Business, Economy and Finance Awareness
CMAT's General Awareness section leans far more heavily on business, economy and finance than a general-knowledge paper does, and the static-GK material shared from other programmes covers almost none of it. This chapter fills that gap, and it also serves Innovation & Entrepreneurship, because a question about SEBI or the GST Council could be asked by either section. What is here is the part that does not move: which regulator governs what, when each institution was created, which body was replaced by which, and the vocabulary a business headline assumes you already know. Deliberately absent are the current repo rate, the current office-holders and this quarter's index levels — a chapter that printed those would be misleading a candidate revising six months from now, and every one of them is a lookup rather than a thing to learn.
GST and the Tax Vocabulary
- GST came into force on 1 July 2017, through the 101st Constitutional Amendment. It replaced a stack of indirect taxes — excise duty, service tax, VAT and several cesses — with one tax on supply.
- The GST Council is a constitutional body under Article 279A, chaired by the Union Finance Minister with the state finance ministers as members. It is the body that decides rates — which is why rate questions are about the Council and not about Parliament.
- The four components: CGST (collected by the Centre) and SGST (by the state) on a sale within a state; IGST on an inter-state sale; UTGST for union territories. Which applies depends only on whether the supply crosses a state boundary.
- Direct versus indirect. A direct tax is paid by the person on whom it is levied and cannot be passed on — income tax, corporate tax. An indirect tax is collected by a seller and borne by the buyer — GST, customs duty. Every "classify this tax" question is this one distinction.
- Fiscal versus monetary policy. Fiscal policy is the government's taxing and spending, presented in the Union Budget. Monetary policy is the RBI's control of money and interest rates. Confusing the two is the most common macro error, and options are written to invite it.
The Words a Business Headline Assumes
| Term | What it means |
|---|---|
| GDP vs GNP | GDP is output produced inside the country; GNP is output produced by its residents, wherever they are. |
| Nominal vs real | Real is adjusted for inflation; nominal is not. Real growth can be negative while nominal growth is positive. |
| Repo rate | The rate at which the RBI lends to banks against securities. Raising it is a tightening, meant to slow inflation. |
| CRR and SLR | The share of deposits a bank must hold as cash with the RBI (CRR), and the share it must hold in specified liquid assets (SLR). |
| Inflation, and its two indices | A sustained rise in the general price level. CPI measures retail prices and is the RBI's target; WPI measures wholesale prices. |
| Fiscal deficit | The gap between total government expenditure and total receipts excluding borrowings — that is, how much it must borrow. |
| FDI vs FPI | Direct investment buys a lasting stake in a business; portfolio investment buys tradable securities and can leave quickly. Hence "hot money" for the second. |
| NPA | A non-performing asset: a loan on which repayment has stopped for a specified period. A bank's problem, reported as a share of its advances. |
🎯 Why definitions and not numbers
Rates and index levels change several times a year, and a chapter that printed them would be quietly wrong for most of its life. The definitions do not change, and they are what makes a current-affairs headline readable — which is the actual preparation for this section. Read a business paper for fifteen minutes a day and this table turns the headlines into information.Company Law and the Bodies Around It
- MCA — Ministry of Corporate Affairs administers the Companies Act, 2013. The Registrar of Companies (RoC) is where a company is actually incorporated and where its annual filings go.
- NCLT — National Company Law Tribunal hears company disputes and corporate insolvency, with the NCLAT as its appellate tribunal. Insolvency reaches the NCLT under the IBC, 2016 — which is how the three names connect and how the question is usually built.
- CSR is a statutory obligation in India, not a voluntary policy. Section 135 of the Companies Act, 2013 requires companies above stated thresholds of turnover, net worth or profit to spend a prescribed share of their average net profit on corporate social responsibility. India was the first country to legislate this, which is itself an asked fact. The thresholds are amended by notification; the obligation and the section number are not.
- Merger, acquisition, amalgamation and takeover are four different words. In a merger two companies combine into one; in an acquisition one buys another and both may continue to exist; amalgamation is the legal term used in Indian statute for a combination; a hostile takeover is an acquisition pursued against the wishes of the target's board. Questions swap them deliberately.
Key takeaways
- RBI regulates banking, SEBI the securities markets, IRDAI insurance, PFRDA pensions, CCI competition and IBBI insolvency. Most questions in this area are that one table.
