Question 1

BIFR (Board for Industrial and Financial Reconstruction): Identify the year it came into existence.  Context: BIFR was established under the Sick Industrial Companies (Special Provisions) Act, 1985.  Choose the correct year when BIFR became operatio…

Accepted Answer

Given data Institution: BIFR. Law: SICA, 1985. Task: Year BIFR came into existence (operational). Concept / Approach Although SICA was enacted in 1985, the BIFR was constituted and became operational in 1987. Verification Standard Indian economy and polity references list 1987 as the operational start year. Final Answer 1987.

Question 2

States' largest source of tax revenue: Identify the head through which Indian states earn the maximum revenue.  Context: Consider the states' own tax revenue heads in a standard public finance framework.  Choose the most appropriate revenue head.

Accepted Answer

Given data Focus: States' own tax revenue heads. Task: Identify the largest contributor in the conventional framework. Concept / Approach Historically, sales tax / VAT was the single largest state-level tax head. After 2017, State GST (SGST) took over that role in the GST framework; the economic essence remains the same: tax on sales/consumption within the state. Option analysis Sales tax / VAT (now SGST): Dominant own-tax revenue source for most states. Stamp duty: Important but smaller than sales tax/SGST in most states. State excise (alcohol): Significant for several states but typically below sales tax/SGST. Motor vehicle tax: Smaller share compared to the above. Final Answer Sales tax / VAT historically (now State GST share).

Question 3

History of Indian currency: Identify the year when paper currency first started in India.  Context: Consider the statutory beginning of government-issued paper money in British India.  Choose the correct year.

Accepted Answer

Given data Topic: Introduction of paper currency in India. Task: Pick the year of formal commencement. Concept / Approach The Paper Currency Act, 1861 vested the Government of India with the monopoly of note issue, marking the formal start of government paper currency in India. Option analysis 1835: Pre-dates the Act; not the formal start. 1861: Correct; year of the Paper Currency Act. 1905/1935: Important years in monetary history (e.g., 1935 RBI Act era), but not the start of paper currency. Final Answer 1861.

Question 4

Bank nationalization in 1969: State the number of major commercial banks that were nationalized that year.  Context: July 1969 was a landmark in Indian banking reforms.  Choose the correct number.

Accepted Answer

Given data Event: First major wave of bank nationalization in India (1969). Concept / Approach In July 1969, the Government of India nationalized 14 large commercial banks. (A second wave of 6 followed in 1980.) Final Answer 14.

Question 5

Agricultural research governance: Identify the apex body that formulates plans and coordinates research in agriculture and allied fields in India.  Context: Consider the institutional architecture overseeing agricultural R&D and extension coordinati…

Accepted Answer

Given data Focus: Apex body for agricultural and allied research planning and coordination. Concept / Approach ICAR is the premier apex organization responsible for coordinating, guiding, and managing research and education in agriculture and allied sciences in India. Option analysis NITI Aayog: Broad policy think-tank; not the apex agricultural research body. Ministry of Commerce and Industry: Trade/industry focus. SFAC: Promotes agri-business; not the apex research coordinator. Final Answer Indian Council of Agricultural Research (ICAR).

Question 6

Price index interpretation (base year 1960): If the current price index is approximately 330, what does this imply?  Context: Treat 1960 as base = 100 and interpret the relative level of prices today.  Choose the correct interpretation.

Accepted Answer

Given data Index number today: 330. Base year (1960) index: 100. Concept / Approach A price index of 330 (base 100) means the average price level is 330/100 times the base. Step-by-step calculation Relative level = 330 / 100 = 3.30. Percentage change from base = (330 − 100) / 100 × 100% = 230%. Verification 3.30 times equals a 230% increase over the base (since 100% would be 2.00×, 200% would be 3.00×, and 230% is 3.30×). Common pitfalls Confusing the index value (330) with the percentage increase (230%). Final Answer Average prices are about 3.3 times the 1960 level, i.e., roughly a 230% rise.

Question 7

Rural vs. urban income disparity in India: Identify which factors explain why average rural incomes are generally lower than average urban incomes.  Many farmers are illiterate and have limited exposure to scientific/modern agricultural practices.  …

Accepted Answer

Given data We compare rural and urban incomes and evaluate three explanatory statements. Focus is on structural features: human capital, product pricing, and investment patterns. Concept / Approach Lower average rural income can stem from lower labor productivity and capital intensity, weaker value-addition (primary vs. manufacturing), and historically lower investment flows into agriculture relative to industry. Step-by-step reasoning (1) Illiteracy/limited scientific know-how → slower adoption of high-productivity inputs & techniques → lower yields and value-add ⇒ supports lower rural incomes.(2) Primary goods often sell at lower margins vs. manufactured goods that embed more value-addition, branding, and pricing power → depresses farm-gate earnings.(3) Historically, a smaller share of total investment goes to agriculture vs. industry/services, limiting mechanization, storage, logistics, and market access → constrains farm earnings. Common pitfalls Assuming any one factor alone explains the gap; in practice it is multi-factor. Ignoring value-chain effects (processing, logistics, marketing) that favor urban sectors. Final Answer 1, 2 and 3 are all valid reasons for lower rural incomes on average.

