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Which of the following is recommended for containing stagflation?
Raising the repo rate
Lowering the repo rate
Privatisation and deregulation
Imposing tariffs on imports
Select the correct code:
a) 1 & 3
b) 2 & 3
c) 3 only
d) 4 only
Unattempted. Explanation :-
Stagflation is a situation when the economic growth of a country stagnates while inflation is rising.
Option 1: RBI could use Monetary policy to try and reduce inflation. Higher Interest rates increase the cost of borrowing and this will reduce aggregate demand (AD). This will be effective for reducing inflation, but, it will cause a bigger fall in GDP. Therefore, the Central Bank may be reluctant to target inflation when growth is already low. Hence it is not recommended.
Option 2: If RBI cut interest rates to try and increase GDP, they could make inflation worse. Hence it is not recommended.
Option 3: One solution to stagflation is to increase aggregate supply through supply-side policies, for example, privatisation and deregulation to increase efficiency and reduce costs of production. Stagflation appears when manufacturing costs exceed revenue. It is recommended.
Option 4: Tariff increases the price of the imported good. A tariff-driven increase in increases the cost of production for manufacturing industries. Following the increased cost of production, industries can attempt to pass the increased costs to consumers by raising prices. It will result in inflation. Industries can also cut back production then unemployment will result. Hence imposing tariffs on imports is not recommended.
Which of the following initiatives can help in reviving the Micro, Medium and Small Industries in India?
a) Reforming ‘Trade receivables discounting platforms (TReDS)’
b) Insolvency and Bankruptcy Code
c) Strict measures recommended by RBI for taking stringent action against NPA accounts
d) All of the above
Unattempted. Explanation :-
Trade receivables discounting platforms (TReDS): Its objective is to enable multiple lenders to bid for invoices accepted by the buyer and thereby provide financing to the MSME seller on a non-recourse basis—transfer the risk from the MSME seller to the financier against the strength of a validated trade invoice. Reforming TReDS will better financing for MSMEs.
With the introduction of the Insolvency and Bankruptcy Code and strict measures recommended by RBI for taking stringent action against NPA accounts, MSMEs face two-fold pressure: delayed payments of their bills and the looming threat of turning into an NPA (for defaults in honouring bank commitments).
MSMEs have long been facing a problem of delayed realisation of their bills and receivables, particularly from large corporate buyers and government organisations, leading to financial hardships and liquidity constraints—a key reason for many of them turning into non-performing assets (NPAs), affecting their sustainability.
Hence these two measures will not have a direct influence on the revival of MSMEs
Consider the following pairs regarding the famous Buddhist Monasteries in India