Indian Economy

Statement 1 is correct. Capital Adequacy Ratio (CAR): This is a crucial regulatory tool used by central banks to ensure banks have sufficient capital reserves to absorb potential financial losses. It acts as a buffer to protect depositors' funds in case of loan defaults or other financial risks.

Statement 2 is Incorrect. CAR is not decided by individual banks. The CAR is mandated and regulated by the central bank of a country, in India's case, the Reserve Bank of India (RBI). The RBI sets a minimum CAR that all banks operating in the country must adhere to. This ensures a level playing field and safeguards the financial system's stability.

The Cabinet Committee on Economic Affairs (CCEA) announces the Minimum Support Price (MSP) for 22 mandated crops and the Fair and Remunerative Price (FRP) for Sugarcane.

Statement 1 is Incorrect: Areca nut is a plantation crop and is not included in the list of 22 mandated crops for which MSP is announced.

Statement 2 is Correct: Barley is one of the seven cereals (Paddy, Wheat, Maize, Sorghum, Pearl millet, Barley, and Finger millet) for which MSP is announced.

Statement 3 is Incorrect: Coffee is a plantation/beverage crop and does not fall under the MSP regime.

Statement 4 is Correct: Finger millet (also known as Ragi) is a cereal crop included in the mandated list for MSP.

Statement 5 is Correct: Groundnut is one of the seven oilseeds (Groundnut, Rapeseed-Mustard, Soyabean, Sesamum, Sunflower, Safflower, and Nigerseed) covered under MSP.

Statement 6 is Correct: Sesamum is an oilseed crop for which the government officially announces MSP.

Statement 7 is Incorrect: Turmeric is a spice and is not among the 22 mandated crops for which MSP is announced by the CCEA.

Capital Formation: This refers to the addition to the existing stock of physical and human capital in an economy.

High Savings: High savings provide the necessary funds for investment. However, savings alone do not guarantee growth; the efficiency with which those savings are converted into output is crucial.

Capital-Output Ratio (COR): This ratio indicates the amount of capital required to produce one unit of output. - A low ratio means capital is efficient. - A high ratio means capital is inefficient (more capital is needed for the same amount of output).

Why (D) is correct: Even if an economy saves and invests heavily (capital formation), if the Capital-Output Ratio is high, the resulting increase in output (GDP) will be low. This often happens due to technological backwardness, poor infrastructure, or inefficient management of resources.

Statement 1 is incorrect: The Reserve Bank of India (RBI) manages and services both Central (Government of India) and State Government securities. RBI acts as a debt manager for both levels of government under agreements with the states.

Statement 2 is correct: Treasury Bills (T-bills) are issued only by the Government of India, not by the State Governments. States instead issue State Development Loans (SDLs) for their borrowing needs.

Statement 3 is correct: Treasury Bills are zero-coupon instruments — they are issued at a discount to the par (face) value and redeemed at par on maturity. The difference represents the interest earned.

Statement 1 is Incorrect: The term 'capital' in this context usually refers to physical or financial capital (like machinery or money), whereas human capital formation specifically focuses on the qualitative development of human beings. Statement 2 is Correct: Human capital formation is defined as the process of acquiring and increasing the number of persons who have the skills, education, and experience essential for the economic development of a country. Statement 3 is Incorrect: Tangible wealth refers to physical assets such as land, buildings, and gold. Human capital is an intangible asset and does not include the accumulation of physical goods. Statement 4 is Correct: Human capital is considered a form of intangible wealth because it represents the stock of knowledge, skills, and health embodied in the population, which lacks physical substance but has significant economic value.

Economic Growth vs. Economic Development: An increase in absolute and per capita real GNP signifies economic growth, which means the overall production of goods and services in a country is expanding.

Economic development is a broader concept that goes beyond just increasing production. It encompasses factors like 1. Improved living standards for citizens 2. Reduction in poverty and unemployment 3. Increased literacy and education levels 4. Improved healthcare and infrastructure

If poverty and unemployment are increasing even with economic growth (GNP increase), it suggests the benefits of growth are not being shared widely. This indicates a lack of true economic development.

Opportunity cost: It refers to the potential benefit an individual or entity gives up when choosing one option over another. In simpler terms, it's what you miss out on by making a specific choice.

