UPSC CSE Prelims
Indian Economy Previous Year Questions (PYQs)
Solved Previous Year Questions (PYQs) for Indian Economy in UPSC CSE Prelims in English & Hindi Medium.
Chapter Breakdown: Scroll →
Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)?
- It decides the RBI’s benchmark interest rates.
- It is a 12-member body including the Governor of RBI and is reconstituted every year.
- It functions under the chairmanship of the Union Finance Minister.
Select the correct answer using the code given below :
Detailed Explanation:
Answer: Option 1 — 1 only
The Monetary Policy Committee (MPC) is the primary body responsible for deciding the RBI's benchmark interest rates, particularly the repo rate, which influences the overall monetary policy stance of the country. Only statement 1 is correct, while statements 2 and 3 contain factual inaccuracies regarding the composition and chairmanship of the MPC.
✅ Statement 1 – Correct: The MPC is mandated to decide the RBI's benchmark interest rates, especially the repo rate, which is the key policy rate for monetary policy decisions.
❌ Statement 2 – Incorrect: The MPC is a 6-member body (not 12), consisting of three members from the RBI (including the Governor) and three external members appointed by the Central Government for a four-year term; it is not reconstituted annually.
❌ Statement 3 – Incorrect: The MPC functions under the chairmanship of the Governor of RBI, not the Union Finance Minister.
With reference to ‘Quality Council of India (QCI)', consider the following statements:
- QCI was set up jointly by the Government of India and the Indian Industry.
- Chairman of QCI is appointed by the Prime Minister on the recommendations of the industry to the Government.
Which of the above statements is/are correct?
Detailed Explanation:
Answer: Option 3 — Both 1 and 2
The Quality Council of India (QCI) was established in 1997 as a joint initiative by the Government of India and Indian Industry, represented by ASSOCHAM, CII, and FICCI, to establish national accreditation structures and promote quality standards. The organization is governed by a Council, and its Chairman is appointed by the Prime Minister based on recommendations from the industry to the government.
✅ Statement 1 – Correct: QCI was set up jointly in 1997 by the Government of India and Indian Industry (represented by ASSOCHAM, CII, and FICCI) to establish national accreditation structures and promote quality through the National Quality Campaign.
✅ Statement 2 – Correct: The Chairman of QCI is appointed by the Prime Minister on the recommendations of the industry to the Government, making it a unique public-private partnership governance model.
What is the purpose of setting up of Small Finance Banks (SFBs) in India?
- To supply credit to small business units
- To supply credit to small and marginal farmers
- To encourage young entrepreneurs to set up business particularly in rural areas.
Select the correct answer using the code given below:
Detailed Explanation:
Answer: Option 1 — 1 and 2 only
Small Finance Banks (SFBs) were established by the Reserve Bank of India to promote financial inclusion by providing basic banking services to the unserved and underserved sections of the population. Their primary objective is to supply credit to small business units, small and marginal farmers, micro and small industries, and unorganized sector entities.
✅ Statement 1 – Correct: SFBs are specifically designed to provide credit facilities to small business units as part of their core mandate for financial inclusion.
✅ Statement 2 – Correct: Providing credit to small and marginal farmers is one of the primary objectives of SFBs to support agricultural and rural development.
❌ Statement 3 – Incorrect: While SFBs may indirectly benefit young entrepreneurs, their primary purpose is not specifically to encourage young entrepreneurs to set up businesses in rural areas; this is more aligned with schemes like MUDRA or Stand-Up India.
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Consider the following statements : The nation-wide ‘Soil Health Card Scheme’ aims at
- expanding the cultivable area under irrigation.
- enabling the banks to assess the quantum of loans to be granted to farmers on the basis of soil quality.
- checking the overuse of fertilizers in farmlands.
Which of the above statements is/are correct?
