Structure of the Indian Economy & Demographics - Solved Questions (2002-2012) | UPSC Topic Wise Previous Year Questions PDF Download

Question 1: Which of the following are the methods of Parliamentary control over public finance in India?   [2012 - I]
1. Placing Annual Financial Statement before the Parliament
2. Withdrawal of moneys from Consolidated Fund of India only after passing the Appropriation Bill
3. Provisions of supplementary grants and vote-on-account
4. A periodic or at least a mid-year review of programme of the Government against macroeconomic forecasts and expenditure by a Parliamentary Budget Office
5. Introducing Finance Bill in the Parliament
Select the correct answer using the codes given below:
(a) 1, 2, 3 and 5 only
(b) 1, 2 and 4 only
(c) 3, 4 and 5 only
(d) 1, 2, 3, 4 and 5

Correct Answer is Option (a)

1. Placing Annual Financial Statement before the Parliament
2. Withdrawal of moneys from Consolidated Fund of India only after passing the Appropriation Bill
3. Provisions of supplementary grants and vote-on-account
5. Introducing Finance Bill in the Parliament

Question 2: The Reserve Bank of India (RBI) acts as a bankers’ bank. This would imply which of the following?    [2012 - I]
1. Other banks retain their deposits with the RBI.
2. The RBI lends funds to the commercial banks in times of need.

3. The RBI advises the commercial banks on monetary matters.
Select the correct answer using the codes given below:
(a) 2 and 3 only
(b) 1 and 2 only
(c) 1 and 3 only
(d) 1, 2 and 3

Correct Answer is Option (d)

All the statements are correct.

Question 3: India is regarded as a country with “Demographic Dividend’’.

This is due to    [2011 - I]
(a) Its high population in the age group below 15 years.
(b) Its high population in the age group of 15–64 years.
(c) Its high population in the age group above 65 years.
(d) Its high total population.

Correct Answer is Option (b)

The demographic dividend is a rise in the rate of economic growth due to a rising share of working age people in a population. This usually occurs late in the demographic transition when the fertility rate falls and the youth dependency rate declines.

Question 54: Which one of the following is not a feature of “Value Added Tax” ?    [2011 - I]
(a) It is multi-point destination-based system of taxation.
(b) It is a tax levied on value addition at each stage of transaction in the production distribution chain.
(c) It is a tax on the final consumption of goods or services and must ultimately be borne by the consumer.
(d) It is basically a subject of the central government and the state governments are only a facilitator for its successful implementation.

Correct Answer is Option (d)

VAT, being a 'tax on sale or purchase of goods within a State' is a State Subject by virtue of Entry 54 of State List of the Seventh Schedule of the Constitution of India. Since VAT/Sales tax is a State subject, the Central Government has been playing the role of a facilitator for successful implementation of VAT.

Question 5: Karl Marx explained the process of class struggle with the help of which one of the following theories?   [2011 - I]
(a) Empirical liberalism
(b) Existentialism
(c) Darwin’s theory of evolution
(d) Dialectical materialism

Correct Answer is Option (d)

Darwin’s “struggle for existence” in natural history is analogous to the class struggle in “human History”. So option (c) stands incorrect. The sketch of dialectical materialism given by Karl Marx explains that Dialectical principle is of universal application and all the development is “struggle of opposites” or “conflict of opposites”. Thus option d stands correct in this question.

Question 6: All revenues received by the Union Government by way of taxes and other receipts for the conduct of Government business are credited to the ?   [2011 - I]
(a) Contingency Fund of India
(b) Public Account
(c) Consolidated Fund of India
(d) Deposits and Advances Fund

Correct Answer is Option (c)

Under Article 266 (1) of the Constitution of India, all revenues ( example tax revenue from personal income tax, corporate income tax, customs and excise duties as well as non-tax revenue such as licence fees, dividends and profits from public sector undertakings etc.) received by the Union government as well as all loans raised by issue of treasury bills, internal and external loans and all moneys received by the Union Government in repayment of loans shall form a consolidated fund.

Question 7: A rapid increase in the rate of inflation is sometimes attributed to the “base effect”. What is “base effect”?   [2011 - I]
(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
(c) 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

Correct Answer is Option (c)

The Base effect refers to the tendency of a small change from a low initial amount to the current amount which is translated into a large percentage and appears as large. It is usually used in context of inflation. It indicates the change in the inflation rate in the current period with respect to the base period.

