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.
Showing 361–370 of 848 questions
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RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q361. Match the taxes in List I with their Constitutional assignments in List II:
Taxes
Constitutional Assignment
A. Corporation Tax
i. Exclusively Union Tax
B. Taxes on agricultural income
ii. Exclusively State Tax
C. Tolls
iii. Levied by State, usually collected by Local Bodies
D. Customs Duties
iv. Levied and retained by Union
Choose the correct answer:
Explanation
The Constitution divides taxing powers to ensure both levels of government have resources. Customs and corporation taxes are managed by the Union. Taxes on agricultural income and liquor are reserved for the States. Tolls are often collected by local bodies under state authority. This division helps manage the specific administrative and economic requirements of both the national and local levels of governance.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q362. Consider Statement I and Statement II regarding State finances. Statement I: State excise on liquor and petroleum products are crucial for State finances because they are outside the GST framework. Statement II: States frequently alter the Value Added Tax (VAT) on petrol and diesel to manage sudden revenue shortfalls.
Explanation
Because liquor and petroleum products are currently outside the GST, they remain vital for state fiscal autonomy. States can independently adjust excise duties and VAT on these items to respond to revenue needs. This flexibility is particularly useful during economic downturns or when there are sudden gaps in the state budget, allowing for immediate and localized fiscal adjustments.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q363. Which of the following is NOT a major challenge to expanding a State’s own tax revenue base?
Explanation
Expanding a state’s own tax base is challenging due to the large informal economy and political reluctance to tax sectors like agriculture. Furthermore, GST has limited the range of goods and services that states can tax independently. However, central devolution is designed to supplement, not replace, state efforts, and the Finance Commission even uses tax effort as a criterion to reward states for revenue efficiency.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q364. Find the odd one out with reference to taxes that a State Government in India can independently levy and modify rates for today:
Explanation
Today, states can independently set rates for VAT on fuels like diesel and excise on liquor. They also manage land revenue and various entertainment taxes. However, services like telecommunications are covered under the unified GST regime. Decisions on these rates are made collectively by the GST Council, so no individual state can unilaterally modify the tax rates for telecommunication or other integrated services.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q365. Which constitutional amendments provided the framework for fiscal decentralisation to local bodies in India?
Explanation
The 73rd and 74th Constitutional Amendment Acts of 1992 were transformative for fiscal decentralization. They mandated the creation of Panchayats and Municipalities as a third tier of government. Crucially, these amendments required states to share revenue with these local bodies and established State Finance Commissions to oversee this process, ensuring that grassroots governance has the financial means to function effectively.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q366. What is the most appropriate description of the function of the State Finance Commission (SFC)?
Explanation
The State Finance Commission plays a role at the state level similar to the Central Finance Commission at the national level. It reviews the financial health of local bodies and recommends how state taxes and grants should be shared with them. This ensures that Panchayats and Municipalities receive a fair and predictable share of resources to fund local development and public services.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q367. Which of the following statements about fiscal decentralisation in India is correct?
Explanation
Despite constitutional mandates, the actual level of fiscal decentralization varies widely. Many state governments are hesitant to transfer significant financial powers or revenue sources to local bodies, preferring to maintain central control over expenditures. This reluctance often limits the effectiveness of Panchayats and Municipalities, as they remain dependent on state-level grants rather than having their own robust and independent revenue streams.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q368. Match the Articles of the Constitution in List I with their provisions regarding local bodies in List II: List I: (Article of the Constitution) A. Article 243H B. Article 243I C. Article 243W D. Article 243Y List II: (Provision regarding local bodies) i. Constitution of State Finance Commission for Panchayats ii. Powers to impose taxes by, and Funds of, the Panchayats iii. Constitution of State Finance Commission for Municipalities iv. Powers, authority and responsibilities of Municipalities Choose the correct answer:
Explanation
The 73rd and 74th Amendments introduced articles to ensure local bodies have financial autonomy and structured support. Article 243H and 243W define the powers and responsibilities of Panchayats and Municipalities respectively. Meanwhile, Articles 243I and 243Y mandate the Governor to constitute State Finance Commissions to review the financial health of these local bodies and recommend sustainable revenue-sharing models.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q369. In the context of the history of Finance Commissions, select the correct chronological order of the Chairpersons of the Finance Commission of India:
Explanation
The Finance Commission of India is a constitutional body established every five years. Its leadership history began with K.C. Neogy as the first chairman in 1951. Over the decades, prominent figures like Mahavir Tyagi, who led the fifth commission, and Y.B. Chavan, who led the eighth, have served, culminating recently with N.K. Singh for the fifteenth. Each chairperson has shaped the nation’s fiscal landscape.
RAS PrelimsIndian Economy · Fiscal Federalism and Finance Commission
Q370. The concept of "Fiscal Capacity Distance" used in the horizontal distribution formula essentially measures:
Explanation
Fiscal capacity distance measures the potential of a state to raise revenue based on its economic base, such as per capita income. It identifies the gap between a state’s revenue potential and that of the strongest state. By using this metric, the Finance Commission can direct more funds to states with lower fiscal capacity, helping them provide essential public services more equitably.
Answer key for these questions
Q
Correct answer
361
(a) A-iv, B-ii, C-iii, D-i
362
(a) Both Statement I and Statement II are correct
363
(a) Excessive devolution of funds from the Central Finance Commission reducing state effort
364
(b) General Service Tax on telecommunication
365
(b) 73rd and 74th Amendments
366
(a) Recommending tax revenue distribution between the State and local bodies
367
(c) State Governments are often reluctant to devolve financial powers to local bodies
(b) The capacity of a state to generate tax revenue relative to its population
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.