Detailed Explanation:
Answer: Option 2 — 3 only
The Soil Health Card Scheme primarily aims to promote balanced and judicious use of fertilizers by providing farmers with soil nutrient status information. This helps in checking the overuse of fertilizers in farmlands, thereby improving soil health and reducing environmental damage.
❌ Statement 1 – Incorrect: Expanding cultivable area under irrigation is not an objective of the Soil Health Card Scheme; it focuses on soil nutrient management, not irrigation expansion.
❌ Statement 2 – Incorrect: Banks do not use soil health cards to assess loan quantum; agricultural loans are based on factors like land ownership, crop type, credit history, and repayment capacity, not soil quality data.
✅ Statement 3 – Correct: The scheme aims to check overuse of fertilizers by informing farmers about actual soil nutrient requirements, thereby promoting judicious fertilizer application and preventing soil degradation.
The term ‘Digital Single Market Strategy’ seen in the news refers to -
Detailed Explanation:
Answer: Option 3 — EU
The Digital Single Market Strategy is a flagship initiative of the European Union (EU) launched in 2015 to create a unified digital market across all 28 member states. This strategy aims to remove regulatory barriers, ensure better access to digital goods and services, and create a level playing field for digital businesses across Europe. It focuses on areas like e-commerce, data protection, digital copyright, and reducing geo-blocking to foster innovation and economic growth in the European digital economy.
Consider the following statements:
- National Payments Corporation of India (NPCI) helps in promoting financial inclusion in the country.
- NPCI has launched RuPay, a card payment scheme.
Which of the statements given above is/are correct?
Detailed Explanation:
Answer: Option 3 — Both 1 and 2
The National Payments Corporation of India (NPCI) is an umbrella organization established to promote retail payments and financial inclusion by developing payment infrastructure and enabling wider participation in the digital payments ecosystem. Both statements correctly describe NPCI's role and initiatives.
✅ Statement 1 – Correct: NPCI promotes financial inclusion by developing innovative payment systems like UPI, IMPS, and RuPay, which enable affordable and accessible digital payment solutions for all segments of society, including the unbanked and underbanked populations.
✅ Statement 2 – Correct: NPCI launched RuPay in 2012 as India's domestic card payment network to provide an alternative to international schemes like Visa and Mastercard, thereby reducing transaction costs and promoting indigenous payment infrastructure.
Consider the following statements:
- The Standard Mark of Bureau of Indian Standards (BIS) is mandatory for automotive tyres and tubes.
- AGMARK is a quality Certification Mark issued by the Food and Agriculture Organisation (FAO).
Which of the statements given above is/are correct?
Detailed Explanation:
Answer: Option 1 — 1 only
✅ Statement 1 – Correct: The Bureau of Indian Standards (BIS) Standard Mark is mandatory for automotive tyres and tubes as per BIS regulations to ensure quality and safety standards.
❌ Statement 2 – Incorrect: AGMARK is a quality certification mark issued by the Directorate of Marketing and Inspection (DMI), Government of India, not by the Food and Agriculture Organisation (FAO).
Which of the following has/have occurred in India after its liberalization of economic policies in 1991?
- The share of agriculture in GDP increased enormously.
- The share of India’s exports in world trade increased.
- FDI inflows increased.
- India’s foreign exchange reserves increased enormously.
Select the correct answer using the codes given below :
Detailed Explanation:
Answer: Option 2 — 2, 3 and 4 only
After the 1991 economic liberalization, India witnessed significant structural changes in its economy. The service sector expanded rapidly while agriculture's contribution to GDP declined, foreign trade and investment increased substantially, and forex reserves grew dramatically due to improved external sector management.
❌ Statement 1 – Incorrect: The share of agriculture in GDP has consistently decreased since 1991, falling from around 30% to approximately 15-18%, as the service and industrial sectors expanded.
✅ Statement 2 – Correct: India's share in world exports increased from less than 0.5% in 1991 to around 1.7-2% currently, reflecting greater global economic integration.
