Q291. Which constitutional mechanism is primarily responsible for addressing the horizontal fiscal imbalance among States in India?
Indian Economy: RAS Prelims MCQs
848 RAS Prelims practice MCQs on the Indian economy are on this page, in 10 chapters. They cover economic growth and development, the Human Development Index, monetary and fiscal policy and the Union Budget, fiscal federalism, agricultural development, industrial reforms and LPG, the service sector, energy and transport, skill development and employment, and social justice. Each question has an answer and an explanation.
Practice questions based on the RPSC RAS Prelims syllabus. They follow the exam pattern but are not past-paper questions.
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Q292. Match the fiscal terms in List I with their descriptions in List II:
Choose the correct answer:
| Concept | Description |
|---|---|
| A. Vertical Fiscal Imbalance | i. Differences in revenue capacities among various states |
| B. Horizontal Fiscal Imbalance | ii. Transfers aimed at ensuring a minimum standard of public services across states |
| C. Equalization Grants | iii. Central taxes shared with states |
| D. Divisible Pool | iv. Gap between resources and expenditure obligations of Centre and States |
Explanation
Fiscal federalism employs various mechanisms to ensure balance. Vertical imbalance reflects the resource gap between the Centre and States, while horizontal imbalance denotes disparities among states. Equalization grants ensure minimum service standards everywhere. The divisible pool consists of central taxes shared with states. Together, these tools form the basis for equitable financial distribution and sustainable national growth.
Q293. Which of the following statements regarding the financial relations between the Centre and the States is incorrect?
Explanation
Under Article 271, the Union can levy surcharges for its own purposes, and these proceeds are not shared with the States. This distinguishes them from other taxes in the divisible pool. Other rules ensure that Union property remains exempt from state taxes and that the Union can provide grants for public purposes beyond the Union List subjects.
Q294. A newly formed State with hilly terrain and low industrial output struggles to provide basic healthcare. Which specific tool in fiscal federalism is best suited to address this specific state’s incapacity without altering the broad tax-sharing formula?
Explanation
States with structural disadvantages, such as hilly terrain or low industrialization, often face a revenue gap that tax devolution cannot fully bridge. Revenue deficit grants provide targeted assistance to help these states meet their essential expenditure needs. Unlike broad tax sharing, these grants specifically address the post-devolution budgetary shortfalls of states needing additional financial support.
Q295. Which is the most appropriate description of the "Income Distance" criterion used by the Finance Commission?
Explanation
The income distance criterion is used to promote horizontal equity among states. It calculates how far a state’s per capita income is from the benchmark set by the richest state. States with a larger distance receive a higher share of devolved taxes. This ensures that economically lagging states have more resources to improve their developmental outcomes.
Q296. Consider the following statements regarding the Constitutional provisions for financial relations:
I. Article 268 deals with duties levied by the Union but collected and appropriated by the States.
II. Article 269 deals with taxes levied and collected by the Union but assigned to the States.
III. Article 270 provides for taxes levied and distributed between the Union and the States.
IV. Article 271 allows the Union to levy a surcharge on taxes for the purpose of the States.
Which of the following is the incorrect combination?
I. Article 268 deals with duties levied by the Union but collected and appropriated by the States.
II. Article 269 deals with taxes levied and collected by the Union but assigned to the States.
III. Article 270 provides for taxes levied and distributed between the Union and the States.
IV. Article 271 allows the Union to levy a surcharge on taxes for the purpose of the States.
Which of the following is the incorrect combination?
Explanation
Under the Constitution, Article 268 deals with duties collected by States, Article 269 involves taxes assigned to States, and Article 270 covers the shared divisible pool. However, Article 271 empowers the Union to levy surcharges on taxes and duties for Union purposes only, not for the benefit of the States, which is a common misconception.
Q297. How is the "Public Account of India" defined under the Constitution?
Explanation
The Public Account of India holds moneys that do not belong to the government but are kept in trust. This includes provident funds, judicial deposits, and small savings. Since these are not government revenues, withdrawals from this account do not require parliamentary authorization. The government acts merely as a banker, and these funds must eventually be repaid.
