Question 1

State government revenue sources: Identify the exception. State revenues arise from state taxes and non-tax sources; pick the item not primarily a state source. Choose the correct option.

Accepted Answer

Concept Under India’s constitutional scheme, corporation tax is a Union subject. State excise, stamp duty/registration, and agricultural income tax are State subjects. Final Answer Corporation tax

Question 2

Business finance terminology: Define the typical maximum duration classified as short-term finance. In standard financial management and banking practice, short-term funds are those intended to be repaid within a relatively brief horizon used mainly…

Accepted Answer

Concept Short-term finance refers to funds raised for immediate or seasonal needs (e.g., working capital, inventory), with repayment within a brief horizon. In standard classifications used in corporate finance and banking exams, short-term = up to 1 year; medium-term ≈ 1–5 years; long-term > 5 years. Reasoning The cut-off of one accounting year aligns with cash-conversion cycles, current assets/liabilities reporting, and the tenor of instruments like working-capital loans, commercial paper, and trade credit. Why other options are incorrect 3 months / 6 months: These are valid short tenors, but they are not the upper limit; many short-term instruments run 9–12 months.3 years / 5 years: These fall under medium-term or long-term finance, not short-term. Final Answer 1 year

Question 3

Public debt classification: Which item is not counted as ‘‘national debt’’ of the Union?  National debt generally refers to the Central Government's public debt obligations. Choose the correct option.

Accepted Answer

Concept ‘‘National debt’’ typically denotes the Union Government’s public debt. State Government debt is separate and not part of the Union’s national debt tally. Final Answer Debt of State Governments

Question 4

Rural credit and cooperatives: Since inception of the co-operative movement, rural credit has been…  Assess the role and coverage of cooperatives in India’s rural credit delivery. Choose the correct option.

Accepted Answer

Context Historically, co-operative credit institutions were designed to expand rural credit access; over decades they have played a significant, though regionally varied, role. Final Answer Predominantly supplied through cooperative credit institutions

Question 5

Company finance: Debenture holders are the company’s what?  Understand the legal/financial standing of a debenture holder. Choose the correct option.

Accepted Answer

Concept Debentures are debt instruments; holders are creditors with a claim for interest and principal, not owners. Final Answer Creditors (lenders to the company)

Question 6

Foreign exchange policy: What does ‘‘devaluation’’ of a currency mean?  Focus on the exchange-rate meaning under a fixed/managed regime. Choose the correct option.

Accepted Answer

Concept Devaluation is an official downward adjustment of a currency’s parity under fixed/managed rates, making exports cheaper and imports costlier. Final Answer Official reduction in the external value of the domestic currency

Question 7

Monetary policy tools: Expansionary Open Market Operations (OMOs) by RBI imply what action?  Identify how RBI injects liquidity via securities operations. Choose the correct option.

Accepted Answer

Mechanism When RBI buys securities, it credits banking system reserves, expanding money supply and lowering short-term rates. Final Answer RBI buys government securities from the market (injects liquidity)

Question 8

Taxation: Excise duty in India is a levy on which activity?  Distinguish between customs (imports/exports) and excise (domestic manufacture). Choose the correct option.

Accepted Answer

Concept Excise duty (now largely subsumed into GST for most goods) historically taxed manufacture/production domestically, unlike customs (imports/exports). Final Answer Manufacture/production of goods within the country

Question 9

Budget arithmetic: Compute the primary deficit from given data.  Given: Fiscal deficit = ₹75,000 crore; Interest payments = ₹25,000 crore; Relending to States = ₹25,000 crore. Choose the correct option.

Accepted Answer

Definitions Primary deficit = Fiscal deficit − Interest payments. Calculation Primary deficit = 75,000 − 25,000 = ₹50,000 crore.Relending to States does not change the definition here. Final Answer ₹50,000 crore

Question 10

NRI bonds: The 1998 Resurgent India Bonds (RIBs) were issued in which three currencies?  Two are US dollar and Pound Sterling; identify the third currency used in 1998 (pre-euro). Choose the correct option.

Accepted Answer

Fact RIBs (1998) targeted the NRI diaspora and were issued in USD, Pound Sterling, and Deutsche Mark (pre-euro era). Final Answer Deutsche Mark

Question 11

Thought experiment: If all banks were merged into a single monopoly bank, total deposits would…  Assume no change in money supply or public preferences. Choose the correct option.

Accepted Answer

Concept Aggregate deposits depend on money supply, reserve ratios, and public behavior, not on the number of banks per se. Final Answer Remain essentially unchanged

Question 12

Public finance term: ‘‘Deficit financing’’ in India generally means borrowing from whom?  Identify the monetized source that increases base money. Choose the correct option.

Accepted Answer

Concept In India’s budget context, deficit financing classically refers to borrowing from the RBI, i.e., money creation to fund the gap. Final Answer The Reserve Bank of India (monetization)

Question 13

Currency design: On which denominations is Mahatma Gandhi’s portrait printed?  Consider the standard RBI banknote series in circulation. Choose the correct option.