Free commodity by the government: When the government provides a good or service for free, it doesn't eliminate the opportunity cost. The resources used to provide that free good could have been used for something else.

Taxpayers bear the burden: The resources for "free" public goods come from somewhere, usually taxpayer money. So, the opportunity cost isn't eliminated, it's simply shifted. Taxpayers give up the potential use of those resources in exchange for a free good or service.

In essence, while the individual consumer might not directly pay for the good, the cost is still there and borne by the tax-paying public.

Statement 1 is correct: Bharat Interface for Money (BHIM) is a payment app that lets you make simple, easy, and quick transactions using Unified Payments Interface (UPI). You can make direct bank payments to anyone on UPI using their UPI ID or scanning their QR with the BHIM app. You can also request money through the app from a UPI ID.

Statement 2 is not correct: From a consumer point of view, three levels of authentication are required in this app.

1. The device ID and mobile number, 2. The bank account which you are linking to this app, and 3. The UPI Pin which is needed to complete the transaction.

There are three factors of authentication versus a normal net banking app or a chip-in debit card which will only have two factors of authentication.

Statement 1 is correct. The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report indeed recommended a debt-to-GDP ratio of 60% for the general (combined) government by 2023, with 40% for the Central Government and 20% for the State Governments. This recommendation aimed to ensure fiscal discipline and sustainability.

Statement 2 is not correct. The Central Government has domestic liabilities of 46.1% of GDP (2016-17) and as a percentage of GDP, States liabilities increased to 23.2 per cent at end-March 2016.

Statement 3 is correct. The Constitution of India empowers State Governments to borrow only from domestic sources (Article 293(1)). Further, as long as a State has outstanding borrowings from the Central Government, it is required to obtain the Central Government's prior approval before incurring debt (Article 293 (3)).

Under the GST law in India, certain basic food items and publications are exempted from tax to protect low-income consumers and to ensure dissemination of information. Hulled cereal grains fall squarely within the scope of exempted foodstuffs because they are primary agricultural produce in a minimally processed form. The exemption applies to cereal grains that have been hulled or cleaned but not substantially altered by processing; this keeps basic staples outside the tax net. Therefore item 1 is correctly treated as exempt under GST.

Chicken eggs that are not cooked are treated as an essential food item and typically attract exemption under GST provisions relating to primary agricultural products and food. The rationale is similar to that for cereal grains: eggs are a staple protein source and their basic form is not a manufactured or processed good for the purposes of consumption tax. The exemption of eggs in their uncooked state reflects policy to keep essential nutrition affordable. The question includes cooked egg as item 2; while cooking could be considered a value addition, the standard tax treatment identifies eggs themselves as exempt, and typical classification for eggs preserves exemption for consumption-oriented basic eggs in many GST schedules.

Fish that has been processed and canned is different because the canning process constitutes substantial processing and packaging that converts the primary produce into a manufactured product. The additional processing, preservation and packaging raise the product into the taxable bracket under GST. Canned and processed seafood is sold as a value-added packaged commodity and thus is not covered by exemptions intended for unprocessed or minimally processed food items. Hence item 3 is taxable under GST and is not part of the exemption list relevant to this question.

Newspapers, including newspapers containing advertising material, are explicitly exempt from GST. The policy rationale recognizes newspapers and periodicals as important vehicles for information, education and public discourse, and even if they contain advertisements this does not alter their exempt status. The inclusion of advertising material does not convert the newspaper into a commercial service attracting GST; the printed newspaper remains outside the GST net. Therefore items 1, 2 and 4 are exempt while item 3 is taxable, making option c the correct choice in accordance with the verified answer provided.

The Merchant Discount Rate (MDR) is a fee levied on merchants by payment processors for accepting debit and credit card transactions. It's typically a percentage of the transaction value. So, when a customer uses a debit card at a store, the store pays a fee to the bank that processes the transaction. Hence, option C is the correct answer.


The correct answer is (C) procurement incidentals and distribution cost.

Here's a breakdown of the economic cost of food grains to the Food Corporation of India (FCI):

Minimum Support Price (MSP) and bonus (if any): This is the price paid by the FCI to farmers to procure food grains at a pre-determined level. It serves as a safety net for farmers and ensures some income stability.

