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 →
Consider the following statements with reference to ‘IFC Masala Bonds’ -
- The International Finance Corporation, which offers these bonds, is an arm of the World Bank.
- They are the rupee-denominated bonds and are a source of debt financing for the public and private sector.
Select the correct answer using the code given below.
Detailed Explanation:
Answer: Option 3 — Both 1 and 2
✅ Statement 1 – Correct: The International Finance Corporation (IFC) is the private sector arm of the World Bank Group, which comprises five institutions working to reduce poverty and promote sustainable development in developing countries.
✅ Statement 2 – Correct: Masala Bonds are rupee-denominated bonds issued outside India by foreign entities to raise capital in Indian rupees. They serve as a source of debt financing for both public and private sector entities, while the currency risk is borne by the investors rather than the issuer.
What is/are the purpose/purposes of Government’s ‘Sovereign Gold Bond Scheme’ and 'Gold Monetization Scheme'?
- To bring the idle gold lying with India households into the economy
- To promote FDI in the gold and jewellery sector
- To reduce India’s dependence on gold imports
Select the correct answer using the code given below:
Detailed Explanation:
Answer: Option 3 — 1 and 3 only
✅ Statement 1 – Correct: The Gold Monetization Scheme (GMS) allows individuals and institutions to deposit their idle physical gold (jewellery, coins, bars) with banks. This gold is melted, refined, and brought into the formal economy, where it can be lent to jewellers and goldsmiths, thereby mobilizing household gold reserves.
❌ Statement 2 – Incorrect: Both schemes focus on managing domestic gold demand and supply. They are not designed to attract Foreign Direct Investment (FDI) in the gold and jewellery sector. FDI policies operate separately from these domestic gold management initiatives.
✅ Statement 3 – Correct: Reducing gold imports is a core objective of both schemes. The Sovereign Gold Bond (SGB) Scheme offers a financial alternative to physical gold, thereby reducing import demand. The GMS increases the availability of recycled domestic gold for jewellers, reducing their need for imported gold. Since gold imports significantly impact India's Current Account Deficit (CAD), these schemes help improve the balance of payments.
With reference to the ‘Trans-Pacific Partnership’, consider the following statements:
- It is an agreement among all the Pacific Rim countries except China and Russia.
- It is a strategic alliance for the purpose of maritime security only.
Which of the statements given above is/are correct?
Detailed Explanation:
Answer: Option 4 — Neither 1 nor 2
❌ Statement 1 – Incorrect: The Trans-Pacific Partnership (TPP) was not an agreement among all Pacific Rim countries. It was signed by only 12 nations: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States. Many other Pacific Rim countries such as South Korea, Indonesia, Colombia, Thailand, Philippines, Russia, and China were not part of this agreement.
❌ Statement 2 – Incorrect: The TPP was a comprehensive free trade agreement aimed at reducing trade barriers, promoting economic integration, and establishing common standards for intellectual property, labor rights, and environmental protection. It was not a strategic alliance for maritime security. After the U.S. withdrawal in 2017, the remaining 11 members formed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
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With reference to the International Monetary and Financial Committee (IMFC), consider the following statements:
- IMFC discusses matters of concern affecting the global economy and advises the International Monetary Fund (IMF) on the direction of its work.
- The World Bank participates as an observer in IMFC’s meetings.
Which of the statements given above is/are correct?
Detailed Explanation:
Answer: Option 3 — Both 1 and 2
✅ Statement 1 – Correct: The International Monetary and Financial Committee (IMFC) is a key advisory body that discusses matters of concern affecting the global economy and advises the IMF on the direction of its work. It comprises 24 IMF governors (typically finance ministers or central bank governors) and meets twice a year to provide strategic guidance on the international monetary and financial system.
✅ Statement 2 – Correct: The World Bank participates as an observer in IMFC meetings. This observer status facilitates coordination between the two Bretton Woods institutions on issues of mutual interest such as global economic stability, development finance, and poverty reduction. Other observers include representatives from various international organizations.
With reference to inflation in India, which of the following statements is correct?
Detailed Explanation:
✅ Statement 3 – Correct: Decreased money circulation (contractionary monetary policy) reduces aggregate demand and liquidity in the economy, which helps control demand-pull inflation.
❌ Statement 1 – Incorrect: Controlling inflation is a joint responsibility of both the Government of India (fiscal policy, supply-side measures) and the Reserve Bank of India (monetary policy).
❌ Statement 2 – Incorrect: The RBI plays a central role through the Monetary Policy Committee (MPC), which adjusts policy rates (Repo rate) to maintain the inflation target of 4% ± 2% under the RBI Act, 1934.
❌ Statement 4 – Incorrect: Increased money circulation raises aggregate demand, which if not matched by supply, leads to demand-pull inflation.
Which of the following brings out the ‘Consumer Price Index Number for Industrial Workers’?
Detailed Explanation:
The Labour Bureau, under the Ministry of Labour and Employment, compiles and publishes the Consumer Price Index Number for Industrial Workers (CPI-IW).
