UPSC 2007 Indian Economy Questions with Answers

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.