Procurement incidentals: These are the additional costs incurred by the FCI during the procurement process. They include expenses like - Commission to agents or societies involved in procurement - Bagging materials - Labor charges for procurement activities - Transportation from collection centers to storage depots

Distribution cost: This refers to the expenses incurred by the FCI to distribute the procured food grains. It includes - Transportation costs from storage depots to fair price shops or other distribution channels - Handling and storage charges at fair price shops - Losses during storage and transportation


The Chairman of public sector banks in India are selected by the Banks Board Bureau (BBB).

The Banks Board Bureau is an autonomous body responsible for selecting and appointing the Boards of Directors in Public Sector Banks (PSBs) and Financial Institutions. It was established based on the recommendations of the Nayak Committee Report (2014).

The World Bank's Ease of Doing Business Index measured business regulations through 10 specific sub-indices: (1) Starting a business, (2) Dealing with construction permits, (3) Getting electricity, (4) Registering property, (5) Getting credit, (6) Protecting minority investors, (7) Paying taxes, (8) Trading across borders, (9) Enforcing contracts, and (10) Resolving insolvency. While maintenance of law and order is a fundamental requirement for economic stability, it was not one of the quantitative indicators used by the World Bank for this index. Options B, C, and D are all official sub-indices used in the ranking methodology.

The Inter-Creditor Agreement (ICA) was a key component of Project Sashakt, launched based on the recommendations of the Sunil Mehta Committee to fast-track the resolution of Non-Performing Assets (NPAs) in the Indian banking system. It specifically targets stressed assets of ₹50 crore or more held under consortium lending. The agreement mechanism stipulates that if 66% of the lenders (by value) agree to a resolution plan, it becomes binding on all other lenders in the consortium. This prevents individual dissenting banks from stalling the recovery process, ensuring a more efficient turnaround for bad loans.

Statement 1 is Correct: The Second Five-Year Plan (1956-1961), based on the Mahalanobis Model, shifted the focus of Indian planning toward rapid industrialization. It placed a determined thrust on the development of basic and heavy capital goods industries to build a strong industrial base.

Statement 2 is Correct: The Fourth Five-Year Plan (1969-1974) adopted the objective of "growth with stability" and the "progressive achievement of self-reliance." It specifically aimed at correcting the concentration of wealth and economic power through measures like the nationalization of 14 major commercial banks (1969) and the Monopolies and Restrictive Trade Practices (MRTP) Act.

Statement 3 is Incorrect: The financial sector was not included as an integral part of the planning process during the Fifth Five-Year Plan. It was only from the Ninth Five-Year Plan (1997-2002) onwards that the financial sector was treated as an integral part of the plan to ensure efficient resource allocation.

Statement 1 is correct: Foreign currency earnings - The IT sector generates foreign exchange through exports of services. This increases the supply of foreign currency reserves, making it easier to defend the rupee's value in the foreign exchange market during times of stress.

Statement 2 is incorrect: While government spending can stimulate economic growth, it can also lead to a higher budget deficit. If the deficit is financed by excessive borrowing, it can put pressure on the currency if investors lose confidence in the government's ability to repay its debts.

Statement 3 is correct: Remittances from abroad - When Indians working abroad send money back home, it adds to the inflow of foreign currency. This strengthens the country's foreign exchange reserves and provides a buffer against external shocks.

Therefore, the correct code is 1 and 3 only.

Participatory Note (P-Note): This is a financial instrument issued by registered foreign portfolio investors (FPIs) to overseas investors. It allows overseas investors to participate in the Indian stock market indirectly without directly registering with the Securities and Exchange Board of India (SEBI). The FPI holds the underlying Indian securities, and the P-Note represents ownership for the overseas investor.

The other options are not used for this purpose:

Certificate of Deposit (CD): Issued by banks to raise short-term funds, not related to stock markets.

Commercial Paper (CP): Short-term debt instrument issued by companies, not related to foreign investment in stocks.

Promissory Note: A written promise to repay a debt, not used in this context of stock market participation.

