Q371. Which of the following statements is incorrect regarding the borrowing powers of 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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Q372. Consider Statement I and Statement II regarding the tax devolution formula.
Statement I: The "Forest and Ecology" criterion was included in the devolution formula to compensate states for the opportunity cost of maintaining forest cover.
Statement II: States with high forest cover lose out on potential agricultural or industrial revenue.
Statement I: The "Forest and Ecology" criterion was included in the devolution formula to compensate states for the opportunity cost of maintaining forest cover.
Statement II: States with high forest cover lose out on potential agricultural or industrial revenue.
Explanation
The "Forest and Ecology" criterion recognizes that states with large forest covers provide ecological benefits to the whole country but lose out on economic development. By maintaining forests instead of developing land for industry or agriculture, these states face an opportunity cost. The Finance Commission compensates them through tax devolution, incentivizing conservation while helping these states manage their specific developmental needs.
Q373. "Sub-national bankruptcy" is generally avoided in the Indian fiscal federal system through:
Explanation
To maintain financial stability, the Indian system places strict limits on state borrowing. The Constitution and the FRBM Act ensure that states do not accumulate unsustainable debt. The Reserve Bank of India acts as the debt manager for states, coordinating their market borrowings. These mechanisms prevent "sub-national bankruptcy" by ensuring that states operate within their means and maintain overall macroeconomic balance.
Q374. Which institution conducts the audit of the accounts of the Union and of the States to ensure fiscal accountability in India’s federal structure?
Explanation
The Comptroller and Auditor General is a constitutional authority responsible for auditing the accounts of both the Union and the State governments. This independent audit ensures that public money is spent legally and efficiently. By providing detailed reports to the respective legislatures, the CAG promotes fiscal accountability and transparency, which are essential for the healthy functioning of a federal financial structure.
Q375. The "Tax Effort" criterion in the Finance Commission’s devolution formula is designed to:
Explanation
The tax effort criterion is designed to encourage states to maximize their own revenue generation. It rewards states that show higher efficiency in collecting taxes compared to their estimated fiscal capacity. By including this in the devolution formula, the Finance Commission motivates states to improve their administrative systems and reduce tax evasion, thereby strengthening their own financial health and reducing dependency.
Q376. Identify the correct pair regarding the Rajasthan State Finance Commission:
Explanation
The State Finance Commission is a constitutional body mandated by the 73rd and 74th Amendments. In Rajasthan, the first commission was chaired by Krishna Kumar Goyal to establish the framework for local body funding. These commissions play a vital role in recommending the distribution of state resources to Panchayati Raj Institutions and Urban Local Bodies every five years, ensuring local fiscal accountability.
Q377. Which of the following does NOT constitute a part of the non-tax revenue of a State Government?
Explanation
Non-tax revenue for states includes interest receipts, royalties from minerals, and dividends from public enterprises. These are funds earned from services or assets rather than through taxation. In contrast, stamp duties and registration fees are categorized as a state’s own tax revenue. Understanding this distinction is important for analyzing the diverse ways in which state governments fund their operations and development projects.
Q378. What is the best characterization of a "Cess" in the context of Centre-State financial relations?
Explanation
A cess is a temporary tax levied for a specific purpose, such as education or infrastructure. Unlike regular taxes, the proceeds from a cess are not part of the divisible pool shared with the states. This allows the Union to target funding toward national priorities but has been a source of tension, as it reduces the overall share of revenue available for state devolution.
Q379. The increasing reliance of the Union Government on cesses and surcharges in recent years has led to which of the following effects?
Explanation
As the Union Government increasingly relies on cesses and surcharges, the portion of total tax collection that must be shared with states decreases. Because these levies are kept entirely by the Centre, the "effective" devolution rate falls below the percentage recommended by the Finance Commission. This trend has led to concerns among states about the shrinking size of the divisible revenue pool.
Q380. Which statement accurately reflects the status of agricultural income tax in India’s fiscal federal structure?
Explanation
Taxation of agricultural income is a power reserved exclusively for the States under the Indian Constitution. While the Union levies tax on non-agricultural income, it cannot tax farm earnings. Most states have chosen not to exercise this power due to socio-political reasons. This distinction remains a key feature of the fiscal division of powers, even after the implementation of the GST regime.Answer key for these questions
| Q | Correct answer |
|---|---|
| 371 | (d) States can borrow from foreign countries and international institutions directly without Centre’s approval. |
| 372 | (a) Both Statement I and Statement II are correct |
| 373 | (c) Constitutional borrowing constraints and the RBI’s role as a debt manager |
| 374 | (a) Comptroller and Auditor General of India |
| 375 | (d) Reward states demonstrating efficiency in tax collection relative to capacity |
| 376 | (b) 1st Rajasthan State Finance Commission -- Chaired by Krishna Kumar Goyal |
| 377 | (c) Stamp duties and registration fees |
| 378 | (d) A specific-purpose tax levied by the Centre and fully retained by the Union |
| 379 | (a) A reduction in the States’ effective share of gross central tax revenues |
| 380 | (b) It falls under the State List, allowing States to levy it at their discretion |
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.