Question 8: In the context of Indian economy, consider the following statements:   [2011 - I]
1. The growth rate of GDP has steadily increased in the last five years.
2. The growth rate in per capita income has steadily increased in the last five years.
Which of the statements given above is/are correct ?
(a) 1 only
(b) 2 only

(c) Both 1 and 2
(d) Neither 1 nor 2

Correct Answer is Option (d)

Question 9: In India, which of the following have the highest share in the disbursement of credit to agriculture and allied activities?    [2011 - I]
(a) Commercial Banks
(b) Cooperative Banks
(c) Regional Rural Banks
(d) Microfinance Institutions

Correct Answer is Option (a)

Commercial Banks – 60%

Co-operative Banks – 30%

RRB and others – 10%

Question 10:  Which one of the following statements is an appropriate description of deflation?    [2010]
(a) It is a sudden fall in the value of a currency against other currencies
(b) It is a persistent recession in both the financial and real sectors of economy
(c) It is a persistent fall in the general price level of goods and services
(d) It is a fall in the rate of inflation over a period of time

Correct Answer is Option (c)

Deflation is a decrease in the prices of goods and services. It occurs when the annual inflation rate falls below 0% which is a negative inflation rate. This is different from Disinflation which is a slow-down in the inflation rate. This is a situation when inflation declines to lower levels but prices continue to rise.

Question 11: Which of the following is/are treated as artificial currency?   [2010]
(a) ADR
(b) GDR
(c) SDR
(d) Both ADR and SDR

Correct Answer is Option (c)

ADR is an American Depositary Receipt which represents ownership in the shares of a non-US company that trades in U. S. financial markets. GDR is Global Depositary Receipt is a bank certificate issued in more than one country for shares in a foreign company. A GDR is very similar to ADR. SDR is special Drawing Rights. It is an international type of monetary reserve currency, created by the IMF in 1969. SDR can be thought as an artificial currency used by the IMF and defined as a basket of national currencies.

Question 12: When the Reserve Bank of India announces an increase of the Cash Reserve Rate, what does it mean?   [2010]
(a) The commercial banks will have less money to lend
(b) The Reserve Bank of India will have less money to lend
(c) The Union Government will have less money to lend
(d) The commercial banks will have more money to lend

Correct Answer is Option (a)

CRR or the Cash Reserve Ratio is that ratio of the total deposits held by a bank which it has to keep with the central bank of country.

Question 13: With reference to India, consider the following statements:   [2010]
1. The Wholesale Price Index (WPI) in India is available on a monthly basis only.
2. As compared to Consumer Price Index for Industrial Workers (CPIIW), the WPI gives less weight to food articles.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2

(d) Neither 1 nor 2

Correct Answer is Option (b)

Alter the Abhijit Sen committee’s proposals in 2004- 05, the government had approved the proposal to release or wholesale price based inflation data on a monthly basis, instead of every week. The base year was changed to 2004- 05 from 1993-94. However data on primary and fuel items was continued to release on a weekly basis. Consumer Price Index food group has a weight of 39.1 percent as compared to the combined weight of 24.4 percent (food articles and Manufactured food products) in wholesale Price Index food basket.

Question 14:  In the context of Indian economy, consider the following pairs: [2010]

Which of the pairs given above is/are correctly matched?(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Correct Answer is Option (b)

Recession is a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

Slow down is a period of slow economic growth, especially one that follows a period of robust growth Melt down follows normally a black swan event and quickly results is financial assets loosing in vlaue, often resulting in liquidity crisis. The stock market in India suffered melt down from Sensex 20,000 in mid 2008 to 10,000 in mid 2009.

Question 15: In the context of governance, consider the following: [2010]
1. Encouraging Foreign Direct Investment inflows
2. Privatization of higher educational Institutions
3. Down-sizing of bureaucracy
4. Selling/offloading the shares of Public Sector Undertakings
Which of the above can be used as measures to control the fiscal deficit in India?
(a) 1, 2 and 3
(b) 2, 3 and 4
(c) 1, 2 and 4
(d) 3 and 4 only

Correct Answer is Option (d)

Over the past few decades, it has been the private sector that has really driven capacity-creation in Indian higher education. Serious thinking on downsizing bureaucracy had begun in the early 1990s. A sub-group set up by the Planning Commission had suggested in 1993 that the Union government should weed out at least 2,000 seniorlevel positions in various ministries.

Question 16: With reference to’ Indian economy, consider the following statements:   [2010]
1. The Gross Domestic Product (GDP) has increased by four times in the last 10 years.

