Indian Economy: UPSC Previous Year Questions (Prelims)

Explanation

Statement 1 is correct: Revenue Deficit = Revenue Expenditure - Revenue Receipts = 80,000 - 60,000 = 20,000

Statement 2 is correct: Fiscal Deficit = Total Expenditure - Total Receipts (excluding borrowings). A fiscal deficit is equal to borrowing. Here, total borrowing = 10,000 crores, which is the fiscal deficit as per budget accounting, because borrowings fill the gap between total expenditure and non-borrowed receipts.

Statement 3 is correct: Primary Deficit = Fiscal Deficit - Interest Payments = 10,000 - 6,000 = 4,000

Explanation

Statement 1 is incorrect: The United States is the largest producer of ethanol in the world, accounting for about 52% of global production, while Brazil produces about 28%. For example, in 2024, the U.S. produced 16,219 million gallons, and Brazil produced 8,780 million gallons. Brazil was the top producer until 2005, but since then, the U.S. has consistently outproduced Brazil.

Statement 2 is correct: In the U.S., the principal feedstock for ethanol production is made corn. In Brazil, sugarcane is the main feedstock for ethanol production.

Explanation

A fiscal deficit occurs when a government’s total expenditure exceeds its total revenue (excluding borrowings) in a financial year. It represents the amount the government needs to borrow to meet its expenses. Primary deficit is the fiscal deficit of the current year minus interest payments on previous borrowings. It shows the government’s borrowing requirement excluding interest obligations. To find the gross primary deficit, use the formula:

Gross Primary Deficit = Fiscal Deficit - Interest Payments It is given that:

Fiscal Deficit = 50,000 crores Interest Liabilities = 1,500 crores Placing these values in the above formula we get, Gross Primary Deficit = 50,000 - 1,500 = 48,500 crores Non-debt creating capital receipts are already accounted for in the fiscal deficit calculation and do not need to be subtracted again. Thus, Option (a) is the correct answer.

Explanation

The 15th Finance Commission of India was constituted by the President of India in November 2017 under Article 280 of the Constitution. The Commission was chaired by N.K. Singh and its recommendations cover the five-year period from 2021-22 to 2025-26.

Statement 1 is correct: The 15th Finance Commission did recommend grants of Rs. 4,800 crore (Rs. 1,200 crore each year) from 2022-23 to 2025-26 for incentivising the States to enhance educational outcomes.

Statement 2 is incorrect: The 15th Finance Commission recommended a devolution of 41% of net Union taxes to states, not 45%.

Statement 3 is correct: The Commission recommended 45,000 crores as performance-based incentives for agricultural reforms.

Statement 4 is correct: The 15th Finance Commission reintroduced fiscal (tax) effort as a criterion for horizontal devolution.

Explanation

The International Bank for Reconstruction and Development (IBRD) is a global development cooperative owned by 189 member countries. As the largest development bank in the world, it supports the World Bank Group’s mission by providing loans, guarantees, risk management products, and advisory services to middle-income and creditworthy low-income countries, as well as by coordinating responses to regional and global challenges.

Statement 1 is correct: The International Bank for Reconstruction and Development (IBRD) provides loans, guarantees, and advisory services to middle-income and creditworthy low-income countries.

Statement 2 is incorrect: The International Bank for Reconstruction and Development (IBRD) is part of the World Bank Group and works in coordination with other institutions (like IDA), governments, and partners; IBRD does not work alone. IBRD works closely with all institutions of the World Bank Group and the public and private sectors in developing countries to reduce poverty and build shared prosperity.

Statement 3 is correct: The IBRD was created in 1944 with the initial mission of financing the reconstruction of European nations after World War II.

Explanation

RTGS and NEFT are examples of Inter Bank Transfer is a special service that allows you to transfer funds electronically to accounts in other banks in India.

Statement 1 is correct:

RTGS (Real Time Gross Settlement) processes transactions instantly and in real time. NEFT (National Electronic Funds Transfer) processes transactions in half-hourly batches, so settlement is not instantaneous and can take up to 2 hours.

Statement 2 is incorrect: As per RBI guidelines, no charges are levied for inward transactions (receiving funds) in both RTGS and NEFT systems. Charges, if any, are typically for outward transactions (sending money).

Statement 3 is incorrect: Both RTGS and NEFT are now available 24x7x365, including weekends and bank holidays. There are no restricted hours for either system as per current RBI guidelines.

Explanation

Unified Payments Interface (UPI) is an instant, real-time payment system developed by the National Payments Corporation of India (NPCI) in 2016. It enables users to transfer funds between bank accounts, pay bills, and make merchant payments seamlessly through a single mobile application. UPI supports both peer-to-peer and person-to-merchant transactions, operates 24x7, and eliminates the need to enter bank details for each transaction, making digital payments fast, secure, and convenient. List of countries where international merchant payments are accepted at select merchant outlets. Sr. No. Country Name

1. Bhutan

2. France

3. Mauritius

4. Nepal

5. Singapore

6. Sri Lanka

7. UAE Therefore, only three countries among the given options (UAE, France, Singapore) accept international merchant payments via UPI, apart from India.

