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UPSC > Indian Economy

Explore popular questions from Indian Economy for UPSC. This collection covers Indian Economy previous year UPSC questions hand picked by experienced teachers.

Q 1.

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Which of the following are among the non-plan expenditures of the Government of India?
1. Defence expenditure
2. Subsidies
3. All expenditures linked with the previous plan periods
4. Interest payment
Codes:

A

1 and 2

B

1 and 3

C

2 and 4

1, 2, 3 and 4

Explanation

Non-plan expenditures include non-developmental expenditure (interest payment, subsidies, defence expenditure, civil administration), developmental expenditure and expenditure incurred on projects which remained unfinished in the earlier plans.

Q 2.

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The largest source of financing the public sector outlay of the Eighth Five Year Plan comes from:

A

balance from current revenue

B

contribution of public enterprises

C

government borrowings

deficit financing

Explanation

Under Deficit financing, the government spends more money than it collects as revenue, the difference being made up by borrowing from the Reserve Bank of India by issue of Promissory notes.

Q 3.

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The New Exim Policy announced in 1992, is for period of :

A

3 years

B

4 years

C

7 years

5 years

Explanation

The New Exim Policy was for five years (April 1, 1992 - March 31, 1997).

Q 4.

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The Eighth Five Year Plan is different from the earliest ones.
The critical difference lies in the fact that:

it has a considerably larger outlay compared to the earlier plans

B

it has a major thrust on agricultural and rural development

C

considerable emphasis is placed on infrastructure growth

D

industrial licensing has been abolished

Explanation

Eighth Five Year Plan (1992-97) had a bigger outlay with energy being given 26.6% of total outlay to a cheque a targeted growth rate of 6.78% per annum.

Q 5.

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Consider the following statements :
Most international agencies which find Development Programme in India on intergovernmental bilateral agreements, mainly provide:
1. Technical assistance
2. Soft loans which are required to be paid back with interest
3. Grants, not required to be paid back
4. Food assistance to be paid back

A

2 and 4 are correct

1, 2 and 3 are correct

C

1, 2 and 4 are correct

D

3 and 4 are correct

Explanation

A soft loan is a loan with a below-market rate of interest. This is also known as soft financing. Sometimes soft loans include other concessions to borrowers, such as long repayment periods or interest holidays. Soft loans are usually provided by to projects which are socially worthwhile. The World Bank and other development institutions provide soft loans to developing countries. Loans to Delhi metro by Japan is a soft loan.

Q 6.

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The product life cycle from inception to demise is shown in the graph. Match List I with List II and select the correct answer using the codes given below the lists:
List-I (Stage)
A. Product Development
B. Maturity
C. Growth
D. Introduction

List-II (Time)

Codes:

A

A-1; B-4; C-2; D-1

A-1; B-4; C-3; D-2

C

A-4; B-1; C-2; D-3

D

A-4; B-1; C-3; D-2

Q 7.

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Which one of the following is the objective of National Renewal Fund?

To safeguard the interests of workers who may be affected by technological upgradation of industry or closure of sick units

B

To develop the core sector of the economy

C

For the development of infrastructure such as energy, transport communications and irrigation

D

For human resource development such as full literacy, employment population control, housing and drinking water

Explanation

The concept of the National Renewal Fund was announced by the Government as a part of the New Industrial Policy, 1991. The Government established the National Renewal Fund (NRF) by a Government of India resolution on 3rd February , 1992.

Q 8.

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Global capital flows to developing countries increased significantly during the nineties. In view of the East Asian financial crisis and Latin American experience, which type of inflow is good for the host country?

A

Commercial loans

Foreign Direct Investment

C

Foreign Portfolio Investment

D

External Commercial borrowings

Explanation

FDI is defined as investment by a foreign multinational or its subsidiary or a foreign company in terms of setting up a project in another country either by way of a 100% subsidiary or by way of a joint venture. Thus, FDI investment is long term in nature. Thus, it can not be pulled out of the country at short notice. It is also non-debt creating.

Q 9.

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With reference to the Indian Public Finance, consider the following statements:
1. External liabilities reported in the Union Budget are based on historical exchange rates
2. The continued high borrowing has kept the real interest rates high in the economy
3. The upward trend in the ratio of Fiscal Deficit of GDP a recent years has an adverse effect on private investment
4. Interest payments is the single largest component of the non-plan revenue expenditure of the Union Government
Which of these statements are correct?

A

1, 2 and 3

B

1 and 4

2, 3 and 4

D

1, 2, 3 and 4

Q 10.