2. The percentage share of Public Sector in GDP has declined in the last 10 years.
Which of the statements, given above is/ are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Correct Answer is Option (b)

Question 17: Consider the following: [2009]
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
(d) 1, 2 and 3

Correct Answer is Option (d)

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. Interest tax is imposed as a special tax on interest accrued in specified cases. The Interest Tax Act of 1974 governs the tax process associated with the imposition and collection of interest tax. The Act applies to all scheduled Banks that are required to pay tax on the chargeable interest amounts they have on their deposits. The act is no longer applicable with regard to chargeable interest accruing after 31 March 2000.

Question 18: Which of the following pairs about India’s economic indicator and agricultural production (all in rounded figures) are correctly matched?   [2008]
1. GDP per capita (current prices): ₹ 37,000
2. Rice : 180 million tons
3. Wheat : 75 million tons
Select the correct answer using the code given below:

(a) 1, 2 and 3
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1 and 3 only

Correct Answer is Option (d)

Rice production was 96.69 Million tonnes in 2007-08.

Question 19: Consider the following statements with reference to Indira Gandhi National Old Age Pension Scheme (IGNOAPS):     [2008]
1. All persons of 60 years or above belonging to the households below poverty line in rural areas are eligible.
2. The Central Assistance under this Scheme is at the rate of ₹ 300 per month per beneficiary. Under the Scheme, States have been urged to give matching amounts.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Correct Answer is Option (d)

Ministry of Rural Development of India has introduced Indira Gandhi National Old Age Pension Scheme (IGNOAPS) under National Social Assistance Programme (NSAP) in the year 2007. IGNOAPS also called as National Old Age Pension Scheme (NOAPS). The old age pension scheme aims to provide social protection to the eligible beneficiaries. In this article, we look at the Indira Gandhi National Old Age Pension Scheme in detail.

Question 20: Which one of the following is the correct sequence in the decreasing order of contribution of different sectors to the Gross Domestic Product of India?   [2007]
(a) Services - Industry - Agriculture
(b) Services - Agriculture - Industry
(c) Industry - Services - Agriculture
(d) Industry - Agriculture - Services

Correct Answer is Option (a)

Contribution of different sectors to national income. Services – 55.1%, Industry – 26.4%, Agriculture – 18.5%

Question 21: Participatory Notes (PNs) are associated with which one of the following?    [2007]
(a) Consolidated Fund of India
(b) Foreign Institutional Investors
(c) United Nations Development Programme
(d) Kyoto Protocol

Correct Answer is Option (b)

Participatory Notes (PNs / P-Notes) are instruments used by investors or hedge funds that are not registered with the SEBI (Securities and Exchange Board of India) to invest in Indian securities. Participatory notes are instruments that derive their value from an underlying financial instrument such as an equity share and, hence, the word, ‘derivative instruments’. SEBI permitted FIIs to register and participate in the Indian stock market in 1992.

Question 22:  Which one of the following statements is correct? Fiscal Responsibility and Budget Management Act (FRBMA) concerns:   [2006]
(a) Fiscal Deficit only
(b) Revenue deficit only
(c) Both fiscal deficit and revenue deficit
(d) Neither fiscal deficit nor revenue deficit

Correct Answer is Option (c)

Fiscal responsibility and budget management act aims to bring down Fiscal deficit to 3% by 2008 and the revenue deficit to zero by 2008.

Question 23: Consider the following statements:    [2005]

1. Poverty Reduction and Growth Facility (PRGF) has been established by the International Development Association (IDA) to provide further assistance to low income countries facing high level of indebtedness.
2. Singapore regional Training Institute (STI) is one of the institutes that provides training in macroeconomic analysis and policy and related subject as a part of programme of the IMF institute.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Correct Answer is Option (b)

In 1999, the IMF established the Poverty Reduction and Growth Facility (PRGF) to make the objectives of poverty reduction and growth more central to lending operations in its poorest member countries.

Question 24: Which of the following is not a recommendation of the task force on direct taxes under the chairmanship of Dr. Vijay L. Kelkar in the year 2002?    [2004]
(a) Abolition of Wealth Tax
(b) Increase in the exemption limit of personal income to Rs. 1.20 lakh for widows
(c) Elimination of standard deduction
(d) Exemption from tax on dividends and capital gains from the listed equity

Correct Answer is Option (b)

Increase in exemption limit to Rs 1 lakh to for the general categories of taxpayers. A higher exemption limit of Rs 1.50 lakh for widows and senior citizens was one of the recommendation of the task, force on direct taxes under the chairmanship of Dr. Vijay. Kelkar in the year 2002.

