UPSC Prelims 2013
Indian Economy Previous Year Questions (PYQs)
Explore 20 solved UPSC Prelims 2013 Indian Economy questions with detailed step-by-step bilingual solutions, option analysis, and answer keys.
Priority Sector Lending by banks in India constitutes the lending to:
Detailed Explanation:
Priority Sector Lending (PSL) mandates banks to allocate 40% of Adjusted Net Bank Credit (ANBC) to designated sectors including agriculture and allied activities, micro and small enterprises, weaker sections (low-income groups, students for education, housing), export credit, renewable energy, and social infrastructure.
All three options – agriculture, micro and small enterprises, and weaker sections – are explicitly covered under the RBI's PSL guidelines, making option 4 the correct answer.
To obtain full benefits of demographic dividend, what should India do?
Detailed Explanation:
Demographic dividend refers to economic growth potential when the working-age population (15-64 years) exceeds the non-working-age population.
Promoting skill development is essential to transform this large workforce into productive and employable human capital. Without adequate technical and vocational skills, a large working-age population leads to unemployment and social instability rather than economic growth. Social security schemes provide safety nets but don't directly enhance productivity. Reducing infant mortality affects future demographics, not current workforce quality. Privatization of higher education alone doesn't ensure skill-based employability across all economic sectors.
With reference to the usefulness of the by-products of the sugar industry, which of the following statements is/are correct?
- Bagasse can be used as biomass fuel for the generation of energy.
- Molasses can be used as one of the feedstocks for the production of synthetic chemical fertilizers.
- Molasses can be used for the production of ethanol.
Select the correct answer using the codes given below.
Detailed Explanation:
✅ Statement 1 – Correct: Bagasse (fibrous residue after sugarcane crushing) is widely used as biomass fuel for co-generation of electricity in sugar mills, making them energy self-sufficient.
❌ Statement 2 – Incorrect: Molasses is not a feedstock for synthetic chemical fertilizers; these are produced through Haber-Bosch process (ammonia) and phosphate/potash mining, not from sugar by-products.
✅ Statement 3 – Correct: Molasses serves as a key feedstock for ethanol production through fermentation, supporting India's Ethanol Blending Programme (EBP) for fuel.
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Fruits stored in a cold chamber exhibit longer storage life because -
Detailed Explanation:
Cold storage lowers the temperature, which directly reduces the rate of respiration in fruits.
Slower metabolic and enzymatic processes delay ripening, reduce microbial activity, and extend storage life significantly.
Economic growth in country X will necessarily have to occur if
Detailed Explanation:
Capital formation is the only factor among the given options that necessarily leads to economic growth within a country.
✅ Statement 3 – Correct: Capital formation in X (investment in physical capital like machinery, infrastructure, and human capital) directly increases the productive capacity of the economy, making growth inevitable.
❌ Statement 1 – Incorrect: Technical progress in the world economy does not guarantee growth in country X unless X adopts and implements those technologies.
❌ Statement 2 – Incorrect: Population growth in X alone does not ensure economic growth; it may even lower per capita income if not accompanied by proportionate increase in production.
❌ Statement 4 – Incorrect: Growth in world trade volume benefits country X only if it actively participates and increases its share; mere global trade expansion is insufficient.
Disguised unemployment generally means
Detailed Explanation:
Disguised unemployment occurs when more people are engaged in work than actually required, typically seen in agriculture where entire families work on small plots.
The key characteristic is that removal of surplus workers would not reduce total output, meaning their marginal productivity is zero.
A rise in the general level of prices may be caused by:
- an increase in the money supply
- a decrease in the aggregate level of output
- an increase in the effective demand
Select the correct answer using the codes given below.
Detailed Explanation:
✅ Statement 1 – Correct: An increase in money supply without corresponding increase in output leads to more money chasing fewer goods, causing demand-pull inflation as per the Quantity Theory of Money.
✅ Statement 2 – Correct: A decrease in aggregate output/supply while demand remains constant creates excess demand, pushing prices upward through supply-side inflation.
✅ Statement 3 – Correct: An increase in effective demand (purchasing power-backed demand) beyond the economy's productive capacity causes demand-pull inflation.
