UPSC Prelims 2025
Indian Economy Previous Year Questions (PYQs)

Detailed Explanation:

Statement I — Correct. Most low-producing indigenous cattle/buffalo are owned by small farmers, marginal farmers, and landless labourers. By improving the productivity of these animals, RGM directly helps uplift the rural poor.

Statement II — Correct. Launched in December 2014, RGM's purpose is to conserve and improve indigenous breeds of cattle and buffalo through scientific breeding and genetic upgradation — done in a holistic manner (covering breeding, health, nutrition).

Both statements describe two connected aspects of the same scheme — purpose (II) and impact (I).

Rashtriya Gokul Mission

Detailed Explanation:

Answer: Option 2 — Only three

Simple Explanation:

Pair I — Correct. Cassava (tapioca/manioc) is a woody shrub, grown for its starchy roots.

Pair II — Correct. Ginger is a herb with a pseudostem (made of leaf sheaths, not a true stem); the part we eat is the rhizome.

Pair III — Correct. Malabar spinach is a soft, herbaceous climber — commonly grown as a leafy vegetable.

Pair IV — Incorrect. Mint is NOT a shrub — it's a perennial herb with soft stems that spread via stolons (runners).

Pair V — Incorrect. Papaya is NOT a woody shrub — it's actually a herbaceous tree ("giant herb") with a soft, hollow stem.

So 3 pairs (I, II, III) are correct; IV and V are wrong.

Detailed Explanation:

Correct Answer: ✅ Option 1 (I and II only)

The Reserve Bank of India earns income primarily from its financial operations, such as managing government securities and foreign exchange reserves. It is not a commercial bank and does not directly lend to private companies or earn income from printing currency.

✅ Statement I is Correct: RBI earns income from holding and trading Government Securities (G-Secs) and conducting Open Market Operations (OMOs).

✅ Statement II is Correct: RBI earns income from investing and managing India's foreign exchange reserves and from foreign currency transactions.

❌ Statement III is Incorrect: Pension fund management is carried out by fund managers regulated by the Pension Fund Regulatory and Development Authority, not by RBI.

❌ Statement IV is Incorrect: RBI does not lend directly to private companies. It mainly lends to banks and the government when required.

❌ Statement V is Incorrect: Printing and distributing currency notes is a central banking function, but it is not treated as a direct source of RBI's income. Currency notes are recorded as liabilities on RBI's balance sheet.

Short Notes: Sources of RBI Income

• RBI earns interest from Government Securities (G-Secs).

• It earns returns from managing foreign exchange reserves.

• Income comes from investments in foreign government bonds and deposits.

• RBI conducts Open Market Operations (OMO) to manage liquidity.

• Currency notes are treated as liabilities in RBI's balance sheet.

• RBI acts as the Banker to Government and Banker to Banks.

• RBI transfers its surplus profits annually to the Government of India.

Detailed Explanation:

Correct Answer: ✅ Option 2 (II only)

The Business Responsibility and Sustainability Report (BRSR) is an ESG (Environmental, Social, and Governance) disclosure framework introduced by Securities and Exchange Board of India to improve transparency regarding a company's sustainability practices and social responsibility.

❌ Statement I is Incorrect: BRSR reporting is mandated by SEBI, not by the Reserve Bank of India. It is applicable to the top 1,000 listed companies by market capitalization.

✅ Statement II is Correct: BRSR mainly contains non-financial disclosures related to environmental performance, social responsibility, employee welfare, governance practices, and sustainability initiatives.

Short Notes: Business Responsibility and Sustainability Report (BRSR)

• BRSR was introduced by SEBI to strengthen ESG disclosures.

• It is mandatory for the top 1,000 listed companies by market capitalization.

• It replaced the earlier Business Responsibility Report (BRR) framework.

• BRSR focuses on Environmental, Social, and Governance (ESG) parameters.

• Most disclosures are non-financial in nature.

• It is based on the National Guidelines on Responsible Business Conduct (NGRBC).

• The framework improves corporate transparency and sustainability reporting.

Detailed Explanation:

Correct Answer: ✅ Option 2 (Only Two)

Alternative Investment Funds (AIFs) are privately pooled investment vehicles regulated by Securities and Exchange Board of India. They invest in assets other than traditional investments such as stocks, bonds, and cash instruments.

❌ Statement I (Bonds) is Incorrect: Bonds are traditional debt instruments and are not classified as Alternative Investment Funds.

✅ Statement II (Hedge Funds) is Correct: Hedge Funds are classified as Category III AIFs and use complex trading and investment strategies.

❌ Statement III (Stocks) is Incorrect: Stocks are conventional equity investments and are not considered AIFs.

✅ Statement IV (Venture Capital) is Correct: Venture Capital Funds are classified as Category I AIFs and invest in startups and early-stage businesses.