Question 25: As per 1991 Census, which one of the following groups of Union Territories had the highest literacy rate?    [2004]
(a) Chandigarh and Dadra & Nagar Haveli
(b) Delhi and Andaman & Nicobar Islands
(c) Andaman & Nicobar Islands and Pondichery
(d) Pondicherry and Delhi

Correct Answer is Option (d)

As per 1991 census, Pondicherry and Delhi had the literacy rates of 75.3 and 74.7 respectively.

Question 26: Consider the following statements:

As per 2001 Census    [2004]
1. the two States with the lowest sex ratio are Haryana and Punjab
2. the two States with the lowest population per sq. km. of area are Meghalaya and Mizoram
3. Kerala has both the highest literacy rate and sex ratio
Which of the statements given above is/are correct?
(a) 3 only
(b) 2 and 3
(c) 1 and 2
(d) 1 and 3

Correct Answer is Option (d)

As per census 2001, child sex ratio in Haryana was 861, in Punjab 876 and in Sikkim 875. Hence, Haryana and Sikkim were the two states with lowest sex ratios. The population per sq. km. of area in Arunachal Pradesh was 13, in Meghalaya was 103 and in Mizoram was 42. Hence, the two states with the lowest population per sq. km of area are Arunachal Pradesh and Mizoram. Kerala has both the highest literacy rate and sex ratio.

Question 27: Consider the following statements: [2003]
In India, stamp duties on financial transactions are:
1. levied and collected by the State Government
2. appropriated by the Union Government
Which of these statements is/are correct?
(a) Only 1
(b) Only 2
(c) Both 1 and 2
(d) Neither 1 nor 2

Correct Answer is Option (d)

Stamp duty is a form of tax that is levied on documents. It is levied by the union or the central government and collected and appropriated by the state governments. (Entry

91 in the union list; entry 63 in the state list of Seventh Schedule of Constitution of India)

Question 28: Which one among the following States has the highest female literacy rate as per the Census 2001?     [2003]

(a) Chhattisgarh
(b) Madhya Pradesh
(c) Orissa
(d) Rajasthan

Correct Answer is Option (a)

As per the census of 2001, Chhattisgarh has the highest female literacy of 51.85, Orissa has 50.51%, Madhya Pradesh - 50.29 and Rajasthan has 43.85%.

Question 29: With reference to Power Sector in India, consider the following statements:    [2002]

1. Rural electrification has been treated as a Basic Minimum Service under the Prime Minister ’s Gramodaya Yojana

2. 100 percent Foreign Direct Investment in power is allowed without upper limit

3. The Union Ministry of Power has signed a Memoranda of Understanding with 14 States

Which of these statements is/are correct?
(a) 1 only 
(b) 1 and 2

(c) 2 and 3 

(d) 3 only

Correct Answer is Option (b)

Pradhan Mantri Gramodaya Yojana was launched in order to achieve the objective of sustainable human development at the village level. It has 6 components viz., primary health, Primary education, rural shelter, rural drinking water, nutrition and Rural electrification. Upto 100% FDI is allowed in respect of projects relating to electricity generation, transmission and distribution, other than atomic reactor power plants.

Question 30: With reference to the Indian Public Finance, consider the following statements:   [2002]

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
(c) 2, 3 and 4
(d) 1, 2, 3 and 4

Correct Answer is Option (c)

Public Finance in India also comes under the purview of a branch of economics which determines and assesses the policies of the Indian government stipulated in the annual finance budget. 

It identifies that types and consequences of tax measures and expenditure on citizens, institutions, and the entire economy. The upward trend in the ratio of Fiscal Deficit of GDP a recent years has an adverse effect on private investment. The continued high borrowing has kept the real interest rates high in the economy. Public finance identifies that types and consequences of tax measures and expenditure on citizens, institutions, and the entire economy.

Question 31: Consider the following statements:    [2002]
Full convertibility of the rupee may mean:
1. Its free float with the international currencies
2. Its direct exchange with any other international currency at any prescribed place inside and outside the country

3. It acts just like any other international currency.
Which of these statements are correct?

(a) 1 and 2
(b) 1 and 3
(c) 2 and 3
(d) 1, 2 and 3

Correct Answer is Option (d)

Capital account convertibility means free conversion of cross-border capital flows, implying that anybody can convert domestic currency into hard currency at the market rate and take the hard currency out of the country.