Question 8

Indian economy — gross domestic saving rate: Choose the current broad range for India’s average gross domestic savings as a share of GDP. Treat “range” as percentage points of GDP (approximate macro indicator). Choose the correct range.

Accepted Answer

Given data We are asked the approximate range of India’s gross domestic saving rate (share of GDP). Concept / Approach India’s savings rate is a macro aggregate that has typically hovered around the low-30s percent of GDP in recent years. Hence, among the coarse ranges given, 30–35% best captures the contemporary level. Step-by-step reasoning Compare coarse ranges to known long-run averages: below 25% would be too low for India’s recent experience; 25–30% is borderline but tends to underestimate; 30–35% aligns with common macro data points. Verification / sanity checks Historical series since the 2000s show the savings rate predominantly in the upper 20s to low 30s, with many recent observations close to ~30%. Common pitfalls Confusing household savings rate with gross domestic savings (which includes private corporate and public savings). Final Answer 30% – 35% is the most appropriate broad range among the options.

Question 9

Banking reforms in India: In the second round of nationalization of commercial banks, how many banks were nationalized? Provide the exact count of banks nationalized in the second phase (1980). Choose the correct number.

Accepted Answer

Given data We need the number of banks nationalized in the second phase of bank nationalization (1980). Concept / Approach India nationalized major banks in two waves: the first in 1969 (14 banks) and the second in 1980, when additional banks were nationalized. Step-by-step reasoning Second phase (1980) → 6 banks were nationalized. Common pitfalls Mixing up the 1969 and 1980 numbers (14 vs. 6). Assuming total cumulative number rather than the second-phase increment. Final Answer The correct count is 6 banks.

Question 10

Foreign Direct Investment (FDI) into India over the last decade: Identify the sector that has attracted the highest FDI inflows. Consider broad sectoral groupings used in official statistics (e.g., services, computer software & hardware, manufacturi…

Accepted Answer

Given data We compare aggregate FDI inflows by sector over a decade horizon. Concept / Approach Across multi-year windows, the services sector—which typically aggregates financial, banking, insurance, business process management, R&D, and other market services—has consistently been among the top FDI recipients, often ranking first in cumulative terms. Step-by-step reasoning While computer software & hardware has topped certain individual years, the broader services basket generally leads on a 10-year cumulative basis → choose Services. Common pitfalls Using a single financial year's ranking instead of a decade-long cumulative perspective. Confusing narrow sub-sectors with the broader services aggregate used in policy reporting. Final Answer The sector with the highest cumulative inflows over the past decade is the Services sector.

Question 11

Monetary policy — required ratios: The ratio that banks must maintain between their cash holdings (cash with RBI + cash in hand) and their liabilities/size of balance sheet. Identify the standard term used for this mandated cash ratio in India. Choo…

Accepted Answer

Given data We are asked the name of the regulatory ratio that compels banks to keep a portion of their deposits as cash. Concept / Approach CRR is the share of a bank's Net Demand and Time Liabilities (NDTL) that must be kept as cash with the RBI (and cash in hand), which directly constrains lendable resources.SLR instead requires holdings of specified liquid assets (cash, gold, approved securities), not just cash; CAR is a solvency/capital buffer; Repo rate is a policy interest rate. Step-by-step reasoning Because the prompt emphasizes a cash ratio requirement, the correct term is Cash Reserve Ratio (CRR). Common pitfalls Confusing CRR with SLR; only CRR is purely a cash requirement with the central bank. Final Answer The correct term is Cash Reserve Ratio (CRR).

Question 12

Telecom sector — FDI policy change: The ceiling on Foreign Direct Investment (FDI) in telecom was raised from 74% to what new limit? Answer in percentage of equity permitted for foreign investment. Choose the correct value.

Accepted Answer

Given data We identify the revised FDI cap for the telecom sector relative to the earlier 74% ceiling. Concept / Approach Policy liberalization raised the sectoral cap to 100% (subject to applicable routes/conditions). Why other options are incorrect 80% or 90% do not match the revised cap; 74% represents the pre-change limit. Final Answer New ceiling: 100%.

Question 13

Formulation of fiscal policy in India: Identify the authority primarily responsible for framing the Union Government’s fiscal policy (taxation, expenditure, budgeting). Choose the correct institution.

Accepted Answer

Given data We need the institution that formulates fiscal policy (tax and spend decisions) for the Union. Concept / Approach Fiscal policy is a sovereign function anchored in the Union executive. The Ministry of Finance leads budgeting, taxation proposals, expenditure management, and FRBM targets.RBI handles monetary policy; the Finance Commission recommends tax devolution formulas; NITI Aayog is a policy think-tank/advisory body. Final Answer The fiscal policy formulator is the Ministry of Finance, Government of India.

Question 14

Reserve Bank of India (RBI) — nationalization year: In which year was the RBI nationalized (taken over by the Government of India)? Choose the correct year.