Therefore, only II and IV are treated as Alternative Investment Funds.

Short Notes: Alternative Investment Funds (AIFs)

• AIFs are regulated by SEBI under the AIF Regulations, 2012.

• They are privately pooled investment vehicles.

• Category I AIFs: Venture Capital Funds, SME Funds, Social Venture Funds, Infrastructure Funds.

• Category II AIFs: Private Equity Funds, Debt Funds, Fund of Funds.

• Category III AIFs: Hedge Funds and funds using complex trading strategies.

• AIFs invest in assets beyond traditional stocks and bonds.

• They are generally meant for high-net-worth and institutional investors.

Detailed Explanation:

Correct Answer: ✅ Option 1 (I and II only)

Government receipts are classified into Revenue Receipts and Capital Receipts. Capital receipts either increase the government's liabilities or reduce its assets, whereas revenue receipts are regular incomes that do not create liabilities or reduce assets.

✅ Statement I is Correct: Capital receipts either create a liability (such as borrowings) or reduce government assets (such as disinvestment).

✅ Statement II is Correct: Both borrowings and disinvestment proceeds are classified as capital receipts.

• Borrowings increase liabilities.

• Disinvestment reduces government ownership in assets.

❌ Statement III is Incorrect: Interest received on loans is a Revenue Receipt, not a liability. It is income earned by the government and does not create any liability.

Short Notes: Capital Receipts and Revenue Receipts

• Government receipts are classified into Capital Receipts and Revenue Receipts.

• Capital Receipts create liabilities or reduce assets.

• Examples of Capital Receipts: Borrowings, Recovery of Loans, Disinvestment.

• Revenue Receipts neither create liabilities nor reduce assets.

• Examples of Revenue Receipts: Taxes, Fees, Dividends, Interest Receipts.

• Borrowings increase the public debt of the government.

• Disinvestment involves the sale of government stakes in public sector enterprises.

Detailed Explanation:

Correct Answer: ✅ Option 4

Under the Income-tax Act, 1961, only income from core agricultural operations is treated as agricultural income and exempt from tax. Allied activities such as poultry farming and wool rearing do not qualify for this exemption. Also, rural agricultural land is specifically excluded from the definition of a capital asset.

❌ Statement I is Incorrect: Income from allied agricultural activities like poultry farming, dairy farming, wool rearing, and fisheries is generally taxable and is not treated as agricultural income.

✅ Statement II is Correct: Rural agricultural land is excluded from the definition of a capital asset under Section 2(14) of the Income-tax Act, 1961. Therefore, its sale is generally not subject to capital gains tax.

❌ Statement II does not explain Statement I: Statement II deals with the tax treatment of rural agricultural land, whereas Statement I concerns the taxation of income from allied agricultural activities. The two are unrelated.

Short Notes: Agricultural Income and Rural Agricultural Land

• Agricultural income from cultivation of land is exempt from income tax under the Income-tax Act.

• Income from poultry farming, dairy farming, fisheries, and wool rearing is taxable.

• Section 2(14) defines "Capital Asset" under the Income-tax Act.

• Rural agricultural land is not treated as a capital asset.

• Sale of rural agricultural land generally does not attract capital gains tax.

• Urban agricultural land is usually treated as a capital asset.

• The exemption aims to protect farmers and agricultural activities.

Detailed Explanation:

Correct Answer: ✅ Option 4 (I, II and III)

India is globally recognized as the leading producer, consumer, and exporter of turmeric. The country's diverse agro-climatic conditions support the cultivation of numerous turmeric varieties across several states.

✅ Statement I is Correct: India is the largest producer and exporter of turmeric in the world, contributing a major share of global production and exports.

✅ Statement II is Correct: More than 30 varieties of turmeric are cultivated in India, including popular varieties such as Alleppey Finger, Salem, Rajapore, and Nizamabad.

✅ Statement III is Correct: Telangana, Maharashtra, Karnataka, and Tamil Nadu are among the major turmeric-producing states of India.

Short Notes: Turmeric Production in India

• India is the world's largest producer, consumer, and exporter of turmeric.

• Turmeric is known as "Indian Saffron" due to its color and value.

• The scientific name of turmeric is Curcuma longa.

• Curcumin is the principal bioactive compound responsible for its medicinal properties.

• Major producing states include Telangana, Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh, and Odisha.

• India grows more than 30 varieties of turmeric.

• Turmeric has applications in food, medicine, cosmetics, and traditional healthcare systems.

Detailed Explanation:

Correct Answer: ✅ Option 1

When investing in a company, bondholders generally face lower risk than stockholders because bonds are debt instruments with fixed claims, while stocks represent ownership and carry higher uncertainty.

✅ Statement I is Correct: Bondholders are generally at lower risk because they receive fixed interest payments and have a higher claim on company assets than stockholders.

