Previous Year UPSC Questions

Explanation

Exports are goods and services that are produced in one country used by another. In economic terms, when foreign nationals visit a country and spend money on goods and services--such as accommodation, food, transportation, and entertainment--it is considered an export for the host country. This is because the country is providing services to non-residents, resulting in an inflow of foreign currency. Therefore, the expenditures by foreign visitors during events like the XIX Commonwealth Games in India are classified as exports.

Explanation

Statement 1 is correct: Devaluation makes a coun-try’s exports cheaper for foreigners and its imports more expensive. This can lead to an increase in export volumes and a decrease in import volumes, which can improve the balance of trade (the difference between exports and imports of goods). An improved trade balance can help reduce the current account deficit.

Statement 2 is incorrect: Reducing export subsidies can make a country’s exports less competitive internationally, potentially decreasing export volumes and worsening the current account deficit.

Statement 3 is correct: While FDI and FII inflows are recorded in the capital account, they can indirectly affect the current account. Increased FDI can boost domestic production capacity, leading to higher exports. FDI and FII inflows can strengthen the domestic currency, making imports cheaper and potentially widening the CAD.

Explanation

The International Monetary Fund (IMF) is an inter-national organization that provides financial assistance to its member countries facing balance of payments problems. The IMF’s primary purpose is to ensure the stability of the international monetary system by offering financial support and policy advice to its members. Only countries that are members of the IMF are eligible to receive loans. As of now, the IMF has 190 member countries. Non-member countries are not eligible for IMF financial assistance. The IMF provides financial support to member countries to help them address balance of payments problems, stabilize their economies, and restore sustainable economic growth. This assistance is typically accompanied by policy conditions aimed at correcting the underlying economic issues that led to the need for support.

Explanation

FDI is characterized by long-term investments aimed at establishing a lasting interest in specific sectors, whereas FII involves short-term investments that can be easily liquidated. FDI contributes to the development of specific industries through direct involvement, while FII enhances capital availability across the financial markets without direct control over companies. Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) are two distinct forms of foreign investments, each with unique characteristics and impacts on the host country’s economy. Foreign Direct Investment (FDI) involves a long-term commitment where a foreign entity invests directly in the physical assets of a domestic company, such as establishing operations, acquiring machinery, or building infrastructure. It is typically directed towards specific sectors or industries where the foreign investor seeks to establish a lasting interest and exert significant control or influence over the management of the enterprise. Beyond capital infusion, FDI brings in advanced management practices, technology transfer, and can lead to job creation and overall economic development in the targeted sectors. Foreign Institutional Investment (FII) refers to investments made by foreign institutional investors, such as mutual funds, pension funds, and insurance companies, in a country’s financial markets, primarily in equities and bonds. It increases the overall capital availability in the financial markets, providing liquidity and potentially lowering the cost of capital for domestic firms. FII investments are generally more fluid and can be withdrawn quickly, making them more sensitive to market conditions and contributing to potential volatility.

Explanation

The Finance Commission of India is established under Article 280 of the Constitution. Its primary role is to make recommendations on the distribution of tax revenues between the Centre and the States and among the States themselves. Statement (a) is incorrect: Encouraging foreign capital inflow is not within the mandate of the Finance Commission. This is more relevant to policies of the Ministry of Finance or organizations like the RBI. Statement (b) is incorrect: The Finance Commission is not concerned with PSUs; its role is limited to tax revenue distribution between Centre and States and providing grants-in-aid. Statement (c) is incorrect: While the Finance Commission ensures equitable financial distribution, transparency in financial administration is not explicitly its function. This role is more aligned with bodies like the Comptroller and Auditor General (CAG). Thus, none of the given statements are correct in the context of the Finance Commission.

Explanation

Aam Admi Bima Yojana (AABY) is a Government of In-dia Social Security Scheme administered through Life Insurance Corporation of India (LIC) that provides Death and Disability cover to persons between the age group of 18 yrs to 59 yrs, under 48 identified vocational/ occupational groups /rural landless households.

