Indian Economy and Social Development

241 questions

All types241 Multiple choice126 Multiple select32 Numeric10 Matching49 Ordering24

Consider the following statements regarding inequality metrics and poverty measurement concepts:

1. The Palma Ratio is defined as the ratio of the richest 10% of the population's share of gross national income to the poorest 40%'s share.
2. Unlike the Headcount Ratio, the Poverty Gap Ratio accounts for the depth of poverty by measuring the average distance by which poor households fall below the poverty line.
3. Graphically, the Gini Coefficient is calculated as the ratio of the total area under the Lorenz Curve to the total area above the line of perfect equality.

Which of the statements given above are correct?

1 and 2 only

2 and 3 only

1 and 3 only

1, 2 and 3

Show answer & explanation

Answer: 1 and 2 only

Answer

Statements 1 and 2 are correct, while statement 3 is incorrect. Therefore, the correct option is '1 and 2 only'.

The option stating '1 and 2 only' is correct because both statement 1 (defining the Palma Ratio as the ratio of income of the top 10% to the bottom 40%) and statement 2 (defining the Poverty Gap Ratio as measuring the average shortfall/depth of poverty below the threshold) are factually and conceptually accurate. Statement 3 misdefines the geometric ratio for calculating the Gini coefficient.

Step-by-Step Solution

Evaluate Statement 1 regarding the Palma Ratio

Statement 1 is CORRECT.

The Palma Ratio was developed by Gabriel Palma as an alternative to the Gini coefficient. It focuses on income concentration by dividing the top 10% share of national income by the bottom 40% share, based on empirical evidence that the middle 50% usually captures a relatively stable half of national income.

Evaluate Statement 2 regarding the Poverty Gap Ratio

Statement 2 is CORRECT.

While the Headcount Ratio (HCR) merely counts the proportion of the population living below the poverty line without considering how poor they are, the Poverty Gap Ratio measures the mean shortfall from the poverty line expressed as a percentage of the line itself, thus capturing the depth/intensity of poverty.

Evaluate Statement 3 regarding the graphical formulation of the Gini Coefficient

Statement 3 is INCORRECT.

A

is the area between the 45-degree line of perfect equality and the Lorenz curve, and

B

is the area under the Lorenz curve, the total area under the line of equality is

A + B = 0.5

. The Gini Coefficient is given by

G = \frac{A}{A + B} = 2A

. Statement 3 incorrectly states it as the area under the curve divided by the area above it.

Key Concept

Palma Ratio, Poverty Gap Ratio, and Lorenz Curve / Gini Coefficient geometry

Question 62Question →

Which of the following options correctly matches the Constitutional Articles related to Indian Public Finance in List-I with their corresponding provisions in List-II?

Click a left item, then click its matching right item

Show answer & explanation

Answer

Article 265 matches with 'Prohibition of levying or collecting taxes except by authority of law', Article 266(1) matches with 'Consolidated Funds of India and of the States', Article 267 matches with 'Creation of the Contingency Fund of India at the disposal of the President', and Article 280 matches with 'Constitution and recommendations of the Finance Commission'.

Each constitutional provision is matched directly with its core legal definition under Part XII of the Constitution of India.

Step-by-Step Solution

Analyze Article 265.

Article 265 stipulates that taxation requires statutory authorization.

Prevents executive imposition of taxes without legislative enactment.

Analyze Article 266(1).

Article 266(1) establishes the Consolidated Fund.

All revenues, loans raised, and receipts of loan repayments are credited to this fund.

Analyze Article 267.

Article 267 establishes the Contingency Fund.

Placed at the disposal of the President to meet urgent unforeseen expenses pending Parliamentary authorization.

Analyze Article 280.

Article 280 governs the Finance Commission.

Acts as the quasi-judicial body recommending vertical and horizontal fiscal devolution.

Key Concept

Constitutional Framework of Indian Public Finance and Budgetary Provisions

Question 63Question →

When the Reserve Bank of India (RBI) increases the Cash Reserve Ratio (CRR) applicable to commercial banks, what is the immediate impact on the liquidity available in the banking system?

Liquidity in the banking system decreases.

Liquidity in the banking system increases.

Liquidity in the banking system remains completely unaffected.

Commercial banks immediately increase their credit creation capacity.

Show answer & explanation

Answer: Liquidity in the banking system decreases.

Answer

Liquidity in the banking system decreases.