Assets represent the resources a bank owns. For a commercial bank, these resources include:

- Advances (loans): Money lent to businesses, individuals, and other borrowers. - Investments Securities like government bonds, treasury bills, or shares in other companies. - Money at call and short notice: Funds are lent to other banks for a very short period, usually overnight. - Deposits are liabilities for a bank. They represent the money that customers entrust to the bank, which the bank is obligated to repay.

Money multiplier: It refers to the extent to which commercial banks can create new money based on deposits. It's calculated as the reciprocal of the reserve ratio (required reserves divided by total deposits).

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR): These are regulatory tools used by the central bank to control the money supply.

Higher CRR and SLR: Banks are required to hold a larger portion of deposits as reserves with the central bank. This reduces the amount of money available for lending, thus decreasing the money multiplier.

Lower CRR and SLR: Banks can lend out a larger portion of deposits, increasing the money multiplier.

Banking habit: When people deposit more money in banks, it increases the pool of funds available for lending. This allows banks to create more new money through the lending process, leading to a higher money multiplier.

Population growth: While population growth can lead to higher demand for money, it doesn't directly affect the money multiplier mechanism itself.

To stop the slide of the Rupee (depreciation), the RBI/Government needs to increase the inflow of foreign currency (USD) or decrease the outflow.

Option (a), (b), and (c) are likely measures: They either increase the supply of dollars in the Indian market or reduce the demand for dollars, which helps stabilize the Rupee.

Option (d) is NOT a likely measure: An expansionary monetary policy usually involves lowering interest rates. When interest rates fall, the "carry trade" becomes less attractive to foreign investors, leading to capital flight. This increases the supply of Rupee in the market and decreases its value further. To stop a slide, the RBI typically follows a contractionary (dear money) policy to attract capital and curb inflation.

Statement 1 is correct: Purchasing Power Parity (PPP) exchange rates are calculated by comparing the prices of the same basket of goods and services in different countries.

Statement 2 is incorrect: India is not the sixth-largest economy in the world in terms of PPP dollars. It is currently the third largest economy in terms of PPP dollars, after China and the United States.

The primary objective of land reforms in independent India was to achieve social justice and 'equity' by redistributing land from large landowners to the landless and marginal farmers, thereby reducing the concentration of land ownership.

- Option B is correct: The policy priority was to ensure that those who actually tilled the soil had ownership rights, aiming to provide agricultural land to the landless to reduce rural poverty and inequality. - Option A is incorrect: During the first phase of land reforms (1950s and 60s), ceiling laws were generally applied to individual holdings. It was only after the 1972 national guidelines that the basis for land ceilings shifted to family units. - Option D is incorrect: Land ceiling laws were not absolute and provided numerous exemptions. These typically included land used for plantations (tea, coffee, rubber), orchards, sugarcane farms, and land held by religious, educational, or charitable trusts. - Option C is incorrect: Land reforms were intended to improve productivity and equity; they did not specifically aim for, nor result in, cash crops becoming the predominant form of cultivation across the country.

Statement 1 is correct: The Trade-Related Investment Measures (TRIMS) agreement under the World Trade Organization (WTO) prohibits quantitative restrictions on imports by foreign investors. This means that countries cannot impose conditions like mandatory local sourcing or trade-balancing requirements that distort free trade.

Statement 2 is incorrect: TRIMS only applies to trade in goods, not services. The regulation of trade in services falls under the General Agreement on Trade in Services (GATS), not TRIMS.

Statement 3 is correct: TRIMS is not directly concerned with the regulation of foreign investments. Instead, it focuses on investment measures that affect trade in goods, ensuring that they do not create barriers to international trade.

Hence, option C is the correct answer.

Statement 1 is Correct: Housing loans are credit obligations incurred by households. Since households are a primary component of the non-financial sector, their debt is classified as non-financial debt.

Statement 2 is Correct: Amounts outstanding on credit cards represent consumer debt owed by individuals (households) to banks or financial institutions. As this debt is owed by the non-financial sector, it is included in non-financial debt.

Statement 3 is Correct: Treasury bills (T-bills) are short-term debt instruments issued by the Government of India to manage its liquidity. The government is considered part of the non-financial sector, making its borrowings like T-bills and G-Secs part of non-financial debt.

Statement 1 is correct. Merchandise trade deficit is the largest component of India's current account deficit. As per RBIs data, India's Merchandise exports during April-August 2019- 2020 were USD 133.14 billion, as compared to USD 210.39 billion of imports during the same period.