Accepted Answer

Fact The Mahatma Gandhi motif appears across India’s RBI-issued banknote denominations (Mahatma Gandhi and Mahatma Gandhi (New) series). Final Answer All RBI-issued banknote denominations

Question 14

Indian economy: Why has India’s occupational structure changed slowly over time?  Identify a key structural reason for persistence of high primary-sector employment. Choose the correct option.

Accepted Answer

Concept With high population growth and limited formal job creation outside agriculture, labour shifts slowly from primary to secondary/tertiary sectors. Final Answer Insufficient industrial and services job creation to absorb surplus labour

Question 15

Energy sector business: First Indian private firm to sign an oil exploration accord with Myanmar for two offshore blocks.  Choose the correct company from the list. Choose the correct option.

Accepted Answer

Context Among Indian private companies, Essar Oil is noted for early accords with Myanmar for offshore exploration blocks. Final Answer Essar Oil

Question 16

Central banking in India: Which institution performs the central bank's functions?  Identify the monetary authority responsible for currency, monetary policy, and regulation. Choose the correct option.

Accepted Answer

Concept The Reserve Bank of India (RBI) is India’s central bank and monetary authority. Final Answer Reserve Bank of India

Question 17

Redistribution of income: Identify the policy instrument that directly reduces economic inequality.  Context: Consider standard public finance tools used by governments to narrow income and wealth gaps (without changing the numeric data in the origi…

Accepted Answer

Given data Topic: Redistribution policies aimed at reducing inequality. Task: Pick the instrument that directly transfers resources from richer to poorer households. Concept / Approach Redistribution is achieved when the effective tax-benefit system shifts after-tax income shares toward lower-income groups. A textbook example is a progressive income tax where higher-income individuals face higher marginal tax rates. Option analysis Progressive income taxation: Raises a larger share of revenue from high earners and finances transfers/public services that benefit lower-income groups. This is directly redistributive. Tight monetary policy: Targets inflation and output gaps; redistribution is not its design objective. Laissez-faire deregulation: Market efficiency focus; not a redistributive instrument. Regressive indirect taxes: Typically place a higher relative burden on low-income households; increase, not reduce, inequality. Common pitfalls Confusing macro-stabilization tools (monetary policy) with distributional tools (tax-transfer policies). Final Answer Progressive income taxation with higher marginal rates on higher brackets.

Question 18

Regional Rural Banks (RRBs): Evaluate the correctness of the statements and choose the right combination.  S1: RRBs have a limited, specified area of operation. S2: RRBs have access to refinance from NABARD on liberal terms. S3: RRBs are required to…

Accepted Answer

Given data S1: Limited area of operation. S2: Refinance from NABARD available. S3: Must lend only to weaker sections. Concept / Approach RRBs were set up to develop rural credit with a regional focus. Their operational area is restricted to specified districts, and they receive policy support including refinance from NABARD. While RRBs prioritize agriculture, rural artisans, and weaker sections, saying they lend only to weaker sections is too restrictive and incorrect. Step-by-step reasoning S1: True — RRBs operate within notified districts. S2: True — NABARD provides refinance and guidance to RRBs. S3: False — The mandate emphasizes weaker sections but is not exclusively restricted to them. Common pitfalls Interpreting policy priority as an absolute lending restriction. Final Answer S1 and S2 only.

Question 19

Benefit-received principle of taxation: Identify what the tax burden is based on under this principle.  Context: In public finance, alternative principles include ability-to-pay vs. benefit-received rules.  Choose the correct basis for taxation unde…

Accepted Answer

Given data Principle: Benefit-received. Task: State what determines each taxpayer's contribution. Concept / Approach Under the benefit-received principle, individuals should pay taxes in proportion to the benefits they derive from public expenditures. Reasoning Unlike the ability-to-pay principle (income/wealth based), the benefit-received rule ties tax shares to usage or derived benefits from public goods/services. Final Answer The benefits a taxpayer receives from public goods and services.

Question 20

Union Government tax with the highest annual yield: Choose the historically largest revenue head.  Context: Treat the question in the pre-GST framework commonly used in legacy GK (Union excise, customs, income tax, corporation tax).  Choose the tax …

Accepted Answer

Given data Question asks for the Union tax head with the highest annual yield in the traditional, pre-GST classification. Concept / Approach Before GST consolidation, Union excise duties on manufactured goods were a dominant and stable source of the Union Government's tax revenue, typically exceeding customs revenue and often rivaling or surpassing personal income tax. Option analysis Union excise duties: Historically the largest single Union tax head in many years pre-GST. Customs duties: Significant but generally below excise during many years. Personal income tax: Important direct tax head but typically lower than excise in the older framework. Agricultural income tax: Levied by states, not a Union tax head. Common pitfalls Mixing up post-2017 GST collections with the legacy classification the question refers to. Final Answer Union excise duties (pre-GST era).

Indian Economy Questions