Supply of money remaining the same when there is an increase in demand for money, there will be:
Detailed Explanation:
When money supply is constant and demand for money increases, there is greater competition for the available money in the economy.
According to the Liquidity Preference Theory, banks and lenders respond by raising the interest rate to equilibrate the money market—higher rates reduce money demand and attract more deposits, restoring balance between supply and demand.
The balance of payments of a country is a systematic record of
Detailed Explanation:
Balance of Payments (BoP) is a systematic record of all economic transactions between residents of a country and the rest of the world during a specific period (usually a year).
It includes trade in goods (visible trade), trade in services (invisible trade), income flows, current transfers, and capital and financial account transactions—making it comprehensive, not limited to just imports/exports of goods or only government transactions.
Which one of the following is likely to be the most inflationary in its effect?
Detailed Explanation:
Creating new money (Option 4) is the most inflationary method because it directly increases money supply without any corresponding increase in goods and services production, leading to demand-pull inflation.
Repayment of public debt reduces money supply; borrowing from public merely transfers existing money; borrowing from banks has moderate inflationary effect through credit creation, but printing new currency has the strongest direct impact on excess liquidity and price levels.
Consider the following statements :
- Inflation benefits the debtors.
- Inflation benefits the bondholders.
Which of the statements given above is/are correct?
Detailed Explanation:
✅ Statement 1 – Correct: Inflation erodes the real value of money. Debtors repay loans with money that has less purchasing power than when borrowed, reducing their real debt burden.
❌ Statement 2 – Incorrect: Bondholders receive fixed nominal payments. During inflation, the real value of these payments falls, causing bondholders to lose purchasing power.
The Reserve Bank of India regulates the commercial banks in matters of -
- Liquidity of assets
- Branch expansion
- Merger of banks
- Winding-up of banks
Select the correct answer using the codes given below.
Detailed Explanation:
The Reserve Bank of India (RBI) regulates commercial banks comprehensively under the Banking Regulation Act, 1949. It controls liquidity of assets through CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio), regulates branch expansion by granting licenses for new branches, oversees merger of banks to ensure financial stability and depositor protection, and initiates winding-up of banks in cases of severe financial distress. All four regulatory functions are core powers of the RBI.
In India, deficit financing is used for raising resources for
Detailed Explanation:
Deficit financing in India refers to the government meeting its budgetary gap by borrowing from the Reserve Bank of India (RBI) or through money creation.
It is primarily used for economic development purposes—financing infrastructure projects, five-year plans, and other capital expenditure—not for debt redemption or balance of payments adjustment, which are managed through other fiscal and monetary instruments.
The National income of a country for a given period is equal to the:
Detailed Explanation:
National Income represents the money value of all final goods and services produced within an economy during a given period (usually one year).
✅ Option 4 – Correct: Money value of final goods and services produced accurately defines National Income, avoiding double counting by excluding intermediate goods.
❌ Option 1 – Incorrect: Production by nationals refers to Gross National Product (GNP), not National Income which measures production within geographical boundaries.
❌ Option 2 – Incorrect: Consumption + Investment alone excludes Government expenditure (G) and Net Exports (X-M) from the full expenditure approach: Y = C + I + G + (X-M).
❌ Option 3 – Incorrect: Sum of personal incomes excludes corporate profits, undistributed earnings, and other factor incomes generated in production.
In the context of Indian economy, Open Market Operations’ refers to:
Detailed Explanation:
Open Market Operations (OMO) is a monetary policy tool where the Reserve Bank of India (RBI) buys or sells government securities in the open market to regulate money supply and liquidity.
When the RBI purchases securities, it injects liquidity into the banking system, lowering interest rates; when it sells securities, it absorbs excess liquidity, raising interest rates to control inflation.
Which of the following grants/ grant direct credit assistance to rural households?
- Regional Rural Banks
- National Bank for Agriculture and Rural Development
- Land Development Banks
Select the correct answer using the codes given below:
Detailed Explanation:
✅ Statement 1 – Correct: Regional Rural Banks (RRBs) provide direct credit assistance to rural households, including small and marginal farmers, agricultural laborers, and rural artisans.