Statement 2 is incorrect. Commodity-wise composition of imports between 2011-12 and 2018-19 shows that imports of iron and steel, organic chemicals, industrial machinery have registered positive growth rates as % of share in imports.

Statement 3 is correct. India's net services (service exports - service imports) have been in surplus. India's Service exports during April-August 2019- 2020 were USD 67.24 billion, as compared to USD 39.25 billion of imports during the same period.

Statement 4 is correct. Current Account Deficit (CAD) or trade deficit is the shortfall between exports and imports. As per Economic Survey 2019-20, India's CAD was 2.1% in 2018-19, and 1.5% of GDP in H1 of 2019-20.

Therefore, the correct answer is (D) 1, 3 and 4 only.

_NOTE: UPSC has not considered this question for marking._

* The term "West Texas Intermediate" (WTI), often seen in news reports, refers to a grade of crude oil. WTI is used as a benchmark for oil pricing in North America.

* Specifically, WTI is a light, sweet crude oil, meaning it has a low density and low sulfur content. This makes it easier and more desirable to refine into gasoline and other products. WTI serves as one of the main benchmarks for oil prices globally.

* West Texas Intermediate (WTI) and Brent Crude are two of the most important global benchmarks for crude oil prices. Brent Index is used as a benchmark for oil pricing globally, including Europe, Asia, and Africa.

Option A is incorrect. Foreign Direct Investment (FDI) typically involves investment in unlisted companies or companies that involve a direct ownership stake, not just investments through capital instruments in listed companies.

Option B is correct. FDI is considered a non-debt creating capital flow because it involves equity investments that do not require repayment, unlike loans or debt instruments. This type of investment brings in long-term capital and management expertise, which helps in the development of industries in the host country.

Option C is incorrect. FDI does not involve debt-servicing. Unlike loans or bonds, FDI involves ownership stakes, and thus, there is no obligation to pay interest or principal repayments.

Option D is incorrect. The investment in Government securities by foreign institutional investors (FIIs) is considered foreign portfolio investment (FPI), not FDI. FDI focuses on acquiring a substantial ownership stake in a company, whereas FPI involves short-term investments in financial assets.


Hence, option B is the correct answer.

The correct statements are 1 and 3:

- Statement 1 is correct: Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. It was introduced in India in 1990 to enable highly rated corporate borrowers to diversify their sources of short-term borrowings. - Statement 3 is correct: Call Money is a short-term finance used for interbank transactions. It refers to the borrowing or lending of funds for 1 day (overnight). If the money is borrowed for more than 1 day but up to 14 days, it is known as 'Notice Money'.

Why the other statements are incorrect:

- Statement 2 is incorrect: A Certificate of Deposit (CD) is a short-term (money market) negotiable instrument. It is issued by Scheduled Commercial Banks and select All-India Financial Institutions (like SIDBI or EXIM Bank), not by the Reserve Bank of India. - Statement 4 is incorrect: Zero-Coupon Bonds are not interest-bearing in the traditional sense (they do not pay periodic coupons). Instead, they are issued at a deep discount to their face value and redeemed at par. The difference between the purchase price and the maturity value represents the return. While the Government issues them (e.g., Treasury Bills), they are not specifically defined as bonds issued by Scheduled Commercial Banks to corporations.

Minimum Support Price (MSP): The government sets an MSP to ensure a minimum income for farmers. If the market price falls below the MSP, the government procures rice from farmers at the MSP. This can lead to higher rice prices for consumers if the government releases these stocks slowly or not at all.

Government's trading: Government agencies like the Food Corporation of India (FCI) procure and sell rice in the market. Large-scale procurement by the government can affect market availability and potentially drive up prices.

Government's stockpiling: The government maintains buffer stocks of rice for food security purposes. If these stocks are depleted due to various reasons, it can lead to a shortage and price hikes.

Consumer subsidies: The government provides subsidized rice to certain sections of the population through schemes like PDS (Public Distribution System). This can influence overall demand and market dynamics. If the subsidies are substantial, it can put upward pressure on prices.

Therefore, all these factors can play a role in influencing the price of rice in India. Hence, option D is the correct answer.