Statement 1 is correct: The scheme covers the head of the family or an earning member in a rural landless household. It provides life and disability insurance benefits to economically weaker sections.

Statement 2 is incorrect: The age eligibility for this scheme is 18 to 59 years, not 30 to 65 years. It provides insurance cover for a sum of Rs 30,000/- on natural death, Rs. 75,000/- on death due to accident, Rs. 37,500/- for partial permanent disability (loss of one eye or one limb) due to accident and Rs. 75,000/- for total permanent disability (loss of two eyes or two limbs or loss of one eye and one limb) due to accident.

Statement 3 is correct: The scheme provides a scholarship of 100 per month for up to two children of the insured, studying in classes 9 to 12. The scholarship is meant to support education expenses for children of insured individuals.

Explanation

The Rights of Persons with Disabilities (RPWD) Act, 2016, and other policies provide multiple benefits to persons with disabilities to ensure their inclusion and accessibility in society.

Statement 1 is correct: Children with disabilities are entitled to free education till the age of 18 in government schools, as per the RPWD Act, 2016.

Statement 2 is correct: The government provides preferential allotment of land for businesses, housing, and special employment schemes for persons with disabilities.

Statement 3 is correct: Public buildings are required to have ramps and other accessibility features under the Accessible India Campaign and the RPWD Act.

Explanation

The river originating in Jharkhand referred to here is the Brahmani River. It originates as the Koel River in Jharkhand and is later called the Brahmani in Odisha. River originating in Odishas is the Baitarani River which originates in the Ke-onjhar district of Odisha. The Brahmani and Baitarani rivers merge at a place called Dhamra, near the Bay of Bengal forming a large delta before flowing into the sea. Bhitarkanika National Park is located in the estuarine region formed by the merging of the Brahmani and Baitarani rivers. It is located in the Kendrapara district of Odisha. It is a unique ecosystem of mangroves, wetlands, and tidal rivers. It is one of India’s most important wildlife sanctuaries and a Ramsar site (a wetland of international importance). It is home to saltwater crocodiles, Olive Ridley sea turtles, and a variety of bird species.

Explanation

Economic growth is an increase in the production of goods and services in an economy, is often accompanied by some degree of inflation because:

Increased Demand: Economic growth typically leads to increased demand for goods and services. This increased demand can put upward pressure on prices, leading to inflation. Increased Employment and Wages: Growth often involves increased employment and higher wages. Higher wages can lead to increased purchasing power, further fueling demand and potentially contributing to inflation.

Option (a), (c) and (d) are incorrect:

Deflation is a decrease in the general price level. It’s the opposite of inflation and is generally associated with economic slowdown or recession and not robust economic growth. Stagflation is a combination of slow economic growth, high unemployment, and high inflation. While inflation is present, the slow growth component makes it less directly associated with economic growth in the way that just inflation is. Hyperinflation is a very rapid and uncontrolled increase in the price level. While high inflation can sometimes accompany rapid growth, hyperinflation is generally associated with severe economic instability and is not a typical outcome of normal economic growth.

Explanation

The bank rate (also known as the discount rate) is the interest rate at which commercial banks can borrow money directly from the central bank (in India’s case, the Reserve Bank of India or RBI). When the RBI lowers the bank rate, it be-comes cheaper for commercial banks to borrow funds. Lower bank rate means banks can borrow from the RBI at a lower interest rate. To maintain their profit margins, commercial banks then lower their own lending rates (the interest rates they charge on loans to businesses and individuals). Lower lending rates encourage borrowing by businesses and individuals. This leads to an increase in credit availability and money supply in the market.

Option (b),(c) and (d) are incorrect:

A lower bank rate leads to more, not less, liquidity. A change in the bank rate has a direct impact on market liquidity. While lower interest rates on loans might indirectly influence deposit behavior over the long term, the direct and immediate effect of a lower bank rate is on borrowing and lending, and thus liquidity. Deposit mobilization is a separate function of commercial banks.