Indian Economy: UPSC Previous Year Questions (Prelims)

Explanation

The Banking Regulation Act was enacted in 1949, and was a cornerstone in India’s economic history. It aimed to regulate and stabilize the banking sector, empowering the Re-serve Bank of India (RBI) to supervise banks. Key provisions included setting minimum capital requirements, licensing banks, regulating branch expansion, and ensuring proper management and audit. The act also protected depositors’ interests, prevented fraud, and maintained banking integrity. It laid the foundation for a robust banking system, crucial for India’s post-independence economic development. Options (a), (b) and (d) are incorrect:

The First Five-Year Plan (1951-1956) focused on agricultural development and irrigation projects to address food shortages and stabilize the economy after independence. It laid the foundation for planned economic growth. The State Bank of India (SBI) was nationalized in 1955 when the Imperial Bank of India was transformed into SBI. This move aimed to expand banking services and support economic development. The nationalization of insurance companies occurred in 1956, with the formation of the Life Insurance Corporation of India (LIC). This was done to ensure that insurance services reached all sections of society, particularly in rural areas.

Explanation

Pair 1 is correct: According to the "Press Note on Advance Estimates of National Income, 2008-09" released by the Ministry of Statistics and Programme Implementation (MoSPI), the per capita income at current prices during 2008-09 was estimated to be 38,084. Therefore, the figure of 37,000 is approximately correct.

Pair 2 is incorrect: As per the "Agricultural Statistics at a Glance 2008" published by the Ministry of Agriculture & Farmers Welfare, Government of India, the production of rice during the 2006-07 crop year was approximately 93.35 million tons. Thus, the figure of 180 million tons is significantly higher than the actual production during that period.

Pair 3 is correct: As per the "Agricultural Statistics at a Glance 2008" published by the Ministry of Agriculture & Farmers Welfare, wheat production during the 2006-07 crop year was around 75.80 million tons. Therefore, the figure of 75 million tons is approximately correct.

Explanation

The Indira Gandhi National Old Age Pension Scheme (IGNOAPS) is a part of the National Social Assistance Programme (NSAP) launched by the Government of India to support elderly individuals from below-poverty-line (BPL) house-holds.

Statement 1 is incorrect: The scheme is applicable to individuals aged 60 years or above who belong to BPL households. How-ever the eligibility is not restricted to rural areas alone as it encompasses both rural and urban BPL households.

Statement 2 is incorrect: The central assistance provided under IGNOAPS is 200(not 300) per month for beneficiaries aged between 60 to 79 years and 500 per month for those aged 80 years and above. States are encouraged to contribute an equivalent or higher amount to enhance the pension received by the beneficiaries.

Explanation

As of 2007, the services sector was the largest contributor to India’s GDP, followed by industry, and finally agriculture. This trend marks India’s transition from an agrarian economy to a service-led economy, driven by growth in IT, finance, trade, and tourism. The industrial sector expanded steadily, but at a slower pace, while agriculture’s share declined due to lower productivity and workforce migration to other sectors. As per the Economic Survey 2006-07, the services sector accounted for approximately 55% of India’s GDP, with industry contributing around 27% and agriculture just 18%.

Explanation

The National Housing Bank (NHB) was established on July 9, 1988, under the National Housing Bank Act of 1987. Initially, it functioned as a wholly-owned subsidiary of the Reserve Bank of India (RBI), which contributed the entire paid-up capital. However, in 2019, the ownership structure of NHB underwent a significant change. The Government of India acquired the entire stake from the RBI, making NHB a whollyowned entity of the Government. Given that the question pertains to the year 2007, at that time, the correct answer is Reserve Bank of India. Functions of NHB The institution plays a crucial role in supervision and grievance redressal by monitoring and regulating Housing Finance Companies (HFCs), addressing complaints, and ensuring compliance with financial norms. In terms of financing, it provides refinance support to banks and housing finance institutions, thereby improving credit availability for affordable housing projects. Additionally, it focuses on promotion and development by encouraging innovations in housing finance and rural housing development, while also implementing government housing schemes like the Pradhan Mantri Awas Yojana (PMAY).

