Explore comprehensive UPSC Prelims topic-wise questions on the Indian economy, delving into the intricacies of India’s economic landscape. This resource provides a structured approach to understanding the economy of India through curated questions, allowing aspirants to grasp key concepts, theories, and practical applications. Covering diverse facets such as fiscal policies, economic development, and sectoral analysis, these questions offer valuable insights for UPSC Prelims preparation. Enhance your knowledge and proficiency in Indian economics by engaging with this meticulously crafted compilation, designed to facilitate effective learning and retention. Prepare strategically for the UPSC Prelims examination, gaining a deeper understanding of the economic dynamics shaping the nation’s growth trajectory.
Q1. Which one of the following Five Year Plans recognised human development as the core of all development as the core of all development efforts? (1995)
(a) The Third Five Year Plan
(b) The Fifth Five Year Plan
(c) The Sixth Five Year Plan
(d) The Eight Five Year Plan
Ans. (d)
The India’s Eighth Five-Year Plan (1992-97) acknowledged human development as the central focus of all developmental endeavors. This strategy was commonly referred to as the ‘Rao-Manmohan’ Plan. It served as a roadmap for navigating the shift from a centrally planned economy to one led by the market, employing indicative planning methods.
A primary goal of the Eighth Five-Year Plan was to foster employment generation, curb population growth, and advance comprehensive human development. Additionally, emphasis was placed on enhancing infrastructure (transportation, irrigation, communication) and strengthening institutional frameworks to underpin sustainable growth.
Q2. What is the annual rate aimed at in the Eighth Five Year Plan? (1995)
(a) 5.6%
(b) 6%
(c) 6.5%
(d) 7%
Ans. (a)
During the Eighth Five-Year Plan, the target for annual growth rate was set at 5.6%, yet it surpassed expectations with an average growth rate of 6.68%, largely attributable to extensive liberalization measures implemented by the Indian government. This plan placed significant emphasis on fostering private sector participation in industrial development.
Q3. The largest source of financing the public sector outlay of the Eighth Five Year Plan comes from (1995)
(a) balance from current revenue
(b) contribution of public enterprises
(c) government borrowings
(d) deficit financing
Ans. (d)
The primary source of funding for the public sector expenditure in the Eighth Five-Year Plan stemmed from deficit financing, which was utilized to address the disparity between government expenditure and revenue. Deficit financing involves mobilizing funds to cover the deficit resulting from expenditure exceeding revenue.
During the period of 1991-92, the financing approach primarily centered on fiscal deficit, which encompasses the central government’s total revenue receipts, loan recoveries, and other capital receipts (excluding borrowings), subtracted by total revenue and capital expenditure (including loans and advances to the States).
Q4. Which one of the following is correct regarding stabilisation and adjustment as two components of the New Economic Policy adopted in India? (1996)
(a) Stabilisation is a gradual, multi-step process while structural adjustment is a quick adaptation process.
b) Structural adjustment is a gradual multi-step process, while stabilisation is a quick adaptation process.
(c) Stabilisation and structural adjustment are very simile and complementary policies. It is difficult to separate one from the other.
(d) Stabilisation mainly deals with a set of policies which are to be implemented by the Central Government while structural adjustment is to be set in motion by the State Governments.
Ans. (b)
Statement (b) is accurate concerning stabilization and structural adjustment. Structural adjustment involves a gradual, multi-step process, whereas stabilization is a rapid adaptation process. The New Economic Policy introduced in 1991 incorporated two key components, namely stabilization and structural adjustment, aimed at addressing the economic crisis in the Indian economy.
Q5. In India, rural incomes are generally lower than the urban incomes. Which of the following reasons account for this? (1996)
1. A large number of farmers are illiterate and know little about scientific agriculture.
2. Prices of primary products are lower than those of manufactured products.
3. Investment in agriculture has been low when compared to investment in industry.
Select the correct answer using the codes given below.
(a) 1, 2 and 3
(b) 1 and 2
(c) 1 and 3
(d) 2 and 3
Ans. (a)
All statements (1), (2), and (3) are accurate. Despite numerous efforts to enhance both the agricultural sector and rural education, significant change has not been observed in rural areas. Approximately 68% of households reported the presence of upper primary schools within a kilometer distance, yet progress has been limited. Prices of primary products remain lower than those of manufactured goods, and the demand for such products is also relatively low compared to manufactured goods in urban areas. Investment in agriculture has been relatively low in comparison to investment in the industrial sector. Following the liberalization process, government attention shifted towards facilitating rapid growth in the industrial sector. Consequently, the proportion of investment allocated to agriculture within the total investment portfolio has gradually diminished over the years.
