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 →
With reference to Union Budget, which of the following is/are covered under Non-Plan Expenditure?
- Defence expenditure
- Interest payments
- Salaries and pensions
- Subsidies
Select the correct answer using the code given below.
Detailed Explanation:
All four items listed were covered under Non-Plan Expenditure before the classification was abolished in 2017-18.
Non-Plan Expenditure included: Defence expenditure (capital), Interest payments (revenue), Salaries and pensions (revenue), and Subsidies (revenue). These were committed/obligatory expenditures not routed through Planning Commission.
Which of the following are associated with ‘Planning’ in India?
- The Finance Commission
- The National Development Council
- The Union Ministry of Rural Development
- The Union Ministry of Urban Development
- The Parliament
Select the correct answer using the code given below.
Detailed Explanation:
✅ Statement 2 – Correct: The National Development Council (NDC) was the apex body for approving and reviewing Five-Year Plans in India, directly associated with national planning.
✅ Statement 5 – Correct: Parliament has constitutional authority to approve Five-Year Plans and budgetary allocations for planned development.
❌ Statement 1 – Incorrect: The Finance Commission deals with tax devolution and grants-in-aid between Centre and States, not with formulating development plans.
❌ Statement 3 – Incorrect: The Union Ministry of Rural Development implements sectoral schemes like MGNREGA and PMAY-G, not overall national planning.
❌ Statement 4 – Incorrect: The Union Ministry of Urban Development (now Ministry of Housing and Urban Affairs) executes urban-specific programs, not macro-level planning.
In India, cluster bean (Guar) is traditionally used as a vegetable or animal feed, but recently the cultivation of this has assumed significance. Which one of the following statements is correct in this context?
Detailed Explanation:
✅ Statement 2 – Correct: Guar gum, extracted from the endosperm of guar seeds, is used as a thickening and gelling agent in hydraulic fracturing (fracking) for shale gas extraction. Its viscosifying properties help carry proppants into fractures.
❌ Statement 1 – Incorrect: Guar seed oil is not used in biodegradable plastics manufacture; guar gum finds industrial applications but not in this domain.
❌ Statement 3 – Incorrect: Guar leaves do not possess antihistamine properties; they are primarily used as animal feed and vegetables.
❌ Statement 4 – Incorrect: Guar is not a source of biodiesel; its primary economic value lies in guar gum production, not oil extraction for fuel.
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The main objective of the 12th Five-Year Plan is
Detailed Explanation:
The 12th Five-Year Plan (2012-2017) had the theme "Faster, Sustainable and More Inclusive Growth".
It aimed for 8% GDP growth, 4% growth in agriculture, 10% growth in manufacturing, and focused on reducing regional disparities and poverty through inclusive development.
Programme/ Project Ministry
- Drought-Prone Area Programme: Ministry of Agriculture
- Desert Development Programme: Ministry of Environment and Forests
- National Watershed Development Project for Rainfed Areas: Ministry of Rural Development
Which of the above pairs are correctly matched?
Detailed Explanation:
❌ Pair 1 – Incorrect: Drought Prone Area Programme (DPAP) is implemented by Ministry of Rural Development, not Ministry of Agriculture. It aims to mitigate adverse effects of drought on production of crops and livestock and productivity of land, water and human resources.
❌ Pair 2 – Incorrect: Desert Development Programme (DDP) is implemented by Ministry of Rural Development, not Ministry of Environment and Forests. It aims to control desertification and restore ecological balance in desert areas.
❌ Pair 3 – Incorrect: National Watershed Development Project for Rainfed Areas (NWDPRA) is implemented by Ministry of Agriculture (now under Pradhan Mantri Krishi Sinchayee Yojana), not Ministry of Rural Development.
Consider the following statements:
- Maize can be used for the production of starch.
- Oil extracted from maize can be a feedstock for biodiesel.
- Alcoholic beverages can be produced by using maize.
Which of the statements given above is/are correct?
Detailed Explanation:
✅ Statement 1 – Correct: Maize (corn) is a major source of cornstarch, widely used as a thickening agent in food products, bioplastics, and pharmaceutical industries.
✅ Statement 2 – Correct: Corn oil extracted from maize germ serves as an effective feedstock for biodiesel production, offering a renewable fuel alternative.
✅ Statement 3 – Correct: Maize is fermented to produce alcoholic beverages including bourbon whiskey, corn beer, and ethanol for fuel and drinks.
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.
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 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.
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 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.
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.
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 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 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.