❌ Statement 2 – Incorrect: NABARD is an apex development bank that provides refinance facilities to banks and financial institutions; it does not grant direct credit to rural households except through limited pilot schemes.
✅ Statement 3 – Correct: Land Development Banks (State Cooperative Agriculture and Rural Development Banks) provide long-term direct credit to farmers for land development, irrigation, and agricultural improvements.
Consider the following liquid assets:
- Demand deposits with the banks
- Time deposits with the banks
- Savings deposits with the banks
- Currency
The correct sequence of these decreasing order of Liquidity is
Detailed Explanation:
Liquidity refers to the ease and speed of converting an asset into cash without loss of value.
Currency is the most liquid asset as it is already in cash form.
Demand deposits can be withdrawn on demand anytime without notice or penalty, making them highly liquid.
Savings deposits can be withdrawn but may require prior notice or have withdrawal limits, making them moderately liquid.
Time deposits (Fixed Deposits) have a fixed maturity period and early withdrawal attracts penalty, making them the least liquid.
Decreasing order of liquidity: Currency (4) > Demand deposits (1) > Savings deposits (3) > Time deposits (2) = 4-1-3-2
Which of the following constitute Capital Account?
- Foreign Loans
- Foreign Direct Investment
- Private Remittances
- Portfolio Investment
Select the correct answer using the codes given below.
Detailed Explanation:
1. Foreign Loans – Capital Account: Borrowings from abroad by government or private sector represent capital inflows and are recorded in the Capital Account.
2. Foreign Direct Investment (FDI) – Capital Account: Long-term investments by foreign entities in domestic companies creating lasting interest are part of the Capital Account.
3. Private Remittances – Current Account: Funds sent by individuals (e.g., migrant workers) to their home country are transfer payments recorded in the Current Account, not Capital Account.
4. Portfolio Investment – Capital Account: Investments in stocks, bonds, and financial securities by foreigners are short-term capital flows part of the Capital Account.
Correct Answer: Option 2 (1, 2 and 4 only) – Private Remittances fall under Current Account.
An increase in the Bank Rate generally indicates that the:
Detailed Explanation:
Bank Rate is the rate at which the central bank (RBI) lends funds to commercial banks.
An increase in Bank Rate makes borrowing costlier, reduces liquidity in the economy, and signals a tight/contractionary monetary policy to control inflation.
Which one of the following groups of items are included in India’s foreign-exchange reserves?
Detailed Explanation:
India's foreign-exchange reserves consist of four components: Foreign Currency Assets (FCAs), Gold holdings by the RBI, Special Drawing Rights (SDRs) from the IMF, and Reserve Tranche Position (RTP) in the IMF.
Loans from foreign countries, World Bank, or other institutions are external debts/liabilities, not part of foreign-exchange reserves which represent assets held by RBI that can be readily deployed.
UPSC Prelims 2013 - Indian Economy Chapter-wise Distribution
Money, Banking & Financial System
6 Qs (30%)External Sector
4 Qs (20%)Agriculture
2 Qs (10%)Public Finance & Fiscal Policy
2 Qs (10%)Inflation
2 Qs (10%)National Income & Economic Development
1 Qs (5%)Employment, Poverty & Inclusive Growth
1 Qs (5%)Industry
1 Qs (5%)Government Schemes & Social Sector
1 Qs (5%)UPSC Prelims 2013 - Indian Economy Questions FAQs
Q1 How many Indian Economy questions were asked in UPSC Prelims 2013?
Q2 What is the chapter-wise question distribution for Indian Economy in UPSC Prelims 2013?
- Money, Banking & Financial System: 6 questions (30%)
- External Sector: 4 questions (20%)
- Agriculture: 2 questions (10%)
- Public Finance & Fiscal Policy: 2 questions (10%)
- Inflation: 2 questions (10%)
- National Income & Economic Development: 1 questions (5%)
- Employment, Poverty & Inclusive Growth: 1 questions (5%)
- Industry: 1 questions (5%)
- Government Schemes & Social Sector: 1 questions (5%)