Accepted Answer

Given data We are asked when the RBI was nationalized. (Note: RBI commenced operations in 1935.) Concept / Approach RBI was originally a privately held institution established in 1935 and was nationalized with effect from 1 January 1949. Common pitfalls Choosing 1935 (the establishment year) instead of the nationalization year. Final Answer RBI was nationalized in 1949.

Question 15

Regional Rural Banks (RRBs) — supervisory responsibility since 1983: To which institution was the RBI’s responsibility for RRBs transferred? Identify the correct apex development bank. Choose the correct option.

Accepted Answer

Given data Since 1983, supervisory/oversight functions for RRBs shifted away from RBI. Concept / Approach NABARD, established in 1982, is India’s apex development bank for agriculture and rural development; in 1983, responsibility regarding RRBs was transferred to NABARD. Why others are incorrect SIDBI focuses on MSMEs; IDBI was a development finance institution; EXIM Bank focuses on trade finance. Final Answer The correct institution is NABARD.

Question 16

Public finance — definition of deficit financing: What does “deficit financing” imply in the context of government budgets? Focus on how expenditure in excess of revenue is financed. Choose the correct description.

Accepted Answer

Given data We must define the term deficit financing. Concept / Approach Deficit financing refers to financing a budget deficit by monetization—i.e., borrowing from the central bank (RBI) that creates new base money. In many textbooks on Indian public finance, this is distinguished from market borrowing as it directly expands money supply. Step-by-step reasoning If expenditure > revenue → a gap (deficit) arises.Financing that gap by central bank credit (ad hoc treasury bills/ways & means advances in legacy frameworks) injects new money, hence termed deficit financing. Why other options are incorrect Balancing the budget (B) or covering fully by taxes (C) precludes any deficit; commercial-bank-only borrowing (D) does not necessarily constitute monetization. Final Answer Deficit financing implies meeting the shortfall by borrowing from the central bank with money creation.

Question 17

Export surplus (trade balance): Identify the most appropriate macroeconomic cause.  Full question: Which of the following is the most appropriate cause of an exports surplus, i.e., when a country's exports exceed its imports?  Choose the correct opt…

Accepted Answer

Given data Target: Find the macro condition most consistent with an export surplus (exports > imports). Concept / Approach Trade balance TB = X − M. An export surplus (TB > 0) can arise from higher foreign demand for X, lower domestic demand for M, or relative price changes that favor X and restrain M. Option analysis Recession at home: Household and firm demand falls, so imports (M) decline. Domestic producers redirect unsold output abroad, pushing X up. Both forces raise X − M ⇒ export surplus. Currency appreciation: Makes exports costlier and imports cheaper ⇒ tends to reduce X − M. Import subsidies: Cheaper imports ⇒ M rises ⇒ reduces X − M. Higher domestic inflation: Hurts price competitiveness of exports and encourages imports ⇒ lowers X − M. Final Answer Recessionary conditions at home that depress imports and free domestic output for export.

Question 18

Saving–Investment equilibrium with government: Determine the condition on government expenditure.  Context: Closed economy with government. Identity: (S − I) = (G − T) + (X − M).  Full question: If an economy is in equilibrium where planned saving e…

Accepted Answer

Given data Equilibrium condition: Planned saving S equals planned investment I. Macroeconomic identity (with government and external): S − I = (G − T) + (X − M) Concept / Approach With planned S = I, left side is 0. If foreign balance is neutral for the question (X − M = 0, closed or balanced trade), then (G − T) must be 0. Step-by-step Start: S − I = (G − T) + (X − M) Given: S = I ⇒ S − I = 0 Assume: X − M = 0 (standard textbook closure unless specified) Hence: 0 = (G − T) ⇒ G = T Common pitfalls Ignoring the external balance term; the question defaults to the standard closed-economy implication. Final Answer Government expenditure equals tax revenue (balanced budget).

Question 19

Definition check: What do “subsidies” mean in public finance?  Full question: Choose the most accurate description of subsidies as used by governments in markets.  Choose the correct option.

Accepted Answer

Given data Term: Subsidies. Context: Government intervention in markets. Concept / Definition A subsidy is a budgetary transfer from the government to producers and/or consumers intended to lower the effective price paid, raise the price received, and/or encourage production or consumption of the targeted good/service. Examples Fertilizer subsidy to farmers; food subsidy to consumers via PDS; interest subvention on priority-sector loans. Final Answer Government transfers to producers or consumers to reduce prices or support output.

Question 20

Co-operative credit societies in India: Identify the structural form.  Full question: The co-operative credit societies have a what kind of organizational structure?  Choose the correct option.

Accepted Answer

Given data Topic: Structure of co-operative credit societies. Concept / Approach India follows a federal, pyramidal structure for rural co-operative credit: Primary Agricultural Credit Societies (PACS) at the village level, District Central Co-operative Banks (DCCBs) at the district level, and State Co-operative Banks (SCBs) at the apex. Final Answer Federal (three-tier) structure: PACS–DCCB–SCB.

Indian Economy Questions