The Labour Bureau also maintains CPI for Rural Labourers and CPI for Agricultural Labourers, while the Ministry of Statistics and Programme Implementation (MOSPI) publishes the general CPI and CPI for rural/urban areas.
In the Index of Eight Core Industries, which one of the following is given the highest weight?
Detailed Explanation:
The Index of Eight Core Industries (ICI) measures the combined and individual performance of production in eight core industries with a total weight of 40.27% in the Index of Industrial Production (IIP).
The weightage in decreasing order is: Refinery Products (28.04%) > Electricity (19.85%) > Steel (17.92%) > Coal (10.33%) > Crude Oil (8.98%) > Natural Gas (6.88%) > Cement (5.37%) > Fertilizers (2.63%).
Among the given options, Electricity generation has the highest weight (19.85%), making Option 2 the correct answer.
With reference to Indian economy, consider the following :
- Bank rate
- Open market operations
- Public debt
- Public revenue
Which of the above is/are component/components of Monetary Policy?
Detailed Explanation:
Monetary Policy instruments are tools used by the Reserve Bank of India (RBI) to control money supply and credit in the economy.
✅ Bank Rate (Statement 1): Rate at which RBI lends to commercial banks; a key quantitative tool of monetary policy.
✅ Open Market Operations (Statement 2): Buying/selling of government securities by RBI to control liquidity in the banking system.
❌ Public Debt (Statement 3): Total government borrowing; part of fiscal policy, not monetary policy.
❌ Public Revenue (Statement 4): Government income from taxes and non-tax sources; component of fiscal policy, not monetary policy.
In India, markets in agricultural products are regulated under the -
Detailed Explanation:
Agricultural Produce Market Committee (APMC) Acts enacted by State Governments regulate agricultural markets in India by establishing and managing market yards and market committees.
Each state divides its geographical area into market areas under the jurisdiction of Market Committees, where wholesale marketing activities require authorization from the committee.
The problem of international liquidity is related to the non-availability of -
Detailed Explanation:
International liquidity refers to the availability of foreign exchange reserves (primarily hard currencies like the US Dollar, Euro, Yen, and Pound Sterling) that a country holds to meet its short-term international payment obligations.
The problem of international liquidity arises when there is a shortage of reserve currencies needed for import payments, debt servicing, and foreign exchange market interventions, not a lack of physical goods, precious metals, or exportable surplus.
‘Basel III Accord’ or simply ‘Basel III’, often seen in the news, seeks to -
Detailed Explanation:
Basel III is a set of international banking regulations developed by the Basel Committee on Banking Supervision (BCBS) in response to the 2007-2008 financial crisis.
It strengthens the banking sector's resilience through higher capital adequacy requirements, enhanced liquidity standards (Liquidity Coverage Ratio and Net Stable Funding Ratio), and improved risk management frameworks to absorb financial shocks.
Consider the following statements:
- The Accelerated Irrigation Benefits Programme was launched during 1996-97 to provide loan assistance to poor farmers.
- The Command Area Development Programme was launched in 1974-75 for the development of water-use efficiency.
Which of the statements given above is/are correct?
Detailed Explanation:
❌ Statement 1 – Incorrect: The Accelerated Irrigation Benefits Programme (AIBP) was launched in 1996-97 to provide central loan assistance to states for accelerating completion of ongoing irrigation projects, not to provide loan assistance to poor farmers.
✅ Statement 2 – Correct: The Command Area Development Programme (CADP) was launched in 1974-75 to improve water-use efficiency and agricultural productivity in command areas of major and medium irrigation projects.
The Fair and Remunerative Price of Sugarcane is approved by the -
Detailed Explanation:
Fair and Remunerative Price (FRP) for sugarcane is approved by the Cabinet Committee on Economic Affairs (CCEA), chaired by the Prime Minister.
The Commission for Agricultural Costs and Prices (CACP) recommends the FRP based on cost of production, input costs, and various economic factors, but the final approval rests with CCEA.
The substitution of steel for wooden ploughs in agricultural production is an example of
Detailed Explanation:
Capital-augmenting technological progress increases the productivity of existing capital without necessarily increasing the quantity of capital.
Replacing wooden ploughs with steel ploughs enhances the effectiveness and durability of the same capital good (plough), allowing more efficient agricultural production with the same or less capital investment — this is capital-augmenting progress, not labour-augmenting (which increases labour productivity) or capital-reducing.
With reference to the Indian economy, consider the following statements:
- The rate of growth of real Gross Domestic Product has steadily increased in the last decade.
- The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade.
Which of the statements given above is/are correct?
Detailed Explanation:
❌ Statement 1 – Incorrect: The rate of growth of real GDP has fluctuated significantly during the last decade, not steadily increased. India experienced high growth in mid-2000s, slowdown during 2008 global financial crisis, brief recovery, and again deceleration around 2012-13. A steady increase would require the growth rate to rise every year, which did not occur.
✅ Statement 2 – Correct: GDP at market prices (in rupees) has steadily increased in absolute terms over the last decade. As long as the growth rate remained positive (which it did), the total size of economy in nominal rupee terms continued to expand year after year, despite fluctuations in the percentage growth rate.