✅ Statement 3 – Correct: FDI inflows increased dramatically from negligible amounts (less than $100 million annually) in the pre-liberalization era to billions of dollars annually post-1991.
✅ Statement 4 – Correct: India's foreign exchange reserves grew enormously from about $1 billion in 1991 (barely covering 2 weeks of imports) to over $600 billion in recent years, reflecting improved macroeconomic stability.
What is/are the most likely advantages of implementing ‘Goods and Services Tax (GST)’?
- It will replace multiple taxes collected by multiple authorities and will thus create a single market in India.
- It will drastically reduce the ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange reserves.
- It will enormously increase the growth and size of the economy of India and will enable it to overtake China in the near future.
Select the correct answer using the code given below:
Detailed Explanation:
Answer: Option 1 — 1 only
The Goods and Services Tax (GST) is a comprehensive indirect tax reform that replaced multiple central and state taxes, creating a unified national market. This simplifies tax compliance, reduces cascading effects, and promotes ease of doing business across India.
✅ Statement 1 – Correct: GST replaced numerous indirect taxes levied by central and state authorities (like excise duty, VAT, service tax, etc.), creating a single unified market by removing inter-state barriers and simplifying the tax structure.
❌ Statement 2 – Incorrect: GST is a domestic indirect tax reform and has no direct mechanism to reduce Current Account Deficit, which depends on trade balance, foreign investments, remittances, and exchange rate dynamics.
❌ Statement 3 – Incorrect: While GST can contribute to economic efficiency and growth, it alone cannot drastically increase economy size to overtake China, as economic growth depends on multiple complex factors including capital formation, technology, demographics, and global economic conditions.
Consider the following statements :
- Tax revenue as a percent of GDP of India has steadily increased in the last decade.
- Fiscal deficit as a percent of GDP of India has steadily increased in the last decade.
Which of the statements given above is/are correct?
Detailed Explanation:
Answer: Option 4 — Neither 1 nor 2
Both statements are incorrect because neither tax revenue nor fiscal deficit as a percent of GDP has shown a steady increase over the last decade. Instead, both indicators have fluctuated significantly based on economic cycles, policy changes, and external shocks like the COVID-19 pandemic.
❌ Statement 1 – Incorrect: Tax revenue as a percent of GDP has fluctuated over the last decade rather than steadily increasing. While there were periods of growth, years like 2019–20 and 2020–21 saw declines due to economic slowdown and pandemic-related disruptions, making the overall trend non-linear.
❌ Statement 2 – Incorrect: Fiscal deficit as a percent of GDP has not steadily increased either. It actually narrowed from around 4.5% in 2013–14 to about 3.4% in 2018–19, then spiked dramatically to 9.2% in 2020–21 due to COVID-19, and has since been declining, showing a fluctuating rather than steadily increasing pattern.
What is/are the advantage/advantages of implementing the ‘National Agriculture Market’ (NAM) scheme?
- It is a pan-India electronic trading portal for agricultural commodities.
- It provides the farmers access to the nationwide market, with prices commensurate with the quality of their produce.
Select the correct answer using the code given below :
Detailed Explanation:
Answer: Option 3 — Both 1 and 2
The National Agriculture Market (e-NAM) is a pan-India electronic trading portal that integrates existing APMCs into a unified national market for agricultural commodities. It provides farmers access to nationwide markets with transparent price discovery based on quality parameters, thereby enabling them to get better prices for their produce.
✅ Statement 1 – Correct: e-NAM is indeed a pan-India electronic trading portal that connects agricultural mandis across the country through an online platform, facilitating electronic trading of agricultural commodities.
✅ Statement 2 – Correct: The scheme provides farmers access to a wider market beyond their local mandis, with prices determined based on quality standards and real-time price discovery, helping them get remunerative prices commensurate with the quality of their produce.
With reference to the ‘Prohibition of Benami Property Transactions Act, 1988 (PBPT Act) consider the following statements:
- A property transaction is not treated as a benami transaction if the owner of the property is not aware of the transaction.
