP series and its
5. Increased volatility in the prices of raw estimation methodology. Which of
materials
the following changes have been
Select the correct answer using the code given made in Indian GDP estimation in
below:
recent years?
(a) 1, 3 and 5 only 1. Change in base year from 2004-05 to 2010-
(b) 2, 4 and 5 only 11
(c) 1, 2, 3 and 4 only 2. Valuation of GVA at basic prices for GDP
estimation.
(d) 1, 2, 3, 4 and 5
3. Considering GDP at market prices as
headline GDP instead of GDP at factor cost
4. Which of the following statements
Select the correct answer using the code given
regarding Stand-Up India Scheme is/
below:
are correct?
(a) 1 only
1. Loans under the scheme are available for
Greenfield projects only. (b) 1 and 2 only

3 P2020_CRCA_500/D28
 (c) 2 and 3 only (a) 1 only
(d) 1, 2 and 3 (b) 2 only

(c) Both 1 and 2

7. Match the following:
List I List II (d) Neither 1 nor 2

A. Restructured loans 1. Loans which

aren’t counted as 9. Which of the following are the issues
dues, but
with Credit Rating Framework in
recovery efforts
are continued at India?
branch level
1. Credit Rating Agencies follow the ‘issuer
B. Doubtful assets 2. Assets converted pays model’.
into equity
2. Credit-rating market in India is monopolistic,
C. Written-off assets 3. Assets considered
uncollectible with high barriers to entry.

D. Loss assets 4. Assets which have 3. Limited information.

RE
remained in the
4. Single regulator
substandard
category for a Select the correct answer using the code given
period of 12 months below:
Select the correct answer using the code given
(a) 1 and 3 only
below:
A B C D
O (b) 2 and 4 only

(a) 4 2 1 3 (c) 1, 2 and 3 only

(b) 4 2 3 1 (d) 1, 3 and 4 only
SC
(c) 2 4 3 1
(d) 2 4 1 3 10. “Utkarsh 2022”, seen in news recently
refers to:
8. Recently RBI finalized the regulatory
(a) A roadmap to double farmers’ income by
sandbox framework for innovation
2022
in Fin-Tech firms. In this context
GS

consider the following statements (b) A medium-term strategy framework of RBI

about regulatory sandbox :
1. It allows live testing of new products or
services in a controlled or test regulatory
environment. (c)
2. Cryptocurrency or crypto assets services
are included in the regulatory sandbox. (d)
Which of the above statements is/are correct?
for evolving macro-economic environment
in the country.
A Railways project to develop rakes as part
of upgradation of its mail/express trains
NITI Aayog’s Strategy to build a New India
by 2022

**********

P2020_CRCA_500/D28 4
 ANSWER HINTS

Answer Key

Q. 1 (d) Q. 3 (c) Q. 5 (b) Q. 7 (d) Q. 9 (a)

Q. 2 (d) Q. 4 (c) Q. 6 (c) Q. 8 (a) Q. 10 (b)

1. Correct Option: (d) leadership of the former chairman of SEBI,

UK Sinha to review the current framework
Explanation: for the MSME sector.

RE
 Option (d) is incorrect: PoEM guidelines
became applicable in India from FY16-17.
Supplementary notes:
Place of Effective Management (PoEM)
 A PoEM is aimed at ensuring that sufficient
O
economic activity takes place in a particular
country and determining a foreign
company’s residential status.
 It also helps to assess if companies are
SC
setting up shell subsidiaries abroad to
evade taxes.
 In other words, it has been defined to mean a
place where key management and commercial
decisions that are necessary for the conduct
of the business of an entity as a whole are, in
substance made.
PoEM guidelines in India became applicable
GS
 The committee has suggested long-term
solutions for the economic and financial
sustainability of the micro, small and medium
enterprises.
Key Recommendations of the Committee
The Micro, Small & Medium Enterprises

Development (MSMED) Act, 2006 may be
reimagined as a comprehensive and holistic
MSME Code having a provision for sunset on
the plethora of complex laws scattered all over
the legislative framework.
 Change in the definition of MSMEs from
current investment-based to turnover-based
definition, as it would be more transparent,
progressive, easier to implement. It will also
remove the bias towards manufacturing
enterprises in the existing definition.


