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 →
Under which of the following circumstances may ‘capital gains’ arise?
- When there is an increase in the sales of a product
- When there is a natural increase in the value of the property owned
- When you purchase a painting and there is a growth in its value due to increase in its popularity
Select the correct answer using the codes given below:
Detailed Explanation:
❌ Statement 1 – Incorrect: Increase in sales of a product generates revenue or business income, not capital gains. Capital gains arise only from the sale of a capital asset (property, shares, etc.), not from regular business operations.
✅ Statement 2 – Correct: Natural appreciation in the value of property or land creates capital gains when the asset is sold at a price higher than its original purchase cost.
✅ Statement 3 – Correct: Paintings, jewelry, and other movable assets are treated as capital assets under the Income Tax Act; increase in value due to popularity or demand results in capital gains upon sale.
Which of the following measures would result in an increase in the money supply in the economy?
- Purchase of government securities from the public by the Central Bank
- Deposit of currency in commercial banks by the public
- Borrowing by the government from the Central Bank
- Sale of government securities to the public by the Central Bank
Select the correct answer using the codes given below:
Detailed Explanation:
✅ Statement 1 – Correct: When the Central Bank purchases government securities from the public, it pays with newly created money, directly injecting liquidity and increasing money supply.
❌ Statement 2 – Incorrect: When the public deposits currency in commercial banks, no new money is created; it merely shifts from cash in hand to bank deposits, keeping total money supply unchanged.
✅ Statement 3 – Correct: When the government borrows from the Central Bank, the Central Bank creates new money (monetization of deficit), directly expanding money supply in the economy.
❌ Statement 4 – Incorrect: When the Central Bank sells government securities to the public, it absorbs money from circulation in exchange for securities, thereby reducing money supply.
The balance of payments of a country is a systematic record of
Detailed Explanation:
✅ Statement 1 – Correct: 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 given period, typically a year, including goods, services, capital flows, and transfers.
❌ Statement 2 – Incorrect: This describes only the Balance of Trade (visible trade), not the comprehensive BoP which includes services, income, and capital accounts.
❌ Statement 3 – Incorrect: BoP covers transactions by all residents (individuals, firms, banks, government), not just government-to-government transactions.
❌ Statement 4 – Incorrect: Capital movements form only the capital account component of BoP; it also includes the current account (trade, services, income, transfers) and errors & omissions.
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Despite having large reserves of coal, why does India import millions of tonnes of coal?
- It is the policy of India to save its own coal reserves for the future, and import it from other countries for the present use.
- Most of the power plants in India are coal-based and they are not able to get sufficient supplies of coal from within the country.
- Steel companies need a large quantity of coking coal which has to be imported.
Which of the statements given above is/are correct?
Detailed Explanation:
❌ Statement 1 – Incorrect: India has no policy of deliberate conservation of domestic coal for future use; imports are driven by supply-demand gaps and quality constraints, not strategic stockpiling.
✅ Statement 2 – Correct: Coal-based thermal power plants face shortages due to inadequate domestic production, logistical bottlenecks (rail transport constraints), and quality mismatch between available and required coal grades.
✅ Statement 3 – Correct: India's steel industry requires high-grade coking coal (metallurgical coal) for blast furnaces; domestic reserves of prime coking coal are negligible, necessitating imports primarily from Australia, USA, and Indonesia.
Consider the following statements: The price of any currency in the international market is decided by the
- World Bank
- demand for goods/services provided by the country concerned
- stability of the government of the concerned country
- economic potential of the country in question
Which of the statements given above are correct?
Detailed Explanation:
❌ Statement 1 – Incorrect: The World Bank provides loans for development projects; it does not decide or set currency prices in international markets. Currency prices are determined by market forces (demand and supply).
✅ Statement 2 – Correct: High demand for exports (goods/services) requires foreign buyers to purchase the country's currency, increasing its value in foreign exchange markets. This is a Current Account factor.
✅ Statement 3 – Correct: Political stability attracts FDI and FPI (Capital Account flows). Government instability causes capital flight, increasing currency supply and reducing its price.
❌ Statement 4 – Incorrect: While economic potential influences long-term investment sentiment, it is not a direct determinant of daily currency prices compared to immediate trade demand and political stability.
Which of the following would include Foreign Direct Investment in India?
- Subsidiaries of companies in India
- Majority of foreign equity holding in Indian companies
- Companies exclusively financed by foreign companies
- Portfolio investment
Select the correct answer using the codes given below:
Detailed Explanation:
✅ Statement 1 – Correct: Subsidiaries established by foreign companies in India represent FDI as they involve lasting interest and management control.
✅ Statement 2 – Correct: Majority foreign equity holding (typically 10% or more) in Indian companies constitutes FDI as it enables effective voice in management.
✅ Statement 3 – Correct: Wholly Owned Subsidiaries (WOS) that are exclusively financed by foreign entities are a direct form of FDI with 100% foreign ownership.
❌ Statement 4 – Incorrect: Portfolio investment (FPI) involves purchase of securities without management control, distinguished from FDI which requires long-term interest and control.
The basic aim of the Lead Bank Scheme is that:
Detailed Explanation:
The Lead Bank Scheme was introduced by the Reserve Bank of India (RBI) in December 1969 to ensure coordinated banking and credit facilities in rural areas.
Under this scheme, a lead bank is assigned to each district to take the lead role in promoting intensive banking development, coordinating credit flow, and ensuring branch expansion in underbanked areas.
The primary objective is district-level concentrated development, not competition among banks or merely opening offices.
With reference to consumers’ rights/ privileges under the provisions of law in India, which of the following statements is/are correct?
- Consumers are empowered to take samples for food testing.
- When a consumer files a complaint in any consumer forum, no fee is required to be paid.
- In case of death of a consumer, his/her legal heir can file a complaint in the consumer forum on his / her behalf.
Select the correct answer using the codes given below:
Detailed Explanation:
✅ Statement 1 – Correct: Under the Food Safety and Standards Act, 2006, consumers are empowered to take samples for food testing to ensure quality, purity, and safety standards.
❌ Statement 2 – Incorrect: Filing fee is required in consumer forums – ₹200 for claims up to ₹5 lakh, ₹400 for ₹5-10 lakh, and ₹5,000 for claims above ₹10 lakh (as per Consumer Protection Act, 2019). Only claims up to ₹5 lakh are exempted from court fees, not filing fees.
✅ Statement 3 – Correct: Under Section 2(7) of the Consumer Protection Act, 2019, legal heirs/representatives can file complaints on behalf of a deceased consumer to protect their rights.