✅ Statement II is Correct: Bondholders are lenders (creditors) to the company, whereas stockholders (shareholders) are owners of the company.

✅ Statement III is Correct: In case of liquidation or bankruptcy, bondholders are repaid before stockholders, reducing their investment risk.

Why II and III explain I: Since bondholders are creditors and have priority in repayment, their chances of recovering money are higher than those of stockholders. Therefore, they are considered relatively less risky investors.

Short Notes: Bonds vs Stocks

• Bonds are debt instruments; investors act as lenders.

• Stocks (Shares) represent ownership in a company.

• Bondholders receive fixed interest payments.

• Stockholders receive returns through dividends and capital appreciation.

• In liquidation, creditors and bondholders are paid before shareholders.

• Bonds generally carry lower risk and lower returns.

• Stocks generally carry higher risk and higher return potential.

Detailed Explanation:

Correct Answer: ✅ Option 1 (I and II only)

India has witnessed a remarkable surge in stock market participation and derivatives trading in recent years. At the same time, investor protection and market regulation are actively handled by Securities and Exchange Board of India.

✅ Statement I is Correct: India accounts for a very large share of global equity options trading volume, making it one of the world's most active derivatives markets.

✅ Statement II is Correct: India's stock market capitalization grew rapidly and, during 2024, briefly surpassed that of Hong Kong, becoming one of the world's largest stock markets.

❌ Statement III is Incorrect: India has a dedicated regulator, Securities and Exchange Board of India>, which:

• Warns investors about the risks of derivatives and options trading.

• Regulates investment advisers and research analysts.

• Takes action against unregistered financial advisors and fraudulent entities.

Short Notes: India's Equity Options Market

• India is among the world's largest markets for equity derivatives trading.

• Equity options provide the right, but not the obligation, to buy or sell an asset.

• High trading volumes do not necessarily indicate high profitability for retail investors.

• SEBI regulates stock exchanges, brokers, and investment advisers.

• The National Stock Exchange and Bombay Stock Exchange are India's major stock exchanges.

• India became one of the world's top stock markets by market capitalization in recent years.

• SEBI frequently issues advisories regarding the risks of speculative options trading.

Detailed Explanation:

Correct Answer: ✅ Option 1 (I only)

RTGS (Real Time Gross Settlement) and NEFT (National Electronic Funds Transfer) are electronic fund transfer systems operated by the Reserve Bank of India. The key difference lies in the method and speed of settlement.

✅ Statement I is Correct: RTGS transactions are settled individually and in real time, making them almost instantaneous. NEFT transactions are settled in batches, so there may be a slight delay.

❌ Statement II is Incorrect: As per RBI guidelines, banks cannot levy charges on inward transactions (receiving funds) under either RTGS or NEFT.

❌ Statement III is Incorrect: Both RTGS and NEFT are available 24×7×365, including weekends and holidays. Therefore, RTGS operating hours are no longer restricted.

Short Notes: RTGS vs NEFT

• RTGS stands for Real Time Gross Settlement.

• NEFT stands for National Electronic Funds Transfer.

• RTGS settles transactions individually and instantly.

• NEFT settles transactions in half-hourly batches on a continuous basis.

• Both systems are operated by the Reserve Bank of India (RBI).

• Both RTGS and NEFT are available 24×7×365.

• No charges are permitted on inward transactions under either system.

Detailed Explanation:

Correct Answer: ✅ Option 4 (I, II and III)

This question is based on the formulas of Revenue Deficit, Fiscal Deficit, and Primary Deficit used in government budgeting.

✅ Statement I is Correct: Revenue Deficit = Revenue Expenditure − Revenue Receipts
= ₹80,000 crore − ₹60,000 crore
= ₹20,000 crore

✅ Statement II is Correct: Fiscal Deficit represents the government's total borrowing requirement.
Given Borrowings = ₹10,000 crore
Therefore, Fiscal Deficit = ₹10,000 crore

✅ Statement III is Correct: Primary Deficit = Fiscal Deficit − Interest Payments
= ₹10,000 crore − ₹6,000 crore
= ₹4,000 crore

Short Notes: Budget Deficits

• Revenue Deficit = Revenue Expenditure − Revenue Receipts

• Revenue deficit indicates that the government is unable to meet its day-to-day expenses from its regular income.

• Fiscal Deficit = Total Borrowings of the Government

• Fiscal deficit reflects the total gap between expenditure and receipts (excluding borrowings).

• Primary Deficit = Fiscal Deficit − Interest Payments

• Primary deficit shows the current year's fiscal imbalance excluding past debt obligations.

• A zero primary deficit means borrowings are only being used to pay interest on past loans.

Detailed Explanation:

Correct Answer: ✅ Option 3 (I and III only)

The International Bank for Reconstruction and Development is the largest institution of the World Bank Group. It was originally established to support post-war reconstruction and now focuses on development financing.