The Cash Reserve Ratio (CRR) is a quantitative monetary policy tool specifying the fraction of total deposits commercial banks must maintain as balance with the Reserve Bank of India. Raising the CRR obligates banks to lock away a larger portion of their funds, directly decreasing their loanable reserves and reducing liquidity in the economy.

Step-by-Step Solution

Recall the definition of Cash Reserve Ratio (CRR).

CRR is the mandatory percentage of Net Demand and Time Liabilities (NDTL) that commercial banks must hold as cash reserves with the RBI.

Understanding the function of CRR is necessary to evaluate its impact on bank reserves.

Analyze the operational effect of raising the CRR.

A higher CRR obligates banks to transfer a larger share of customer deposits into RBI reserve accounts.

This directly reduces the volume of loanable cash remaining with commercial banks.

Determine the resulting change in banking system liquidity.

With fewer lendable resources in the banking sector, liquidity decreases across the economy.

Contracting the amount of money banks can lend absorbs excess money supply from the system.

Key Concept

Cash Reserve Ratio (CRR) and Bank Liquidity Transmission

Question 64Question →

With reference to the planning framework adopted following the abolition of Five-Year Plans in India, consider the following statements:

1. The 3-Year Action Agenda was designed to align with the award period of the Fourteenth Finance Commission.
2. NITI Aayog possesses statutory authority to allocate central financial grants to states based on the evaluation of Action Agendas.
3. The Governing Council of NITI Aayog excludes State Chief Ministers, functioning solely through union cabinet ministers.

Which of the statements given above is/are correct?

1 only

1 and 2 only

2 and 3 only

1, 2 and 3

Show answer & explanation

Answer: 1 only

Answer

1 only

The statement identifying '1 only' is correct. The 3-Year Action Agenda (2017–18 to 2019–20) was framed specifically to align with the timeline of the Fourteenth Finance Commission. NITI Aayog holds no power to allocate central funds to states, and its Governing Council actively includes all State Chief Ministers to uphold cooperative federalism.

Step-by-Step Solution

Evaluate Statement 1 regarding the 3-Year Action Agenda period.

Statement 1 is correct. NITI Aayog replaced Five-Year Plans with a 15-Year Vision, 7-Year Strategy, and 3-Year Action Agenda. The first 3-Year Action Agenda covered 2017-18 to 2019-20 to align with the 14th Finance Commission recommendations.

Synchronization with Finance Commission cycles ensures predictable budgetary support for plan expenditures.

Evaluate Statement 2 regarding NITI Aayog's financial powers.

Statement 2 is incorrect. Unlike the erstwhile Planning Commission, NITI Aayog does not distribute or allocate monetary grants to state governments.

Financial allocations are handled directly by the Ministry of Finance based on Finance Commission recommendations.

Evaluate Statement 3 regarding NITI Aayog's Governing Council structure.

Statement 3 is incorrect. The Governing Council is chaired by the Prime Minister and comprises Chief Ministers of all States and Lt. Governors of Union Territories.

This structure is designed to promote cooperative federalism, ensuring state participation in national policy formulation.

Key Concept

NITI Aayog Framework vs Planning Commission Architecture

Estimated Time:1m 15s

Question 65Question →

In Indian public finance, Part XII of the Constitution governs Centre-State financial relations, assignment of taxation powers, and fiscal transfers. Match the Constitutional Articles in List I with their corresponding financial provisions in List II.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Article 268 corresponds to duties levied by the Union but collected and appropriated by States; Article 269A corresponds to the levy and collection of GST in inter-State trade; Article 271 corresponds to surcharges on Union duties for Union purposes; and Article 275 corresponds to statutory grants-in-aid to States.

The matching correctly pairs each constitutional article with its specific fiscal mechanism under Part XII of the Constitution of India: Article 268 handles Union-levied but State-collected duties; Article 269A regulates inter-State GST; Article 271 governs non-divisible Union surcharges; and Article 275 governs statutory grants-in-aid.

Step-by-Step Solution

Identify the constitutional scope of Article 268

Article 268 deals with stamp duties on bills of exchange, cheques, etc., which are levied by the Union but collected and appropriated entirely by the States.

It forms a distinct category of tax assignment under Centre-State financial relations.

Identify the provision under Article 269A

Article 269A mandates that GST on supplies in the course of inter-State trade or commerce (IGST) is levied and collected by the Government of India and apportioned between the Union and States.

This provision was specifically introduced via the 101st Constitutional Amendment Act, 2016.