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Consider the following:
1. Fringe Benefit Tax
2. Interest Tax
3. Securities Transaction Tax
Which of the above is/are Direct Tax/Taxes?

A

1 only

B

1 and 3 only

C

2 and 3 only

1, 2 and 3

Explanation

Fringe Benefits Tax (FBT) was the tax applied to most, although not all, fringe benefits. A new tax was imposed on employers by India's Finance Act 2005 and was introduced for the financial year commencing April 1, 2005. The Fringe Benefit Tax was abolished in the Finance Bill of 2009. Securities Transaction Tax (STT) is the tax payable on the value of taxable securities transaction. STT was introduced in India by the 2004 budget and is applicable with effect from 1st October 2004.

Q 11.

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In the context of independent India's economy, which one of the following was the earliest event to take place?

A

Nationalization of Insurance companies

B

Nationalization of State Bank of India

Enactment of Banking Regulation Act

D

Introduction of First Five-Year Plan

Explanation

Nationalization of State Bank of India - 1955; Introduction of First Five-Year Plan - 1951; Enactment of Banking Regulation Act - 1949; Nationalization of Insurance Companies - 1955-56

Q 12.

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The SEZ Act, 2005 which came, into effect in February 2006 has certain objectives. In this context, consider the following:
1. Development of infrastructure facilities.
2. Promotion of investment from foreign sources.
3. Promotion of exports of services only. Which of the above are the objectives of this Act?

1 and 2 only

B

3 only

C

2 and 3 only

D

1, 2 and 3

Explanation

The objectives of establishing SEZs Special export Zones include making available goods and services free of taxes and duties supported by an integrated infrastructure for export production, and single window approval mechanism and a package of incentives to attract foreign and domestic investments for promoting export-led growth.

Q 13.

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In the context of Indian economy, consider the following pairs:

Term - Most Appropriate description
1. Melt down - Fall in stock prices
2. Recession - Fall in growth rate
3. Slow down - Fall in GDP

Which of the pairs given above is/are correctly matched?

A

1 only

2 and 3 only

C

1 and 3 only

D

1, 2 and 3

Explanation

Recession is slow down in effective demand for goods and services slow down in the economy implies a short run decline in the growth rate.

Q 14.

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Inclusive growth as enunciated in the Eleventh Five Year Plan does not include one of the following:

A

Reduction of poverty

B

Extension of employment opportunities

Strengthening of capital market

D

Reduction of gender inequality

Explanation

Inclusive growth is 'broad-based growth', 'shared growth', and 'pro-poor growth'. It excludes the capital markets which is left to operate by itself in the open market.

Q 15.

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In the union budget 2011-12, a full exemption from the basic customs duty was extended to the bio-based asphalt (bioasphalt). What is the importance of this material ?
1. Unlike traditional asphalt, bio-asphalt is not based on fossil fuels.
2. Bioasphalt can be made from non-renewable resources.
3. Bioasphalt can be made from organic waste materials.
4. It is eco-friendly to use bioasphalt for surfacing of the roads.
Which of the statements given above are correct?

A

1, 2 and 3 only

1, 3 and 4 only

C

2 and 4 only

D

1, 2, 3 and 4

Explanation

It is based on renewable resources like sugar, molasses, rice, corn and potato starches.

Q 16.

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India has experienced persistent and high food inflation in the recent past. What could be the reasons?
1. Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food grains has steadily decreased in the last five years by about 30%.
2. As a consequence of increasing incomes, the consumption patterns of the people have undergone a significant change.
3. The food supply chain has structural constraints.
Which of the statements given above are correct ?

A

1 and 2 only

2 and 3 only

C

1 and 3 only

D

1, 2 and 3

Explanation

Notwithstanding some moderation, food price inflation has remained persistently elevated for over a year now, reflecting in part the structural demandsupply mismatches in several commodities. The trend of food inflation was pointing at not only structural demand-supply mismatches in commodities comprises the essential consumption basket but also at changing consumption patterns.

Q 17.

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In terms of economy, the visit by foreign nationals to witness the XIX commonwealth games in India amounted to

Export

B

Import

C

Production

D

Consumption

Explanation

Because it brings foreign exchange.

Q 18.

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Which one of the following statements appropriately describes the "fiscal stimulus" ?

A

It is a massive investment by the government in manufacturing sector to ensure the supply of goods to meet the demand surge caused by rapid economic growth.

It is an intense affirmative action of the government to boost economic activity in the country.

C

It is government's intensive action on financial institutions to ensure disbursement of loans to agriculture and allied sectors to promote greater food production and contain food inflation.