from FY16-17.
 The Central Board of Direct Taxes issued its
final guidelines in January 2017.
 The shift to PoEM signifies a shift from
an objective criterion for tax residence to
subjective criteria.
2. Correct Option: (d)
Explanation:
 Option (d) is correct: U.K. Sinha committee
has been set up by RBI to review the current
framework for the MSME sector.
Supplementary notes:
Expert Committee on Micro, Small and
Medium Enterprises (MSME)
 The Reserve Bank has set up an eight-
member expert committee under the
 Strengthening the procurement mechanism by
promotion of the Government e-Market (GEM)
Portal and improving its payment system.
 State Financial Corporations (SFC) is set up to
promote Small Scale Industries and they can
be given more operational freedom by the
State legislations.
 Khadi and Village Industries Commission
(KVIC)- should be corporatized with a focus
on promotional work.
 Due to the lack of sophistication on the part of
MSMEs, Insolvency code/ delegated legislation
should provide for out-of-court assistance to
MSMEs such as mediation, financial education,
or the appointment of a trustee.
 The performance of Clusters needs to be
improved by bringing synergy and coordination
within a large number of support schemes.
 Involving local intermediaries such as

P2020_CRCA_500/D28 6
 business membership organizations in
developing linkages with other stakeholders
such as training, educational and research
institutions.
 Market Support for MSMEs can be enhanced
by developing networks of development
service providers that can provide customized
solutions to MSMEs that are struggling with
the capability and resource constraints.
 Improving access to technology through
a technology Mission for converging the
efforts for the technology up-gradation of the
MSMEs. Apart from it, more Industry-specific
Technology Centres can be opened.
 Set up a National Council for MSMEs under
the Chairmanship of the Prime Minister, in
order to facilitate coherent policy outlook and
unity of monitoring.
3. Correct Option: (c)
Explanation:
 Statement 5 is incorrect: Circular economy
will lead to less volatility in the prices of raw
O 
materials.
Supplementary notes:
Benefits of a Circular Economy
SC
Fewer Greenhouse Gas Emissions:
 When it comes to reducing greenhouse gases,
a circular economy can be helpful because it
uses renewable energy that in the long run is
less polluting than fossil fuels.
 A central part of the solution to climate change
thus lies in the so-called “circular economy” - a
GS
regenerative system in which resource input
and waste, emission, and energy leakage are
minimized by slowing, closing, and narrowing
energy and material loops.
 A circular economy development path could
halve carbon dioxide emissions by 2030,
relative to today’s levels.
Fewer Negative Externalities:
 Following the circular economy’s principles,
negative externalities such as land use, soil,
water and air pollution are better managed, as
well as the emission of toxic substances and
climate change.
Healthy and Resilient Soils – Environmental
Benefits:
 The principles of the circular economy on
the farming system ensure that important
nutrients are returned to the soil through
anaerobic processes or composting, which
7 P2020_CRCA_500/D28
softens the exploitation of land and natural
ecosystems.
 In this way, as “waste” is returned to the soil,
besides having fewer residues to deal with,
the soil gets healthier and more resilient
Increased Potential for Economic Growth:
 The increase in revenues from new circular
activities, together with a cheaper production
by getting products and materials more
functional and easily disassembled and reused,
has the power to increase GDP.
Employment Growth:
 According to the ‘World Economic Forum’, the
development of a circular economy model can
bring greater local employment in entry-level
and semi-skilled jobs. New job will be created
RE
through increases in:
 Recycling and repairing practices,
 An increase in new businesses due to
innovation processes and new business
models,
An increase in consumption and spending
by lower prices.
Volatility Reduction and Safeguarded Supplies:
 The increase in the usage of recycled inputs
would leave companies less dependent on the
volatility of the price of raw materials.
4. Correct Option: (c)
Explanation:
 Both statements are correct
Supplementary notes:
Stand-Up India Scheme
 The Stand-Up India scheme aims at promoting
entrepreneurship among women and
scheduled castes and tribes.
 The objective of the scheme is to facilitate
bank loans between Rs 10 lakh and Rs 1
Crore to at least one Scheduled Caste (SC)
or Scheduled Tribe (ST) borrower and at
least one woman borrower per bank branch
for setting up a Greenfield enterprise.
 This enterprise may be in manufacturing,
services or the trading sector.
 SC/ST and/or woman entrepreneurs above 18
years of age are eligible for loans under the
scheme.
 Loans under the scheme are available for
only green field project. Green field signifies,
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P2020_CRCA_500/D28
 in this context, the first time venture of the
beneficiary in the manufacturing or services
or trading sector.
 The scheme is operated by all the branches
of Scheduled Commercial Banks in India.
 It was in news recently as the Union Budget
2019-2020 has extended Stand-Up India
Scheme up to 2025.
5. Correct Option: (b)
Explanation:
 Statement 2 is incorrect: PMRPY is
implemented by Ministry of Labor and
Employment.
 Statement 3 is incorrect: Employees with
6. Correct Option: (c)
Explanation:
 Statement 1 is incorrect: In 2015, base year
for the calculation of GDP has been changed
from 2004-05 to 2011-12.
Supplementary notes:
Changes made in Indian GDP Calculation
 In 2015, the Central Statistics Office introduced
a revised methodology for the calculation of
GDP of the country.
 In place of GDP at factor cost, gross value
added (GVA) at basic prices will be used
now.
 Headline GDP is now GDP at market prices
as per the new GDP series. Earlier, it was
GDP at factor cost.