Q6. A redistribution of income in a country can be best brought about through (1996)
(a) progressive taxation combined with progressive expenditure
(b) progressive taxation combined with regressive expenditure
(c) regressive taxation combined with regressive expenditure
(d) regressive taxation combined with progressive expenditure
Ans. (b)
The most effective means of redistributing income within a country is through a combination of progressive taxation and regressive expenditure policies. Progressive taxation is structured around the principle of taxing individuals based on their ability to pay. Conversely, regressive expenditure occurs when government spending decreases proportionally as income levels rise.
By implementing progressive taxation alongside regressive expenditure, the government allocates more resources to support lower-income individuals while imposing higher taxes on wealthier segments of society. This approach facilitates the redistribution of wealth throughout the nation, aiming to mitigate disparities and inequality.
Q7. Assertion (A) Though India’s national income has gone up several fold since 1947, there has been no marked improvement in the Per Capita Income level. Reason (R) Sizeable proportion of the population of India is still living below the poverty line. (1996)
In the context of the above two statements, which one of the following is correct?
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Ans. (b)
Both Assertion (A) and Reason (R) are true. However, Reason (R) does not provide the correct explanation for Assertion (A).
The Real Per Capita Income indeed doubled during the first four decades, from 11,570 in 1950-51 to 24,634 in 1990-91. Nevertheless, there has been no significant improvement in the Per Capita Income level due to the persistent increase in population.
While it is true that there is a considerable proportion of the population living below the poverty line in India, this fact alone does not adequately explain Assertion (A), as the population living below the poverty line is not directly related to Per Capita Income. According to the Central Statistics Office (CSO) Report of 2022, approximately 52% of India’s population currently lives below the poverty line.
Q8. National Income is the (1997)
(a) Net National Product at market price
(b) Net National Product at factor cost
(c) Net Domestic Product at market price
(d) Net Domestic Product at factor cost
Ans. (b)
National Income can be understood as the Net National Product at factor cost. It represents the monetary value of all final goods and services produced within an economy during a specific financial year. Essentially, it encapsulates the total market value of production within a country’s economy over the course of a year.
The calculation of National Income involves several components, including the subtraction of indirect taxes from the Net National Product at factor cost and the addition of subsidies. This process helps to derive the Net National Product at market price, which is one of the methods used to determine National Income.
Q9. A consumer is said to be in equilibrium, if (1998)
(a) he is able to fulfill his need with a given level of income
(b) he is able to live in full comforts with a given level of income
(c) he can fulfil his needs without consumption of certain items
(d) he is able to locate new sources of income
Ans. (a)
A consumer achieves equilibrium when they can satisfy their needs with the income they possess. Consumer equilibrium describes a scenario in which the consumer attains the highest level of satisfaction possible from the quantity of goods and services they purchase, given their income and prevailing market prices.
Q10. The supply-side economics lays greater emphasis on the point of view of (1998)
(a) producer
(b) global economy
(c) consumer
(d) middle-man
Ans. (a)
Supply-side economics places a significant focus on the perspective of producers, asserting that augmenting the maximum supply of goods fosters economic growth within a nation. Also known as the ‘trickle-down’ policy, it was championed by former US President Ronald Reagan. This economic approach advocates for tax cuts targeting wealthy individuals, positing that such reductions enhance their savings and investment capabilities, which subsequently benefit the broader economy through a trickle-down effect.
Q11. Economic Survey in India is published officially, every year by the (1998)
(a) Reserve Bank of India
(b) Planning Commission of India
(c) Ministry of Finance, Government of India
(d) Ministry of Industries, Government of India
Ans. (c)
The Economic Survey in India is an official publication presented annually in Parliament by the Department of Economic Affairs, Ministry of Finance, Government of India. Under the supervision of the Chief Economic Advisor, it provides a comprehensive analysis of the country’s economic performance and prospects. The Economic Survey is traditionally unveiled in both houses of Parliament one day prior to the presentation of the Union Budget.
India’s inaugural Economic Survey was presented for the fiscal year 1950-51, marking the inception of this significant economic assessment and reporting mechanism.
Q12. The planning process in the industrial sector in India has assumed a relatively less important position in the nineties as compared to that in the earlier period. Which one of the following is not true in this regard ? (1999)
(a) With the advent of liberalisation, industrial investments/ development have largely been placed within thedomain of private and multinational sectors.
(b) With markets assuming a central place, the role of central planning in many sectors has been rendered redundant.