- Learn the three replacements: NITI Aayog replaced the Planning Commission (2015), the CCI replaced the MRTP Commission, and the IBC 2016 replaced the older insolvency laws.
- GST came into force on 1 July 2017 through the 101st Constitutional Amendment, and its rates are decided by the GST Council under Article 279A.
- CGST and SGST apply within a state and IGST between states. Nothing else decides which one applies.
- Fiscal policy is the government taxing and spending; monetary policy is the RBI setting the price of money. Keeping them apart answers a whole class of question.
- FDI buys a lasting stake in a business; FPI buys tradable securities and can leave quickly, which is why it is called hot money.
- CSR in India is a statutory duty under Section 135 of the Companies Act, 2013 — India legislated it first, and that fact is itself asked.
- Learn definitions here, not numbers. Repo rates and index levels change several times a year; what makes a headline readable does not.
Practice questions (8)
Attempt each one before opening the answer. Every explanation names the tempting wrong option as well as the right one, because that is where marks are lost.
Which body regulates India's securities markets, including stock exchanges and mutual funds?
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Answer: B — SEBI
SEBI regulates securities markets — it was set up in 1988 and given statutory powers by the SEBI Act, 1992. The RBI regulates banks and monetary policy, IRDAI insurance, and NITI Aayog regulates nothing at all: it is a policy think tank. The RBI is the option that catches candidates, because both institutions sit in the financial sector; the boundary is banking versus markets.GST was introduced in India through which Constitutional Amendment, and with effect from when?
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Answer: A — 101st Amendment, 1 July 2017
The 101st Constitutional Amendment Act, with GST in force from 1 July 2017. Option C is a real trap rather than a random number: the amendment was introduced in Parliament as the 122nd Amendment Bill and became the 101st Amendment Act on enactment, and bills and Acts are numbered on different counts. The date is also worth fixing — 1 July, not the start of a financial year, which is why option B and option D look plausible.A trader in Maharashtra sells goods to a buyer in Gujarat. Which component of GST applies?
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Answer: B — IGST
The supply crosses a state boundary, so it is inter-state and IGST applies. CGST and SGST apply together only on a supply within one state, and UTGST is for union territories. Whether the supply crosses a state line is the only fact the question needs — nothing about the goods, the amount or the parties changes the answer.NITI Aayog, established in 2015, replaced which body?
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Answer: B — The Planning Commission
NITI Aayog replaced the Planning Commission. The difference is not only the name: the Planning Commission allocated funds to states, while NITI Aayog is an advisory think tank that allocates nothing — which is the substantive point behind the question. The Finance Commission is a constitutional body that still exists and recommends the sharing of tax revenue between the Centre and the states. The MRTP Commission was replaced by the CCI.Which of these is a DIRECT tax?
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Answer: C — Corporate income tax
A direct tax is borne by the person on whom it is levied and cannot be passed on to somebody else. Corporate income tax is paid by the company out of its own profit. GST, customs duty and excise duty are all indirect: a seller or importer collects them and the buyer ultimately bears the cost. The test is not who hands the money to the government — it is who cannot pass it on.The Monetary Policy Committee that sets India's policy interest rate has:
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Answer: A — Six members — three from the RBI and three appointed by the government
Six members: three from the RBI, including the Governor, and three external members appointed by the government. The design is the point — the rate is set by a committee with outside voices rather than by the Governor alone, which is what option B describes and what the arrangement replaced. Option D confuses monetary policy with fiscal policy: the Finance Minister has no seat on the MPC.Corporate social responsibility spending in India is:
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Answer: B — A statutory obligation for companies above stated thresholds, under Section 135 of the Companies Act, 2013
Section 135 of the Companies Act, 2013 makes CSR spending compulsory for companies crossing stated thresholds of net worth, turnover or profit — and India was the first country to legislate it, which is itself a frequently asked fact. Option A was the position before 2013 and is the answer most candidates give from general impression. Option C overstates it: small companies below the thresholds have no such obligation, and the qualifier is what makes option B correct rather than merely close.Foreign investors buying shares on an Indian stock exchange, which they can sell at any time, is:
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Answer: B — Foreign portfolio investment (FPI)
Portfolio investment buys tradable securities and can exit quickly — hence "hot money", and hence the concern about volatility when it leaves in a hurry. FDI is a lasting stake in a business, usually with some management interest, and cannot be sold on an exchange the next morning. External commercial borrowing is debt raised abroad, which creates no ownership at all.