RE
monthly wage up to 15,000 per month are
 Incorporation of MCA21 (e-governance
eligible under the scheme.
initiative of Ministry of Company Affairs)
Supplementary notes: database: Ensuring comprehensive coverage
of corporate sector in mining, manufacturing
Pradhan Mantri Rojgar Protsahan Yojana & services.
(PMRPY) O  Inclusion of financial sector and regulatory
 The Pradhan Mantri Rojgar Protsahan bodies resulted into the broader coverage.
Yojana (PMRPY) Scheme has been designed Earlier estimates primarily covered commercial
banks and NBFCs.
to incentivize employers for generation of
new employment, where Government of  Adopted Effective Labour Input (ELI) Method:
SC
India will be paying the full employer’s Earlier, it was assumed that all categories of
contribution towards EPF (Employees’ workers contribute equally. New method
addresses differential labour productivity issue
Provident Fund) & EPS (Employees’ Pension
by assigning weights to different categories of
Scheme) both.
workers based on their productivity.
 This scheme has a dual benefit, where, on the
one hand, the employer is incentivized for
7. Correct Option: (d)
increasing the employment base of workers in
GS

the establishment, and on the other hand, a Explanation:

large number of workers will find jobs in such  Option (d) is correctly matched:
establishments.
List I List II
 A direct benefit is that these workers will
have access to social security benefits of the A. Restructured 2. Assets converted into
organized sector. loans equity

 It is being implemented by Ministry of B. Doubtful assets 4. Assets which have

remained in the
labor and Employment.
substandard category for a
 The beneficiaries of the scheme include: period of 12 months

 All Establishments registered with EPFO C. Written-off 1. Loans which aren’t

(Employees’ Provident Fund Organization) assets counted as dues, but
recovery efforts are
 Establishments should have LIN (Labor continued at branch level
Identification Number) allotted to them
D. Loss assets 3. Assets considered
under Shram Suvidha Portal
uncollectible
 Employee should have a valid Aadhar
Supplementary notes:
linked UAN (Universal Account Number)
and wages up to 15,000 per month. Stressed Assets

9 P2020_CRCA_500/D28
  It comprises of NPAs, restructured loans and
written off assets.
 Restructured Loans: Assets/loans which
have been restructured by giving a
longer duration for repayment, lowering
interest or by converting them to equity,
providing additional financing, or some
combination of these measures.
 Written off Assets: Assets/loans which
aren’t counted as dues, but recovery
efforts are continued at branch level –
done by banks to clean up their balance
books.
Non-performing asset (NPA)
 It is a loan or advance for which the principal
or interest payment remained overdue for a
period of 90 days or more.
 In case of Agriculture/Farm Loans, the NPA
varies for short duration crop (interest not
paid for 2 crop seasons) and long duration
crops (interest not paid for 1 Crop season).
 Banks are required to classify NPAs further
into Substandard, Doubtful & Loss assets.

