Q. Bank credit to the industrial sector has started shrinking. Its decline has been a serious concern as credit growth is essential to revive investment.
The problem’s Origins lie in the incomplete reforms of the last 25 years. An institutional change that should have followed the 1991 reforms should have been setting up of a resolution corporation for banks. In a market economy with booms and busts, banks should be allowed to be set up and to fail. Today, we cannot shut down banks because there is no proper system to shut them down. Weak loss-making banks continue to need more capital.
Q1. Which one of the following is the most logical and rational inference that can be made from the above passage?
(a) Indian banking system is not able to help the country in its economic growth.
(b) Economic reforms that started in 1991 have not helped in improving the economy to expected levels.
(c) India lacks the institutional mechanism to deal with the failure of banks.
(d) Encouraging the foreign investments in our industrial sector is a good alternative to this sector’s dependence on banks for credit.
Correct Answer: (c) India lacks the institutional mechanism to deal with the failure of banks.
Question from UPSC Prelims 2020 CSAT Paper
Explanation :
The most logical and rational inference that can be made from the passage is that India lacks the institutional mechanism to deal with the failure of banks, as mentioned in the passage: “An institutional change that should have followed the 1991 reforms should have been setting up of a resolution corporation for banks…Today, we cannot shut down banks because there is no proper system to shut them down.” Therefore, option (c) is the correct answer. The passage does not provide evidence to support options (a), (b), or (d).
