Indian Economy: UPSC Previous Year Questions (Prelims)

Explanation

Assertion A is true: Since Balance of Payments (BoP) includes trade in goods, services, investments, and financial transfers, it offers a more accurate reflection of a country’s international economic engagement than just Balance of Trade (BoT), which only captures the net export-import balance. Reason R is true: The Balance of Payments (BoP) provides a comprehensive account of a country’s international economic transactions, including both visible (goods) and invisible (services, remittances, investments) trade. In contrast, the Balance of Trade (BoT) only considers the difference between exports and imports of goods, making it a less complete measure of a nation’s financial standing. Thus, both A and R are true, and R correctly explains A.

Explanation

Statement 1 is incorrect: LIC is not the oldest insurance company in India. The oldest insurance company is "Oriental Life Insurance Company" (established in 1818 in Kolkata). LIC was formed later in 1956 when the government nationalized over 240 private insurance companies.

Statement 2 is correct: The National Insurance Company Limited was nationalized in 1972 and became a subsidiary of the General Insurance Corporation of India (GIC). Later, it was made an independent entity.

Statement 3 is correct: United India Insurance Company Limited is headquartered in Chennai and is one of the four public sector insurance companies in India. As per IRDAI (Insurance Regulatory and Development Authority of India) re-ports, these insurance companies play a key role in the country’s financial sector.

Explanation

Rourkela Steel Plant was established with West German collaboration, not the Soviet Union. It was India’s first public sector integrated steel plant, commissioned in 1959. The Bhilai Steel Plant was set up with Soviet assistance. The plant was a fruit of Indo-German friendship, with machinery and expertise provided by Germany’s Krupp and Demag. Options (b), (c) and (d) are correct:

Salem Steel Plant, located in Tamil Nadu, is a premier producer of stainless steel in India. It’s a unit of SAIL and specializes in producing stainless steel in various forms like coils, sheets, and blades. It caters to both domestic and international markets. Maharashtra Elektrosmelt Ltd. (MEL) is a subsidiary of SAIL located in Chandrapur, Maharashtra. It specializes in producing ferroalloys, which are critical raw materials for steel production. Ferroalloys are used to enhance the strength and durability of steel, Visakhapatnam Steel Plant also known as Vizag Steel is operated by Rashtriya Ispat Nigam Limited (RINL). It was the first shore-based steel plant in India and plays a key role in regional industrial development.

Explanation

Statement 1 is incorrect: The BSE Sensex (S&P BSE Sensex) is based on 30 of the most actively traded and financially strong stocks on the Bombay Stock Exchange (BSE), not 50.

Statement 2 is incorrect: In Sensex calculation, stocks are as-signed weightage based on free-float market capitalization, not proportional weightage. This means stocks with higher market capitalization and more freely tradable shares have a greater impact on the index.

Statement 3 is incorrect: The New York Stock Exchange (NYSE) is one of the largest stock exchanges but not the oldest. The Amsterdam Stock Exchange (Netherlands), established in 1602, is considered the world’s oldest stock exchange. As per Bombay Stock Exchange (BSE) reports, the Sensex is widely used as a benchmark index for tracking the performance of the Indian equity market.

Explanation

In India, female literacy is defined as the percent-age of females aged 7 years and above who can read, write, and understand a simple message in any language. As per the 2001 Census of India, the correct sequence of the descending order of female literacy rates for the states mentioned is:

Kerala (87.86%) Mizoram (86.75%) Goa (75.51%) Nagaland (61.46%)

Explanation

Statement 1 is incorrect: The Poverty Reduction and Growth Facility(PRGF) was actually established by the International Monetary Fund (IMF), not the International Development Association (IDA). The PRGF was the IMF’s concessional lending facility for low-income countries, aimed at supporting programs that foster durable growth and poverty reduction.The PRGF focuses on promoting sustainable economic growth and reducing poverty through concessional loans with low interest rates. It has been replaced by the Poverty Reduction and Growth Trust (PRGT).

Statement 2 is correct: The Singapore Regional Training Institute (STI) is the International Monetary Fund’s (IMF) regional training center for the Asia-Pacific region. Established in 1998, the STI aimed at enhancing the capacity of officials from the region in areas by providing training in macroeconomic analysis and policy and related subjects as a part of a programme of the IMF institute.

Explanation

Assertion (A) is false: India does export natural rubber, although in limited quantities. While India is primarily a net importer of natural rubber to meet domestic demand, it also exports small amounts, especially of certain grades like RSS (Ribbed Smoked Sheets). Reason(R) is True: In the early years of 2000s, India was a major producer of natural rubber, and around 97% of its domestic demand for natural rubber was met from domestic production.

Explanation

Statement 1 is correct: The government provides higher and more stable Minimum Support Prices (MSP) for food grains like rice and wheat, which incentivizes farmers to prioritize these crops over oilseeds.

Statement 2 is correct: In 2004-2005, much of India’s oilseed farming depended on monsoon rains, making it sensitive to weather changes. The Economic Survey 2004-05 noted that irregular rainfall in 2004 caused a big drop in the production of rainfed crops like oilseeds and pulses. Most oilseed farming in India still relies on rainfall.

Statement 3 is correct: By 2004, India was producing 650,000 tons of rice bran oil from 4 million tons of rice bran through solvent extraction. However, this was only half of the potential, as the country’s paddy production could generate 9.8 million tons of rice bran annually, but only 5 million tons were processed. The untapped potential of rice bran oil and other non-tradition-al edible oils, like tree-borne oils, contributed to higher import dependence. By 2004, India produced 650,000 tons of rice bran oil from 4 million tons of rice bran, but only half of its 9.8 million-ton potential was utilized. Limited use of non-traditional edible oils like rice bran and tree-borne oils increased import dependence.

Statement 4 is incorrect: Oilseed’s import is not necessarily cheaper to import oilseeds. The import dependency is more because of inadequate domestic production rather than cost advantage.

Explanation

Statement 1 is correct: The government sets specific procurement targets for each crop season based on factors like estimated production, buffer stock requirements and market conditions. In case, there is no procurement target, the government allows the procurement agencies like the FCI to buy flexibly from the farmers.

Statement 2 is incorrect: The Government of India announces MSP for a variety of crops, including cereals, pulses, oilseeds, and commercial crops like cotton and jute.

Statement 3 is correct: Under the Targeted public Distribution System (TPDS), wheat and rice are allocated to States/Union Territories by the Government of India at uniform Central Issue Prices (CIP) for distribution to different categories, such as Antyodaya Anna Yojana (AAY) and Below Poverty Line (BPL) families.

Explanation

Statement 1 is correct: The National Housing Bank, the apex institution of housing finance in India. It was established on July 9, 1988, under the National Housing Bank Act of 1987. It was initially set up as a wholly-owned subsidiary of the Reserve Bank of India (RBI). 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 wholly-owned entity of the Government. Given that the question pertains to the year 2004 so the statement is correct.

Statement 2 is correct: The Small Industries Development Bank of India (SIDBI) was established on April 2, 1990, through an Act of Parliament. It was initially incorporated as a whollyowned subsidiary of the Industrial Development Bank of India (IDBI). The Shares of SIDBI are now held by the Government of India and twenty-two other institutions / public sector banks / insurance companies owned or controlled by the Central Government. Its key functions are:

Serves as the Principal Financial Institution for the MSME sector. Promotes, finances, and facilitates the development of Micro, Small, and Medium Enterprises (MSMEs). Provides credit, refinance, and developmental support to small industries. Plays a vital role in employment generation and inclusive economic development. Its operations support the government’s initiatives for the growth of small scale industries.