D

It is an extreme affirmative action by the government to pursue its policy of financial inclusion.

Explanation

Governments use fiscal policy to influence the level of aggregate demand in the economy. It is an effort to achieve economic objectives of price stability, full employment, and economic growth.

Q 19.

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Consider the following actions which the government can take :
1. Devaluing the domestic currency.
2. Reduction in the export subsidy.
3. Adopting suitable policies which attract greater FDI and more funds from FIIs.
Which of the above action/actions can help in reducing the current account deficit ?

A

1 and 2

B

2 and 3

C

3 only

1 and 3

Explanation

Current account deficit is excess of imports over exports. Policies favouring FDI and FII will reduce the deficit. Also if the domestic currency is devalued, export would become cheaper which will create additional demand for countries products in the world markets. Any reduction in export subsidy is dangerous as the countries goods will become costlier and exports would fall.

Q 20.

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A rapid increase in the rate of inflation is sometimes attributed to the "base effect". What is "base effect"?

A

It is the impact of drastic deficiency in supply due to failure of crops

B

It is the impact of the surge in demand due to rapid economic growth

It is the impact of the price levels of previous year on the calculation of inflation rate

D

None of the statements (a), (b) and (c) given above is correct in this context

Explanation

Base effect is almost an ubiquitous term which says that the previous data affects the calculation of the current data.

Q 21.

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Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) are related to investment in a country. Which one of the following statements best represents an important difference between the two ?

A

FII helps bring better management skills and technology, while FDI only brings in capital.

FII helps in increasing capital availability in general, while FDI only targets specific sectors.

C

FDI flows only into the secondary market while FII targets primary market

D

FII is considered to be more stable than FDI.

Explanation

Foreign Direct Investment only targets a specific enterprise. It aims to increase the enterprises capacity or productivity or change its management control. The FII investment flows only into the secondary market. It helps in increasing capital availability in general rather than enhancing the capital of a specific enterprise. The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor. FDI not only brings in capital but also helps in good governance practises and better management skills and even technology transfer.

Q 22.

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What is the difference between "vote-on-account" and "interim budget" ?
1. The provision of a "vote-on-account'' is used by a regular Government, while an "interim budget'' is a provision used by a caretaker Government
2. A "vote-on-account'' only deals with the expenditure in Government budget, while an "interim budget'' includes both expenditure and receipts.
Which of the statements given above is/are correct?

A

1 only

2 only

C

Both 1 and 2

D

Neither 1 nor 2

Explanation

Statement 1 is not correct as caretaker Government is the government which is ready to Go, it does not present the Interim Budget. The Interim Budget is presented by the Incoming Government or new Government which has different fiscal and revenue plans from the outgoing Government.
Vote on account -- Interim Budget
It deals only with the expenditure side of the government budget.-- It includes both expenditures and receipts of the government's budget.
It is for only two or three months.-- It is for one year.

Q 23.

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Which of the following can aid in furthering the Government's objective of inclusive growth ?
1. Promoting Self-Help Groups.
2. Promoting Micro Small and Medium Enterprises.
3. Implementing the Right to Education Act.
Select the correct answer using the codes given below:

A

1 only

B

1 and 2 only

C

2 and 3 only

1,2 and 3 only

Explanation

The concept of the inclusive growth is based on both economic and social empowerment of ordinary and under privileged individuals. Thus all the statement are correct.

Q 24.

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What is the annual rate aimed in the Eighth Five Year Plan

5.6%

B

6%

C

6.5%

D

7%

Explanation

The targeted annual growth rate was 5.6% but the actual growth rate was 6.7%.

Q 25.

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A great deal of Foreign Direct Investment (FDI) to India comes from Mauritius than from many major and mature economies like UK and France. Why?

A

India has preference for certain countries as regards receiving FDI

India has double taxation avoidance agreement with Mauritius

C

Most citizens of Mauritius have ethnic identity with India and so they feel secure to invest in India

D

Impending dangers of global climatic change prompt Mauritius to make huge investments in India

Explanation

India has comprehensive Double Taxation Avoidance Agreements (DTAA) with 23 countries. This means that there are agreed rates of tax and jurisdiction on specified types of income arising in a country to a tax resident of another country. Under the Income Tax Act 1961 of India, there are two specific provisions, Section 90 and Section 91, which provide specific relief to taxpayers to save them from DTAA. Section 90 is for taxpayers who have paid the tax in a country with which India has signed DTAA, while Section 91 provides relief to taxpayers who have paid tax to a country with which India has not signed a DTAA. Thus, India gives relief to both kind of taxpayers Mauritius by itself is a low tax counting.