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Explore popular questions from Public Finance in India for UPSC. This collection covers Public Finance in India previous year UPSC questions hand picked by experienced teachers.

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Public Finance in India

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Q 1. Which one of the following is a development expenditure?

Irrigation expenditure

B

Administration

C

Debt services

D

Grant-in-aid

Explanation

Developmental Expenditure - the expenditure which is incurred on activities directly related to economic development is called developmental expenditure. Expenditure occurred on education, health care, scientific research, infrastructure, etc.
Non-Developmental Expenduture - Expenditure incurred on general essential services required for normal running of the Govt, is non-developmental expenduture. Expenditure occurred on service relating to general administration, police, judiciary, defense is non developmental expenditure.

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Q 2. Deficit financing leads to inflation in general, but it can be checked if:

A

government expenditure leads to increase in the aggregate supply in ratio of aggregate demand

B

only aggregate demand is increased

C

all the expenditure is denoted national debt payment only

All of the above

Explanation

The definition of deficit financing is likely to vary with the purpose for which such a definition is needed.
In one sense by deficit financing we mean the excess of government expenditure over its normal receipts raised by taxes, fees, and other sources. In this definition, such expenditure whether obtained through borrowing or from the banking system measures the budget deficit. Deficit financing is said to have been used whenever government expenditure exceeds its receipts. In underdeveloped countries deficit financing may be in two forms:
(i) Difference between overall revenue receipts and expenditure
(ii) Deficit financing may be equal to borrowing from the banking system of the country

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Q 3. Which of the following is / are the example (s) of Transfer Payment(s)?
1. Unemployment Allowance
2. Payment of salary
3. Social Security Payment
4. Old age Pension
Select the correct answer using the code given below:

A

1 and 3 only

B

1, 2 and 3 only

1, 3 and 4 only

D

None of the above

Explanation

Transfer payment is a payment of money to individuals by government without taking any goods or service. Examples :
• Unemployment allowance
• Social security payments
• Old age pension
• Student grant
• Subsidies to farmers, exporters & manufacturer

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Q 4. Consider the following statements about Sinking Fund
1. It is a method of repayment of public debt.
2. It is created by the government out of budgetary revenues every year.
Which of the statements given above is/are contact?

Only 1

B

Only 2

C

Both 1 and 2

D

Neither 1 nor 2

Explanation

A Sinking Fund is a fund created by the government and gradually accumulated every year by setting aside a part of current public revenue in such a way that it would be sufficient to pay off the funded debt at the time of maturity. Under this method, the aggregate burden of public debt is least felt, as the burden of taxing the people to repay the debt is spread evenly over the period of the accumulation of the fund. The preferable alternative for the government is to raise a new loan and credit the proceeds of sinking fund. It is a separate fund established by a government.

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Q 5. The concept which tries to ascertain the actual deficit in the revenue account after adjusting for expenditure of capital nature is termed as

A

revenue deficit

effective revenue deficit

C

fiscal deficit

D

primary deficit

Explanation

Effective Revenue Deficit is basically revenue deficit excluding expenditure on capital generation form grants from the Centre to the states, lt signifies the amount of capital receipts that are being used for actual consumption expenditure of the Government. It is a new term introduced in the Union Budget 2011-12. It has now become a new fiscal parameter.

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Q 6. Which one of the following measures is not likely to aid in improving India’s Balance of Payment position?

A

Promotion of Import Substitution Policy

B

Devaluation of rupee

C

Imposition of higher tariff'on imports

Levying of higher duties on exports

Explanation

Imposition of higher duty on exports is not likely to help in improving India’s balance of payments position.

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Q 7. With reference to Indian economy, consider the following-
1. Bank rate
2. Open market operations
3. Public debt
4. Public revenue
Which of the above is/are component/components of Monetary Policy?

A

1 only

B

2, 3 and 4

1 and 2

D

1, 3 and 4

Explanation

The Reserve Bank of India

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Q 8. Which of the following statements are correct?
1. Ability to pay principle of taxation holds that the amount of taxes people pay should relate to their income or wealth
2. The Benefit Principle of taxation states that individuals should be taxed in proportion to the benefit they receive from Government programmes
3. A progressive tax takes a larger share of tax from poor families than it does from rich families
4. Indirect taxes have the advantage of being cheaper and easier to collect
Select the correct answer using the code given below:

A

1 and 3 only

B

2 and 4 only

1, 2 and 4 only

D

1, 2, 3 and 4

Explanation

A progressive tax receives a larger percentage from the income of higher earners than it acts from low income person.

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Q 9. Which one of the following is the major source of gross tax revenue (GTR) for the Government of India?

A

Income tax

Corporation tax

C

Customs duty

D

Service tax

Explanation

Corporation tax in India is the major source of Gross Tax Revenue (GTR) for the Government of India. It provides higher tax collection in comparison to income tax, custom duty, and service tax.

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Q 10. Fiscal Policy in India is formulated by

A

the Reserve Bank of India

B

the Planning Commission

the Finance Ministry

D

the Securities and Exchange Board of India

Explanation

The Department of Economic Affairs (DEA) under Ministry of Finance is the nodal agency of the Union Government to formulate and monitor country's economic policies and programmes having a bearing on domestic and international aspects of economic management.