✅ Statement I is Correct: IBRD provides loans, guarantees, risk-management products, and advisory services primarily to middle-income and creditworthy lower-income countries.

❌ Statement II is Incorrect: IBRD does not work alone to reduce poverty. It works along with other World Bank Group institutions such as:

• International Development Association> (IDA)

• International Finance Corporation> (IFC)

• Multilateral Investment Guarantee Agency> (MIGA)

✅ Statement III is Correct: IBRD was established in 1944 at the Bretton Woods Conference to help rebuild Europe after World War II.

Short Notes: International Bank for Reconstruction and Development (IBRD)

• IBRD was established in 1944 under the Bretton Woods system.

• It is a key institution of the World Bank Group.

• Headquarters: Washington, D.C..

• Provides loans and guarantees to middle-income and creditworthy countries.

• Funds development projects in infrastructure, education, health, and governance.

• Raises funds mainly through international capital markets.

• Its original objective was the reconstruction of Europe after World War II.

Detailed Explanation:

Correct Answer: ✅ Option 2 (Only three)

India's Unified Payments Interface (UPI) has expanded internationally through partnerships with foreign payment networks and merchants. However, UPI-based international merchant payments are currently available only in selected countries.

✅ I. United Arab Emirates – Correct: UPI is accepted at select merchants in the UAE through partnerships facilitated by National Payments Corporation of India.

✅ II. France – Correct: France became one of the first European countries to accept UPI payments, including at locations such as the Eiffel Tower.

❌ III. Germany – Incorrect: UPI merchant payment acceptance has not been officially rolled out in Germany.

✅ IV. Singapore – Correct: UPI is operational in Singapore for cross-border payments and merchant transactions through linkage arrangements.

❌ V. Bangladesh – Incorrect: UPI merchant payment acceptance is not operational in Bangladesh.

Therefore, among the given countries, UAE, France, and Singapore are the three countries where international merchant payments are accepted under UPI.

Short Notes: UPI Internationalization

• UPI (Unified Payments Interface) was developed by National Payments Corporation of India.

• UPI enables instant real-time digital payments.

• International merchant payments are operational in countries such as UAE, Singapore, France, Bhutan, Nepal, Mauritius, and Sri Lanka.

• UPI helps reduce dependence on international card networks.

• Cross-border UPI services support tourism, remittances, and business transactions.

• UPI is one of the world's largest digital payment platforms.

• The system is regulated by the Reserve Bank of India and operated by NPCI.

Detailed Explanation:

Correct Answer: ✅ Option 1 (₹48,500 crores)

This question is based on the concept of Primary Deficit, which measures the fiscal deficit excluding interest payments on past borrowings.

✅ Statement I is Correct: Fiscal Deficit = ₹50,000 crore (given)

✅ Interest Liabilities = ₹1,500 crore (given)

✅ Formula:
Primary Deficit = Fiscal Deficit − Interest Payments

Calculation:
= ₹50,000 crore − ₹1,500 crore
= ₹48,500 crore

Note: The ₹10,000 crore non-debt creating capital receipts are already accounted for while calculating the fiscal deficit. Therefore, they are not used again in the calculation of primary deficit.

Short Notes: Fiscal Deficit and Primary Deficit

• Fiscal Deficit represents the government's total borrowing requirement.

• Fiscal Deficit = Total Expenditure − Total Receipts (excluding borrowings).

• Primary Deficit = Fiscal Deficit − Interest Payments.

• Primary Deficit indicates the current year's fiscal imbalance excluding past debt burden.

• A lower primary deficit suggests better fiscal discipline.

• If Primary Deficit is zero, borrowings are only sufficient to pay interest on previous loans.

• Non-debt capital receipts include disinvestment proceeds and loan recoveries.

Detailed Explanation:

Correct Answer: ✅ Option 4

The United States and Brazil are the world's two largest ethanol producers. However, the United States produces more ethanol than Brazil, while the two countries use different primary feedstocks for ethanol production.

❌ Statement I is Incorrect: The United States of America is the world's largest ethanol producer, producing more ethanol than Brazil.

✅ Statement II is Correct: The USA mainly uses corn (maize) as feedstock for ethanol production, whereas Brazil primarily uses sugarcane.

Short Notes: Ethanol Production

• Ethanol is a renewable biofuel produced through the fermentation of sugars and starches.

• The USA is the world's largest ethanol producer.

• Brazil is the world's second-largest ethanol producer.

• Corn (maize) is the principal feedstock in the USA.

• Sugarcane is the principal feedstock in Brazil.

• In India, ethanol is mainly produced from sugarcane molasses, sugarcane juice, and food grains.

• Ethanol blending helps reduce crude oil imports and greenhouse gas emissions.