Q298. Which of the following correctly identifies a component of the Contingency Fund of India?
Explanation
The Contingency Fund of India is established under Article 267 to meet unforeseen expenditures. It is held by the Finance Secretary on behalf of the President, allowing the executive to respond quickly to emergencies. However, any money spent from this fund must be subsequently authorized by Parliament, and the fund must be replenished from the Consolidated Fund.
Q299. Given below are two statements, one labeled as
Assertion (A) and the other as Reason (R):
Assertion (A): Provident fund deposits and judicial deposits do not form part of the Consolidated Fund of India.
Reason (R): These funds do not belong to the Government, and the Government acts merely as a banker or trustee for them.
Assertion (A) and the other as Reason (R):
Assertion (A): Provident fund deposits and judicial deposits do not form part of the Consolidated Fund of India.
Reason (R): These funds do not belong to the Government, and the Government acts merely as a banker or trustee for them.
Explanation
Provident fund and judicial deposits are categorized under the Public Account because the government does not own these assets. Instead, it serves as a trustee or banker for the citizens or entities that deposited the money. Because these funds are held in trust, they are managed separately from the tax revenues found in the Consolidated Fund of India.
Q300. Under which Article of the Constitution of India are the provisions relating to the Consolidated Funds and Public Accounts of India and of the States mentioned?
Explanation
Article 266 of the Constitution provides the legal basis for both the Consolidated Fund and the Public Account. It mandates that all revenues received and loans raised by the government are credited to the Consolidated Fund. Simultaneously, it defines the Public Account for other public moneys, ensuring a transparent and structured framework for managing the nation’s financial resources.Answer key for these questions
| Q | Correct answer |
|---|---|
| 291 | (b) Tax devolution formula recommended by the Central Finance Commission |
| 292 | (a) A-iv, B-i, C-ii, D-iii |
| 293 | (a) Surcharges on certain taxes and duties are levied by the Union and form part of the divisible pool. |
| 294 | (c) Revenue deficit grants recommended by the Central Finance Commission |
| 295 | (a) The distance of a State’s per capita income from the State with the highest per capita income |
| 296 | (c) IV only |
| 297 | (b) Public moneys received by the Government not forming part of the Consolidated Fund |
| 298 | (c) It is placed at the disposal of the President of India. |
| 299 | (a) Both A and R are true and R is the correct explanation of A. |
| 300 | (a) Article 266 |
Key facts from Indian Economy
- The RPSC syllabus lists economic concepts and the Indian economy as the first part of the Economy paper, followed by the economy of Rajasthan.
- Concept questions test definitions: nominal and real GDP, GNP and NDP, per capita income and the value-added method.
- Policy questions pair a tool with its effect, for example a rise in CRR reduces the lendable resources of banks.
- Scheme questions ask for the target group, ministry or year of schemes such as PMKVY, NAPS, PM SVANidhi and PM-SYM.
- Questions on Finance Commission and GST link the body to its Article, such as Article 280.
Frequently asked questions
How many RAS Prelims practice MCQs are there on Indian Economy?
This page has 848 practice MCQs on Indian Economy. Each has the correct answer, and most have an explanation.
Which chapters does the Indian economy set cover?
Ten chapters: economic growth, development and sustainable development; measurement of development (HDI); monetary and fiscal policy and the Union Budget; fiscal federalism and the Finance Commission; agricultural development; industrial growth and LPG reforms; the service sector; energy, transport and communication; skill development and employment; and social justice and empowerment.
Is the Indian economy in the RAS Prelims syllabus?
Yes. RPSC lists Economic Concepts and the Indian Economy as the first part of the Economy paper. The second part covers the economy of Rajasthan, which is on its own page.
How should I revise economy for RAS Prelims?
Learn the definitions and the cause-and-effect chains first, then the schemes with their year, ministry and target group. Attempt each chapter, read every explanation and keep a one-line note for each scheme and body.