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Q 11. Which of the following statements about Krishi Kalyan Cess (KKC) is/are correct?
1. KKC is calculated in the same way as Service Tax is calculated.
2. The current rate of KKC is 0.50%
3. KKC is similar to the KKS (Krishi Kalyan Surcharge).
Select the correct answer using the code given below:

A

1, 2 and 3

1 and 2 only

C

2 and 3 only

D

1 only

Explanation

KK Surcharge is the additional percentage of tax which domestic tax players need to pay when declaring undisclosed income by paying tax at 30%. The KKS above the tax is 7.5%.

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Q 12. Goods and Services Tax likely to be levied in India is not a

gross value tax

B

value-added tax

C

consumption tax

D

destination-based tax

Explanation

GST would be applied at each stage of sale/purchase of goods services, according to value-added.

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Q 13. Money laundering normally involves

A

placement of funds

B

layering of funds

C

integration of funds

all the above

Explanation

Money laundering occurs in three steps: the first step involves introducing cash into the financial system by some means called as placement; the second involves carrying out complex financial transactions to camouflage the illegal source called layering; and the final step entails acquiring wealth generated from the transactions of the illicit funds called as integration. Money Laundering - It is the process of transforing the profits of crime and corruption into obstensibliy Legitimate assets.

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Q 14. In which of the following years India switched over to decimal currencies?

A

1955

B

1956

1957

D

1960

Explanation

India switched over to decimal currency in 1957 with the amendment of the Indian Coinage Act. The rupee remained unchanged in value and nomenclature. Il, however, was now divided into 1 (X) ' Paisa' instead of 16 Annas.

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Q 15. High rates of interest in a low inflation region

attract people to make an investment

B

discourage people to make an investment

C

create atmosphere for capital formation

D

are not favourable for credit expansion

Explanation

Higher interest rates in low inflation means higher real returns not just on money, but on all other assets too. These higher real returns increases the allocation of investment by people.

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Q 16. Consider the following statement in regard to reserve currency:
(1) Reserve currency acts as the international pricing currency in the global market for commodities like oil and gold.
(2) The country' whose local currency is accepted as reserve currency gets an added advantage in terms of lower commodity rates in the international market.
Which of the statements given above is/are correct

A

1 only

B

2 only

Both 1 and 2

D

Neither I nor 2

Explanation

A reserve currency (or anchor currency) is a currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves, and that is commonly used in international transactions for commodities like oil and gold. Persons who live in a country that issues a reserve currency can purchase imports and borrow across borders more cheaply than persons in other nations because they need not exchange their currency to do so.

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Q 17. If all the banks in an economy are nationalized and converted into a monopoly bank, the total deposits

A

will decrease

B

will increase

will neither increase nor decrease

D

None of the above

Explanation

It will remain the same, because banks do not increase the national income. So it remains the same immaterial whether banks are there or not.

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Q 18. Consider the following liquid assets:
1. Demand deposits with the banks
2. Time deposits with the banks
3. Savings deposits with the banks
4. Currency The correct sequence of these decreasing orders of Liquidity is:

A

1-4-3-2

B

4-3-2-1

C

2-3-1-4

4-1-3-2

Explanation

Currency is most liquid, because you can use it as and when you want. Time deposit with bank (e.g. fixed deposit), are least liquid compared to savings/demand deposit with banks and currency.

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Q 19. NABARD was established in the

A

Fourth Five Year Plan

B

Fifth Five Year Plan

Sixth Five Year Plan

D

Eighth Five Year Plan

Explanation

It was established on 12 July, 1982 in sixth five year plan by a special act by the parliament and its main focus was to uplift rural India by increasing the credit flow for elevation of agriculture & rural non farm sector.

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Q 20. Choose the correct statements in the context of Cooperative Banks in India.
1. Cooperative Banks operate on no profit no loss basis.
2. Cooperative Banks are allowed to operate only in the agriculture sector.
3. NABARD is a Cooperative Bank.

1 only

B

1 and 2

C

1 and 3

D

All of these

Explanation

Cooperative Banks operate on no profit no loss basis, and they operate in all sectors including agriculture sector. NABARD is not a Cooperative Bank. National Bank for Agriculture and Rural Development (NABARD) is an apex development bank in India.

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Q 21. Who appoints a banking ombudsman?

A

Lead Bank of the State

B

Governor of respective state

Reserve Bank of India

D

President of India

Explanation

The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking sen ices.

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Q 22. Who decides the rate of interest on savings bank deposits?

A

Ministry of Finance

B

Indian Banks Association

C

Reserve Bank of India

Individual Banks

Explanation

RBI Gives power to Banks to decide saving banks deposit interest rates.

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Q 23. Which of the following public sector banks is the first bank to offer wealth management service?

A

Bank of India

B

Bank of Baroda

State Bank of India

D

Canara Bank

E

Other than those given as options

Explanation

State Bank of India became the first public sector lender to launch wealth management service, a space dominated by private and foreign players, to cater to fast-growing affluent segment of the country.

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Q 24. Yes Bank has announced mobilisation of USD 5 billion towards its commitment to climate finance in India by 2020. The Bank's committed target for funding clean energy is—

A

1000 MW annually

B

1500 MW annually

C

1500 MW by 2020

5000 MW by 2020

Explanation

YES BANK, a Ieader in the climate finance space in the country, investing and raising capital towards mitigation, adaptation and resilience. This bank has the target funding of5, 000 MW ofclean energy by 2020.

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Q 25. Which of the following banks is the World's largest bank by assets?

A

Bank of America

Industrial and Commercial Bank of China (ICBC)

C

BNP Paribas

D

Bank of China

Explanation

Industrial and Commercial Bank of China is the Largest Banks in the World with total assets of 3616.39 billion USD.