Explanation

Pair 1 is incorrect: The National Automotive Board does not function under the Ministry of Commerce and Industry. It is under the Ministry of Heavy Industries, which oversees policies related to the automotive sector, including electric mobility and auto testing infrastructure.

Pair 2 is incorrect: The Coir Board is not under the Ministry of Heavy Industries. It functions under the Ministry of Micro, Small and Medium Enterprises (MSME) and promotes the coir industry, especially in coastal regions of India.

Pair 3 is incorrect: The National Centre for Trade Information (NCTI) is not under the Ministry of Micro, Small and Medium Enterprises. It is a joint initiative of the Ministry of Commerce and Industry and the India Trade Promotion Organisation (ITPO) for facilitating trade information services.

Explanation

The Petroleum and Natural Gas Regulatory Board (PNGRB) was established by the PNGRB Act, 2006, with a very specific mandate. Its core purpose is to regulate the downstream and midstream segments of the petroleum and natural gas sector in India. This is done to promote competition, protect consumer interests, and ensure the orderly growth of the market.

1. Production of crude oil:

Why it’s NOT regulated by PNGRB: This falls under the upstream segment of the oil and gas industry. "Upstream" refers to the exploration for and production of crude oil and natural gas. This segment involves geological surveys, drilling, and extracting the hydrocarbons from the ground. The regulation of these activities, including licensing, production sharing contracts, and resource management, is primarily handled by the Directorate General of Hydrocarbons (DGH) and the Ministry of Petroleum and Natural Gas directly. The PNGRB was specifically created to handle the post-production aspects.

2. Refining, storage, and distribution of petroleum:

Why it IS regulated by PNGRB: These are crucial downstream and midstream activities. Refining: While the actual process of refining crude oil into various products (like petrol, diesel, kerosene) might have its own technical standards, the PNGRB’s role often comes into play concerning the transportation of crude to refineries and the movement of refined products from refineries. It ensures fair access to transportation infrastructure like pipelines. • Storage: The PNGRB regulates the establishment and operation of storage facilities for petroleum and its products. This includes laying down technical and safety standards, ensuring that storage infrastructure is adequate and managed safely. • Distribution: This is a major area of PNGRB’s focus. It regulates the setting up, operation, and expansion of pipelines for the transportation of petroleum and petroleum products across the country. It also plays a key role in regulating city gas distribution (CGD) networks that supply piped natural gas (PNG) to homes and compressed natural gas (CNG) for vehicles. The aim is to ensure non-discriminatory access to such infrastructure.

3. Marketing and sale of petroleum products:

Why it IS regulated by PNGRB: This is another significant downstream activity. The PNGRB is tasked with:

Regulating the marketing and sale of notified petroleum products and natural gas. Ensuring fair play and competition in the market. Protecting the interests of consumers by monitoring pricing and preventing anti-competitive practices. Setting standards for service obligations for marketing entities.

4. Production of natural gas:

Why it’s NOT regulated by PNGRB: Similar to crude oil production, natural gas production is an upstream activity involving exploration and extraction. As per the PNGRB Act, these activities fall outside the Board’s jurisdiction and are regulated by the DGH and the Ministry. The PNGRB’s role begins once the gas has been produced and enters the transportation, processing, and distribution network.

Explanation

Economic activities are actions undertaken by individuals, businesses, or governments to produce, distribute, exchange, or consume goods and services with the aim of earning income or generating value. These activities form the backbone of an economy and are classified based on their nature and purpose. Economic activities are generally classified into four sectors based on their nature and role in the economy:

Primary activities involve the direct extraction of natural resources and are labor-intensive, relying on environmental conditions. Examples include agriculture, fishing, forestry, mining, and oil drilling. Secondary activities focus on processing raw materials into finished or semi-finished goods through industrial production. This sector includes manufacturing industries such as steel production, textile weaving, car manufacturing, and construction. Tertiary activities provide services rather than goods and support both the primary and secondary sectors. Key examples include banking, healthcare, education, retail, transportation, and IT services. Quaternary activities are knowledge-based and involve research, technology, and innovation. These include IT services, scientific research, financial consulting, and higher education. Each of these sectors plays a crucial role in driving economic growth and development.

Pair 1 is incorrectly matched: The storage of agricultural produce is part of the tertiary sector, as it involves services like warehousing and logistics rather than manufacturing or production.

Pair 2 is correctly matched: Dairy farming falls under the primary sector, as it involves the direct use of natural resources (livestock) for milk production.

Pair 3 is incorrectly matched: Mineral exploration is part of the primary sector, as it involves the extraction of natural resources from the earth.

Pair 4 is correctly matched: Weaving cloth involves manufacturing and processing, which are activities of the secondary sector.