Examine the rule regarding surcharges under Article 271

Article 271 allows Parliament to impose a surcharge for Union purposes on taxes listed under Articles 269 and 270, keeping these funds out of the divisible tax pool.

Surcharges do not form part of the tax revenue shared with the States.

Verify statutory grant provisions under Article 275

Article 275 specifies non-statutory and statutory grants-in-aid recommended by the Finance Commission and charged on the Consolidated Fund of India.

This mechanisms bridges fiscal deficits of specific recipient States.

Key Concept

Constitutional Provisions of Indian Public Finance and Taxation Distribution

Estimated Time:2m 0s

Question 66Question →

Which flagship skill certification scheme was launched by the Ministry of Skill Development and Entrepreneurship (MSDE) to enable Indian youth to take up industry-relevant skill training?

Pradhan Mantri Kaushal Vikas Yojana

Deendayal Upadhyaya Grameen Koushalya Yojana

Pradhan Mantri Jan Dhan Yojana

Mahatma Gandhi National Rural Employment Guarantee Scheme

Show answer & explanation

Answer: Pradhan Mantri Kaushal Vikas Yojana

Answer

Pradhan Mantri Kaushal Vikas Yojana

Pradhan Mantri Kaushal Vikas Yojana (PMKVY) was launched by the Ministry of Skill Development and Entrepreneurship to enable youth to undergo industry-relevant skill training, recognize prior learning, and secure gainful employment.

Step-by-Step Solution

Identify the primary objective stated in the question

The target program provides outcome-based, industry-relevant skill training for Indian youth nationwide under MSDE.

Recognizing the implementing nodal ministry and key objective narrows down the applicable scheme.

Evaluate the implementing agency and scheme scope

Pradhan Mantri Kaushal Vikas Yojana (PMKVY) is executed directly through the National Skill Development Corporation (NSDC) under MSDE.

Other listed schemes belong to the Ministry of Rural Development or Ministry of Finance.

Key Concept

Flagship Skill Development Programs in India

Estimated Time:45s

Question 67Question →

Consider the following statements regarding the Constitutional framework of fiscal federalism and tax revenue distribution between the Union and the States in India:

1. The net proceeds of cesses and surcharges levied by the Union Government under Article 271 form an integral part of the divisible pool redistributed among States based on Finance Commission recommendations.
2. Under Article 269A, Goods and Services Tax (GST) on supplies in the course of inter-State trade or commerce is levied and collected by the Government of India and apportioned between the Union and the States.
3. According to Article 270, all taxes and duties levied and collected by the Union, except those specified in Articles 268, 269, and 269A, and statutory surcharges/cesses, are distributed between the Union and the States.

Which of the statements given above are correct?

1 and 2 only

2 and 3 only

1 and 3 only

1, 2 and 3

Show answer & explanation

Answer: 2 and 3 only

Answer

Statements 2 and 3 are correct.

The option selecting statements 2 and 3 is correct. Under Article 269A, IGST on inter-State supplies is levied and collected by the Union and apportioned to States. Article 270 comprehensively defines the divisible pool of Central taxes while specifically excluding Articles 268, 269, 269A, and Article 271 surcharges/cesses. Statement 1 is incorrect because Article 271 surcharges accrue exclusively to the Union and do not enter the divisible pool.

Step-by-Step Solution

Evaluate Statement 1 regarding Article 271 and surcharges/cesses.

Statement 1 is false. Under Article 271 of the Constitution of India, any surcharge levied by Parliament for Union purposes goes entirely to the Consolidated Fund of India and is not part of the divisible pool shared with States.

Constitutional provisions explicitly keep surcharges and earmarked cesses outside the purview of Finance Commission devolution under Article 270.

Evaluate Statement 2 regarding Article 269A and Integrated GST (IGST).

Statement 2 is true. Article 269A mandates that GST on inter-State trade/commerce (IGST) is levied and collected by the Centre and apportioned between the Union and States as per Parliamentary law.

This provision was inserted by the 101st Constitutional Amendment Act, 2016, to handle cross-border supply of goods and services.

Evaluate Statement 3 regarding Article 270 and the divisible pool.

Statement 3 is true. Article 270 defines the divisible pool of taxes, including all Union taxes except those under Articles 268, 269, 269A, and surcharges/cesses under Article 271.

Taxes under Article 270 are shared between Centre and States according to the vertical devolution percentage recommended by the Finance Commission.