(c) The focus of planning has shifted to sectors like human resource development, infrastructure, population control and welfare.
(d) The nation’s priorities have shifted away from industrial development to rural development.
Ans. (d)
Statement (d) is inaccurate regarding the New Economic Policy of 1991. The nation’s priorities did not pivot away from industrial development towards rural development during this period. However, it is true that significant efforts were undertaken to overhaul rural development programs, aiming to enhance their effectiveness and productivity.
Q13. Since 1980, the share of the tertiary sector in the total GDP of India has (1999)
(a) shown an increasing trend
(b) shown a decreasing trend
(c) remained constant
(d) been fluctuating
Ans. (a)
Since 1980, the proportion of the tertiary sector in India’s total GDP has exhibited a rising trajectory, reflecting the developmental trajectory of the country. The tertiary sector encompasses the ‘soft’ segments of the economy, commonly referred to as the ‘Service Sector’. Examples of activities within the tertiary sector include trade, hotels and restaurants, real estate, as well as financial services such as banking and insurance.
Q14. In an open economy, the National Income (Y) of the economy is (2000)
(C, I, G, X, M, Y stand for Consumption, Investment, Government Expenditure, Total Exports Total Imports and National Income respectively.)
(a) Y = C + I + G + X
(b) Y = I + G – X + M
(c) Y = C + I + G + (X – M)
(d) Y = C + I – G + X – M
Ans. (c)
In an open economy, the National Income (Y) is calculated as the sum of Consumption expenditure (C), Investment expenditure (I), Government expenditure (G), and net exports (X – M), where X represents exports and M represents imports. Thus, the equation representing National Income (Y) is:
Y = C + I + G + (X – M)
Q15. The Per Capita Income in India was 20 in 1867-68 was as certained for the first time by (2000)
(a) MG Ranade
(b) Sir W Hunter
(c) RC Dutta
(d) Dadabhai Naoroji
Ans. (d)
The initial endeavor to compute India’s National Income was undertaken by Dadabhai Naoroji. In his book ‘Poverty and Un-British Rule in India’, published in 1867-68, he determined that the Per Capita Income in India amounted to 20, and estimated the National Income to be ₹340 crore during that era. Naoroji proposed the ‘Drain of Wealth Theory’, which posited that Britain was siphoning off India’s wealth through exploitative economic policies.
Q16. Economic liberalisation in India started with (2000)
(a) substantial changes in industrial licensing policy
(b) the convertibility of Indian rupee
(c) doing away with procedural formalities for Foreign Direct Investment
(d) significant reduction in tax rates
Ans. (a)
The process of economic liberalization in India commenced with significant alterations in the industrial licensing policy. Under this liberalizing policy, a plethora of items were deregulated from the Indian economy, and many industries were relieved of the obligation to obtain an industrial license to commence manufacturing operations within India. Additionally, economic liberalization in India facilitated substantial foreign investment, prompted reforms in the public sector, and introduced policies related to foreign technology transfer, among other measures. However, the government directed its focus primarily towards industries that could potentially impact public health, safety, and national security, while relaxing regulations for others.
Q17. The growth rate of Per Capita Income at current prices is higher than that of Per Capita Income at constant prices, because the latter takes into account the rate of (2000)
(a) growth of population
(b) increase in the price level
(c) growth of money supply
(d) increase in the wage rate
Ans. (b)
The growth rate of Per Capita Income at current prices typically surpasses that of Per Capita Income at constant prices because the latter adjusts for changes in the price level. Per Capita Income at constant prices, also known as Real GDP or GDP at constant prices, accounts for inflation, whereas Per Capita Income at current prices, or Nominal GDP, does not. Therefore, Nominal GDP tends to be higher than Real GDP.
For the fiscal year 2020-21, the per capita Net National Income (NNI) of India at current prices is estimated to have reached 128,829 Indian rupees, compared to 134,186 INR for the year 2019-20.
Q18. The new GDP series released by the CSO in February, 1999 is with reference to base price of (2000)
(a) 1991-92
(b) 1992-93
(c) 1993-94
(d) 1994-95
Ans. (c)
The new GDP series introduced by the Central Statistics Office (CSO) in February 1999 is based on the prices of the year 1993-94. However, as of the current period in 2022, GDP calculations utilize 2011-12 as the base year. In the computation of an index, the base year serves as the benchmark against which values from other years are compared for analysis and assessment.
