Daily Quiz – 27th Mar 2024

Exp) Option c is the correct answer.

In India, the Special Economic Zone (SEZ) policy was introduced to create designated areas with special economic regulations, infrastructure, and incentives to attract domestic and foreign investments. The aim was to enhance economic activities, promote exports, generate employment, and contribute to overall economic development.

Statement 1 is correct: Special Economic Zones (SEZs) are designated geographic areas where economic laws, regulations, and policies are more liberal and business-friendly than the surrounding domestic laws. They are established to promote economic activities, exports, and investments.

Statement 2 is correct: SEZ units benefit from a 100% income tax exemption on their profits from export for the initial five years, governed by Section 10AA of the Income Tax Act. Additionally, SEZs are exempt from the Goods and Services Tax (GST) and state government levies, with supplies to SEZs being categorised as zero-rated under the Integrated GST Act,2017 implying they are not subject to taxation.

Statement 3 is correct: SEZs are intended to encourage investment, and they are open to both domestic and foreign investors. They provide a conducive environment for businesses to establish operations, attract foreign direct investment (FDI), and promote economic growth.

Statement 4 is incorrect: India is not the first nation to establish a Special Economic Zones (SEZs) in the Asian continent. For example: China initiated its Special Economic Zones （SEZs） in 1980 itself （in India SEZ was intrduced only in 2000s）. The success of these zones played a significant role in China's rapid economic growth and transformation into a global economic powerhouse.

Exp) Option c is the correct answer.

Statement 1 is correct. The FTP is notified by the Union Government under Section 5 of the Foreign Trade (Development & Regulation) Act, 1992. The previous Policy was released in 2015 and was valid till 2020. It was extended multiple times amidst the COVID-19 pandemic and the Russia-Ukraine conflict that disrupted global supply chains and trade.

Statement 2 is correct. The 2023 policy is based on 4 pillars:

1) Incentive to Remission.

2) Export promotion through collaboration: Exporters, States, Districts, Indian Missions.

3) Ease of doing business, reduction in transaction costs and e-initiatives.

4) Emerging Areas: e-Commerce Developing Districts as Export Hubs and streamlining SCOMET (Special Chemicals, Organisms, Materials, Equipment and Technologies) policy.

Statement 3 is incorrect. Four new towns (Faridabad, Mirzapur, Moradabad, and Varanasi) have been designated as Towns of Export Excellence (TEE) in addition to the existing 39 towns. The TEEs will have priority access to export promotion funds under the Market Access Initiative (MAI) scheme.

TEEs will also be able to avail Common Service Provider (CSP) benefits for export fulfilment under the Export Promotion Capital Goods (EPCG) Scheme.

Statement 4 is correct. The FTP aims at building partnerships with State Governments and taking forward the Districts as Export Hubs (DEH) initiative. This would promote exports at the district level and accelerate the development of the grassroots trade ecosystem.

Exp) Option c is the correct answer.

Capital account convertibility means the freedom to conduct investment transactions without any constraints. Typically, it would mean no restrictions on the amount of rupees you can convert into foreign currency to enable you, an Indian resident, to acquire any foreign asset. Similarly, there should be no restraints on a NRI bringing in any amount of dollars or dirhams to acquire an asset in India.

Statements 1, 2 and 3 are correct. The recent moves towards Capital account convertibility include increasing the foreign portfolio investment limits in the Indian debt markets, introducing the Fully Accessible Route (FAR) — through which non-residents can invest in specified government securities without any restrictions and the easing of the external commercial borrowing framework by relaxing end-user restrictions. Inward FDI is allowed in most sectors, and outbound FDI by Indian incorporated entities is allowed as a multiple of their net worth.

Statement 4 is incorrect. Limitation on Non-Resident Indians to invest in Government securities restrict the flow of currency and hence it does not aid the process of full capital account convertibility in India.

Exp) Option b is the correct answer.

In this globalised world, the cheap Chinese toy intrusion into India poses several challenges and risks, both to the domestic toy industry and consumers.

Option a is incorrect: Imposing a blanket ban on foreign imports of toys is highly unlikely. Further this measure could lead to international trade disputes and is generally considered a protectionist measure that can have negative repercussions including potentially raising prices for consumers.

Option b is correct: Providing incentives to toy and handicraft manufacturers in India is more likely to be employed by the Indian government in this globalised world. Providing incentives such as tax breaks, subsidies, financial support, or other forms of assistance can stimulate the growth of the domestic toy industry, encourage innovation and investment, and lead to job creation. It supports the local industry in a way that best aligns with international trade policies.

Option c is incorrect: A legislation banning consumers from buying Chinese toys would be controversial and may be challenging to enforce. It could face opposition on grounds of restricting consumer choices. Therefore such an outright ban on purchasing decisions could face legal and practical challenges and might not be a favoured option.

Option d is incorrect: Reducing customs duties would increase competition from cheaper Chinese imports and could adversely affect domestic manufacturers. Therefore increasing customs duties (not reducing customs duties) is the most favourable strategy employed by the Government of India to protect domestic players.

Exp) Option d is the correct answer.

The Balance of Payments (BoP) is a record of transactions under the current account, capital account, and financial account.

Statement 1 is incorrect: India has consistently recorded a Current Account Deficit (CAD) during four out of five preceding financial years (from 2018-19 to 2022-23). The year 2020-21 has been an exception, where India has recorded a Current Account Surplus. In 2020-21, the current account surplus stood at around INR 1.82 lakh crore.

Statement 2 is incorrect: The net FDI in India has been showing a fluctuating trend during the last five financial years.