O
Substandard assets: Assets which have
remained NPA for a period less than or
equal to 12 months.
 Doubtful assets: Assets which have
SC
remained in the substandard category
for a period of 12 months
 Loss assets: It is considered uncollectible
and of such little value that its continuance
as a bankable asset is not warranted,
although there may be some salvage or
recovery value.
GS
8. Correct Option: (a)
Explanation:
 Statement 2 is incorrect: Cryptocurrency or
crypto assets services, trading, investing
or settling in crypto-assets and initial coin
offerings are out of the regulatory sandbox.
Supplementary notes:
Regulatory sandbox
 A regulatory sandbox allows live testing of
new products or services in a controlled/
test regulatory environment for which
regulators may permit certain regulatory
relaxations for the limited purpose of the
testing.
 RBI said the objective of the sandbox was
to foster responsible innovation in financial
services, promote efficiency and bring benefits
to consumers.
P2020_CRCA_500/D28
 The proposed FinTech solution should highlight
an existing gap in the financial ecosystem
and the proposal should demonstrate how it
would address the problem, and bring benefits
to consumers or the industry and/or perform
the same work more efficiently.
 RBI will launch the sandbox for entities that
meet the criteria of the minimum net worth of
Rs. 25 lakh as per their latest audited balance
sheet.
 The entity should either be a company
incorporated and registered in the country or
banks licensed to operate in India.
 While money transfer services, digital
know-your-customer, financial inclusion,
and cybersecurity products are included,
cryptocurrency, credit registry and credit
information have been left out.
RE
9. Correct Option: (a)
Explanation:
 Statement 2 is incorrect: Credit-rating market
in India is oligopolistic, with high barriers to
entry.
 Statement 4 is incorrect: There are multiple
regulators which also regulate certain aspects
of credit rating agencies under their respective
sectoral jurisdiction.
Supplementary notes:
Issues with Credit Rating Framework in India
 In the Indian context, the credibility of credit
rating has come into question in the crisis
involving the Infrastructure Leasing and
Financial Services Limited (IL&FS), a major
infrastructure development and finance
company of systemic importance, with a debt
obligation of Rs 91,000 crore. The credit rating
agencies ignored the rising debt levels at
IL&FS, and continued rating it AAA, indicating
the highest level of creditworthiness.
 Issuer pays model: Currently, the credit
rating agencies follow the ‘issuer pays
model’, under which the entity issuing
the financial instrument pays the agency
upfront to rate the underlying securities.
However, the Committee observed that such a
payment arrangement may lead to a ‘conflict
of interest’ and could result in compromising
the quality of analysis or the objectivity of the
ratings assigned by the agencies.
 Multiple regulators: In India, the Securities
and Exchange Board of India (SEBI) primarily
regulates credit rating agencies and their
functioning. However, certain other regulatory
agencies, such as the Reserve Bank of India
(RBI), Insurance Regulatory and Development
10
 Authority, and Pension Fund Regulatory and
Development Authority also regulate certain
aspects of credit rating agencies under their
respective sectoral jurisdiction.
 Less competition: Credit-rating market in
India is oligopolistic, with high barriers
to entry. Lack of competition in the market
enables CRAs to have longer, well- established
relationships with the issuers which can
hamper their independence.
 Poor Rating Quality: Often ratings are
provided on limited information. For e.g.
If the issuer decides not to answer some
determinant questions, the rating may be
principally based on public information. Many
rating agencies don’t have enough manpower
which often leads to poor quality.
10. Correct Option: (b)
Explanation:
 Option (b) is correct: “Utkarsh 2022” refers
to a medium term strategy framework of
Reserve Bank of India for evolving macro-
economic environment in the country.
O 
Supplementary notes:
Utkarsh 2022
SC
 It is the Reserve Bank of India’s medium-
term strategy framework, in line with the
evolving macroeconomic environment,
to achieve excellence in the performance of
**********
GS
P2020_CRCA_500/D28
RBI’s mandates and strengthening the trust of
citizens and other institutions.
 A formal strategic management framework
was launched in April 2015 to rearticulate
the core purpose, values and vision statement
of the Reserve Bank of India so as to delineate
its strategic objectives in contemporary
terms, to provide a framework and backdrop
within and against which its policies would be
formulated.
 The strategic framework contains, the Bank’s
Mission, Core Purpose, Values and Vision
Statements, reiterating the Bank’s commitment
to the Nation.
 The medium-term Vision Statements set
out the following:
 Excellence in performance of statutory and
other function
RE
 Strengthening trust of citizens and other
Institutions in the RBI
 Enhancing relevance and significance in
national and global roles
 Transparent, accountable and ethics-driven
internal governance
Best-in-class and environment friendly
digital as well as physical infrastructure
 Innovative, dynamic and skilled human
resources
 The vision statements are mutually reinforcing
and will guide the RBI during the medium-term
period (2019-22) through various strategies.
12