Q19. The most appropriate measure of a country’s economic growth is its (2001)
(a) Gross Domestic Product
(b) Net Domestic Product
(c) Net National Product
(d) Per Capita Real Income
Ans. (d)
The most suitable gauge of a country’s economic advancement is its Per Capita Income or Per Capita Real Income. This metric represents the amount of money earned per individual within a specific area or region. Per capita income enables the determination of the average income per person in an area, aiding in the evaluation of the population’s standard of living and quality of life. In the context of a country, it is calculated by dividing the total national income (GDP) by the total population.
Q20. The term National Income represents (2001)
(a) Gross National Product at market prices minus depreciation
(b) Gross National Product at market prices minus depreciation plus net factor income from abroad
(c) Gross National Product at market prices minus depreciation and indirect taxes plus subsidies
(d) Gross National Product at market prices minus net factor income from abroad
Ans. (c)
The National Income (NI) is derived from the Gross National Product at market prices, which is adjusted by subtracting depreciation and indirect taxes while adding subsidies. It encapsulates the total monetary earnings of a nation’s residents and businesses. Additionally, National Income serves as a tool for measuring and monitoring a nation’s wealth over time. It encompasses the Gross Domestic Product (GDP) along with the income received from foreign sources.
21. Consider the following states. (2001)
1. Gujarat
2. Karnataka
3. Maharashtra
4. Tamil Nadu
The descending order of these states with reference to their level of Per Capita Net State Domestic Product is
(a) 1,3,4,2
(b) 3, 1, 2, 4
(c) 1,3,2,4
(d) 3, 1, 4,2
Ans. (b)
The descending order of these states based on their level of Per Capita Net State Domestic Product is Maharashtra > Gujarat > Karnataka > Tamil Nadu. Gross State Domestic Product (GSDP) represents the total value added by various economic sectors (Agriculture, Industry, and Services) within a specific state during a year, calculated without duplication.
As of March 2022, Telangana emerged as the leading state in India in terms of the growth rate of Per Capita Net State Domestic Product.
Q22. With reference to the Indian economy, consider the following activities. (2001)
1. Agriculture, Forestry and Fishing
2. Manufacturing
3. Trade, Hotels, Transport and Communication
4. Financing, Insurance, Real Estate and Business Services
The decreasing order of the contribution of these sectors to the Gross Domestic Product (GDP) at factor cost at constantprices (2000-01) is
(a) 3,1,2,4
(b) 1,3,4,2
(c) 3, 4, 1,2
(d) 1,3,2,4
Ans. (a)
The descending order of the contribution of the given sectors to Gross Domestic Product (GDP) at factor cost at constant prices (2000-01) is as follows:
- Trade, Hotels, Transport, and Communication
- Agriculture, Forestry, and Fishing
- Manufacturing
- Financing, Insurance, Real Estate, and Business services
In the services sector, which encompasses Trade, Hotels, Transport, and Communication, along with other service-based industries, it accounted for 53.89% of India’s total GDP in the fiscal year 2020-21.
Q23. Which one among the following countries has the lowest GDP per capita? (2003)
(a) China
(b) India
(c) Indonesia
(d) Sri Lanka
Ans. (b)
Among the given options, India has the lowest per capita GDP.
Per capita gross domestic product (GDP) is a financial measure that represents a country’s economic output per person. It is computed by dividing the GDP of a nation by its population.
As per 2021 estimates:
- China’s per capita GDP is $11,819.
- Indonesia’s per capita GDP is $4,256.
- Sri Lanka’s per capita GDP is $3,697.
- India’s per capita GDP is $2,191.
According to the International Monetary Fund (IMF), based on per capita income, India ranked 144th globally by GDP.
Q24 . Which one of the following Airports in India is the first to be owned by a public limited company? (2005)
(a) Dabolim Airport, Goa
(b) Cochin Airport
(c) Hyderabad Airport
(d) Bangalore Airport
Ans. (d)
Among the given options, the statement about Bangalore Airport, also known as Kempegowda International Airport, being the first airport in India to be owned by a public limited company is accurate.
The airport commenced operations in May 2008 as a joint venture project, with a consortium of private sectors holding 74% equity and the Karnataka State Industrial Development Corporation and Airport Authority of India sharing the remaining 26% equity equally.
Q25. Which one of the following is the correct sequence in the decreasing order of contribution of different sectors to the Gross Domestic Product of India? (2007)
(a) Service, Industry, Agriculture
b) Service, Agriculture, Industry
(c) Industry, Service, Agriculture
(d) Industry, Agriculture, Service
Ans. (a)
The correct sequence in the decreasing order of contribution of different sectors to the Gross Domestic Product (GDP) of India is Service-Industry, Agriculture.