- Properties held benami are liable for confiscation by the Government.
- The Act provides for three authorities for investigations but does not provide for any appellate mechanism.
Which of the statements given above is/are correct?
Detailed Explanation:
Answer: Option 2 — 2 only
The Prohibition of Benami Property Transactions Act, 1988 (PBPT Act) deals with transactions where property is held by one person (benamidar) but is actually owned or financed by another person (beneficial owner). Only Statement 2 is correct, as the Act explicitly provides for confiscation of benami properties by the Central Government.
❌ Statement 1 – Incorrect: A transaction is specifically treated as benami if the owner of the property (benamidar) is not aware of the transaction or denies knowledge of it; lack of awareness does not exempt it but rather characterizes it as benami.
✅ Statement 2 – Correct: Section 5 of the PBPT Act clearly states that properties held benami are liable for confiscation by the Central Government.
❌ Statement 3 – Incorrect: The Act provides for four authorities (Initiating Officer, Approving Authority, Administrator, and Adjudicating Authority) and does provide an appellate mechanism through the Appellate Tribunal and subsequently the High Court.
The Global Infrastructure Facility is a/an -
Detailed Explanation:
Answer: Option 2 — World Bank collaboration that facilitates the preparation and structuring of complex infrastructure Public-Private Partnerships PPPs to enable mobilization of the private sector and institutional investor capital.
The Global Infrastructure Facility (GIF) is a partnership led by the World Bank Group that brings together governments, multilateral development banks, private sector investors, and financiers to design and structure bankable infrastructure projects. It specifically focuses on facilitating complex infrastructure Public-Private Partnerships (PPPs) in emerging markets and developing economies to mobilize private sector and institutional investor capital. The GIF provides technical advisory support and works to ensure that infrastructure projects are properly structured to attract private investment, making Option 2 the correct answer.
The term ‘Domestic Content Requirement’ is sometimes seen in the news with reference to -
Detailed Explanation:
Answer: Option 1 — Developing solar power production in our country
Domestic Content Requirement (DCR) is a policy mandate that requires a certain percentage of components or equipment used in a project to be manufactured domestically. In India, DCR has been prominently used in the solar power sector, where the government mandated that solar power developers use a specified percentage of domestically manufactured solar cells and modules in their projects. This policy was designed to promote indigenous solar manufacturing capabilities and reduce import dependence, though it faced challenges at the WTO due to trade obligations. The term is most commonly associated with the National Solar Mission and solar power development in India.
Which of the following is the most likely consequence of implementing the ‘Unified Payments Interface (UPI)’?
Detailed Explanation:
Answer: Option 1 — Mobile wallets will not be necessary for online payments.
The Unified Payments Interface (UPI) is a real-time payment system that enables instant bank-to-bank transfers directly through mobile applications without requiring intermediate instruments like mobile wallets. By allowing users to make payments directly from their bank accounts, UPI eliminates the need to first load money into a separate wallet for online transactions.
✅ Statement 1 – Correct: UPI enables direct bank-to-bank transfers through mobile apps, removing the need for intermediate mobile wallets as users can pay directly from their bank accounts.
❌ Statement 2 – Incorrect: While UPI promotes digital transactions and financial inclusion, it will not completely replace physical currency in about two decades as cash continues to play a significant role in the Indian economy, especially in rural areas and for small transactions.
❌ Statement 3 – Incorrect: UPI is a domestic payment infrastructure designed for retail payments and has no direct causal relationship with Foreign Direct Investment (FDI) inflows, which depend on factors like economic policies, business environment, and regulatory framework.
❌ Statement 4 – Incorrect: Direct Benefit Transfer (DBT) schemes primarily use Aadhaar-linked bank accounts and NEFT/RTGS systems for subsidy distribution, not UPI, though UPI may facilitate some secondary transactions.