Explanation

Statement 1 is correct: The repo rate is the rate at which commercial banks borrow money from the Reserve Bank of India (RBI) to meet their short-term liquidity needs. It is a key monetary policy tool used to control inflation and stabilize the economy. If RBI increases the repo rate, borrowing be-comes more expensive, reducing liquidity in the market, which helps in controlling inflation. If RBI decreases the repo rate, borrowing becomes cheaper, increasing liquidity and boosting economic activity.

Statement 2 is incorrect: The Gini coefficient is a measure of income inequality within a population. It ranges from 0 to 1. A higher Gini coefficient signifies greater inequality, and a lower value indicates a more equal distribution of income. 0 represents perfect equality (everyone has the same income). 1 represents perfect inequality (one person has all the income, and everyone else has none).

Explanation

Participatory Notes (PNs) are financial instruments used by Foreign Institutional Investors (FIIs) to invest in Indian stock markets without direct registration with the Securities and Exchange Board of India (SEBI). These instruments allow overseas investors, including hedge funds, to gain exposure to Indian equities while bypassing regulatory procedures. PNs are issued by registered FIIs and sub-accounts against underlying Indian securities. While they provide easy access to foreign investment, concerns exist regarding lack of transparency and potential misuse for money laundering.As per SEBI regulations, efforts have been made to increase transparency and reduce misuse of PNs in India’s financial markets.

Explanation

Nationalized Banks are banks in which the majority stake is held by the government of India. Nationalization was carried out in two major waves (1969 and 1980) to bring a larger portion of the banking sector under government control, with the aim of promoting social and developmental objectives. Private Sector Banks are banks in which the majority stake is held by private individuals, companies, or institutions.

Option (c) is correct: Federal Bank is not a nationalized bank. It is a private sector bank headquartered in Aluva, Kerala.

Explanation

An indirect tax is one that can be partially or completely shifted from the person who pays it to others. Service Tax falls under this category as it is imposed on service providers but is typically shifted to the service recipient. Other examples are:

Goods and Services Tax (GST), Customs Duty, Excise Duty, Service Tax (before GST), Value Added Tax (VAT) (before GST). A direct tax is one that the taxpayer is obligated to pay directly to the government and cannot be passed on to someone else. Examples include income tax and property tax. Examples of Direct Taxes in India are Income Tax, Corporate Tax, Wealth Tax (now abolished), Capital Gains Tax, Property Tax. Service Tax was an indirect tax imposed by the Central Government on services provided in India until it was subsumed under the Goods and Services Tax (GST) on July 1, 2017. It was introduced under the Finance Act of 1994 and was applicable to various services, including those offered by travel agents, restaurants, and cable providers.

Explanation

The Fiscal Responsibility and Budget Management Act (FRBMA), 2003, is a legislation enacted by the Government of India to institutionalize fiscal discipline, reduce fiscal deficits, and improve macroeconomic management. The Act specifically targets both fiscal deficit and revenue deficit:

Fiscal deficit is the difference between the government’s total expenditure and its total revenue (excluding borrowings). The FRBMA aims to reduce the fiscal deficit to a manageable level, typically around 3% of GDP, to ensure long-term fiscal sustainability. Revenue deficit is the difference between the government’s revenue expenditure and its revenue receipts. The FRBMA aims to eliminate the revenue deficit, as it indicates that the government is borrowing to meet its day-to-day expenses, which is not sustainable in the long run. Other provisions of FRBMA:

The Act mandates the government to lay before Parliament Medium-Term Fiscal Policy Statements, Fiscal Policy Strategy Statements, and Macroeconomic Framework Statements. It sets targets for reducing fiscal and revenue deficits over a specified period. It prohibits the government from borrowing from the Reserve Bank of India (RBI) after 2006, except under exceptional circumstances.