The services sector holds the largest share, accounting for 53.89% of India’s total GDP. Following that, the industry sector contributes 25.92%, and finally, the agriculture and allied sector shares 20.19% in India’s total GDP.
Q26. In the context of independent India’s economy, which one of the following was the earliest event to take place? (2009)
(a) Nationalisation of Insurance Companies
(b) Nationalisation of State Bank of India
(c) Enactment of Banking Regulation Act
(d) Introduction of First Five Year Plan
Ans. (c)
The sequence you’ve provided is accurate. In terms of the decreasing order of contribution to India’s Gross Domestic Product (GDP), the correct sequence is Service-Industry, Agriculture.
The services sector holds the largest share, contributing 53.89% of India’s total GDP. The industry sector follows, contributing 25.92%, and finally, the agriculture and allied sector contributes 20.19% to India’s total GDP.
Q27. Consider the following statements regarding Indian Planning. (2009)
1. The Second Five Year Plan emphasised on the establishment of heavy industries.
2. The Third Five Year Plan introduced the conceptof import substitution as a strategy for industrialisation.
Which of the statement(s) given above is/are correct?
(a) Only 1
(b) Only 2
(c) Both 1 and 2
(d) Neither 1 nor 2
Ans. (c)
Both statements (1) and (2) are correct regarding Indian Planning.
Statement (1) describes the Second Five Year Plan, which began on April 1, 1956, and concluded on March 31, 1961. The plan focused on the establishment and acceleration of heavy industries to promote rapid industrialization in India. It emphasized the development of industries such as iron and steel, heavy chemicals, and machine-building.
Statement (2) pertains to the Third Five Year Plan, which commenced on April 1, 1961, and ended on March 31, 1966. This plan introduced the concept of import substitution as a strategy for industrialization. Its primary objective was to propel the economy towards the take-off stage of development and achieve self-sustaining growth.
Q28. During which Five Year Plan was the Emergency clamped, new elections took place and the JanataParty was elected? (2009)
(a) Third
(b) Fourth
(c) Fifth
(d) Sixth
Ans. (c)
During the Fifth Five Year Plan, India witnessed the declaration of Emergency, followed by fresh general elections that led to the election of the Janata Party. The Fifth Five Year Plan commenced on April 15, 1974, originally planned to conclude on March 31, 1979.
However, the Janata Party government declared this plan one year ahead of schedule, concluding it after only four years, from 1974 to 1978. Subsequently, a new planning approach was introduced, known as the ‘Rolling Plan’, which commenced on April 1, 1978.
29. With reference to Indian economy, consider the following statements. (2010)
1. The Gross Domestic Product (GDP) has increased by four times in the last 10 years.
2. The percentage share of public sector in GDP has declined in the last 10 years.
Which of the statement(s) given above is/are correct?
(a) Only 1
(b) Only 2
(c) Both 1 and 2
(d) Neither 1 nor 2
Ans. (b)
With reference to the Indian economy, only statement (2) is correct.
The percentage share of the public sector in GDP has indeed declined over the last 10 years. This decline can be attributed primarily to the rapid growth of the private sector post-1991, following liberalization policies that dismantled the license Raj and allowed private entities to enter various sectors previously dominated by public sector units. As a result, the contribution of the public sector to GDP has diminished over the years.
Q30. Inclusive growth as enunciated in the Eleventh Five Year Plan does not include one of the following. (2010)
(a) Reduction of poverty
(b) Extension of employment opportunities
(c) Strengthening of capital market
(d) Reduction of gender inequality
Ans. (c)
In the Eleventh Five Year Plan (2007-2012), strengthening the capital market was not identified as a core strategy or aim.
Instead, the focus was on inclusive growth, which entails an approach that ensures the participation of all communities and sections of society. The plan, formulated by C. Rangarajan, was centered around the theme of ‘Faster and more inclusive growth’. The ultimate objective of the Eleventh Five Year Plan was to achieve broad-based improvements in the living standards of the population, making growth both faster and more inclusive.
Q31. In the context of India’s Five Year Plans, a shift in the pattern of Industrialisation, with lower emphasis on heavy industries and more on infrastructure begins in (2010)
(a) Fourth Plan
(b) Sixth Plan
(c) Eighth Plan
(d) Tenth Plan
Ans. (b)
A shift in the pattern of industrialization, characterized by reduced emphasis on heavy industries and increased focus on infrastructure development, commenced during the Sixth Five Year Plan, implemented from 1980 to 1985. The primary aim and objectives of this plan included fostering rapid industrialization, enhancing employment levels, alleviating poverty, and achieving technological self-reliance.
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