Key Concept

Constitutional Division of Tax Revenues and Divisible Pool Rules (Articles 268-271)

Question 68Question →

Consider the following statements regarding the Public Funds of India under the constitutional framework of public finance:

1. Parliamentary authorization is mandatory for all withdrawals made from the Consolidated Fund of India as well as the Public Account of India.
2. The Contingency Fund of India is placed at the disposal of the President of India to meet unforeseen expenditure pending authorization by Parliament.
3. National Small Savings Fund deposits, provident fund receipts, and judicial deposits are credited to the Public Account of India.

Which of the statements given above is/are correct?

1 and 2 only

2 and 3 only

1 and 3 only

1, 2 and 3

Show answer & explanation

Answer: 2 and 3 only

Answer

2 and 3 only

The statement specifying '2 and 3 only' is correct. The Contingency Fund of India (Article 267) is held by the Finance Secretary on behalf of the President to meet urgent unforeseen expenses. The Public Account of India (Article 266(2)) handles banking-type transactions such as provident funds, small savings, and judicial deposits, which do not belong strictly to the government and do not require prior parliamentary sanction for withdrawal. Only the Consolidated Fund of India strictly mandates prior parliamentary authorization through an Appropriation Act.

Step-by-Step Solution

Analyze Statement 1 regarding Parliamentary authorization for Public Funds.

Statement 1 is incorrect.

Under Article 266(1), withdrawals from the Consolidated Fund of India require an Appropriation Act passed by Parliament. However, under Article 266(2), the Public Account of India accounts for money received on behalf of third parties (e.g., provident funds, small savings), and payments from this account can be made by executive action without parliamentary approval.

Evaluate Statement 2 regarding the Contingency Fund of India.

Statement 2 is correct.

Under Article 267(1), the Contingency Fund of India is established at the disposal of the President of India to make advances for meeting unforeseen expenditures pending authorization by Parliament.

Evaluate Statement 3 regarding receipts under the Public Account of India.

Statement 3 is correct.

Public money received by or on behalf of the Government of India that is not credited to the Consolidated Fund of India (such as small savings, provident funds, and judicial deposits) is credited to the Public Account of India.

Key Concept

Constitutional provisions for Public Funds of India (Consolidated Fund, Public Account, and Contingency Fund)

Estimated Time:1m 15s

Question 69Question →

National income estimation in India has evolved through significant individual scientific contributions, institutional setups, and major methodological revisions. Arrange the following historical milestones in the evolution of National Income Accounting in India in correct chronological order from the earliest to the latest.

Drag items to arrange them in the correct order

Show answer & explanation

Answer

The correct chronological sequence from earliest to latest is: (1) Dr. V.K.R.V. Rao's scientific estimation (1931–32), (2) Constitution of the Mahalanobis National Income Committee (1949), (3) Establishment of the Central Statistical Organisation (1951), and (4) Adoption of the 2011–12 base year with GVA at basic prices (2015).

The correct chronological progression begins with Dr. V.K.R.V. Rao's pioneering scientific work for the 1931–32 estimation. Post-independence, the Government formed the National Income Committee under Prof. P.C. Mahalanobis in August 1949. To institutionalize national income compilation, the Central Statistical Organisation was established in May 1951. Modern structural accounting reforms occurred in January 2015 with the revision of the base year to 2011–12 and the introduction of GVA at basic prices.

Step-by-Step Solution

Identify the timeline of pre-independence national income estimation milestones.

Dr. V.K.R.V. Rao provided the first scientific and conceptual estimation of national income for 1931–32 (published in 1940), improving upon early unscientific estimates like Dadabhai Naoroji's (1867–68).

Establishing the earliest historical benchmark.

Determine the date of post-independence committee formation.

The National Income Committee was appointed by the Government of India in August 1949 under Prof. P.C. Mahalanobis, with Prof. D.R. Gadgil and Dr. V.K.R.V. Rao as members.

This formed the first official post-independence institutional framework.

Identify the creation of the permanent statistical body.

The Central Statistical Organisation (CSO) was established in May 1951 under the Cabinet Secretariat to handle national accounts compilation permanently.

This institutionalized regular national income estimation in India.

Identify the modern methodological revision milestone.

In January 2015, the CSO revised the base year from 2004–05 to 2011–12 and aligned Indian accounting standards with System of National Accounts (SNA) 2008 by introducing GVA at basic prices.

This marks the latest structural overhaul in the national income accounting framework.

Key Concept

Chronological evolution of National Income estimation and accounting methodology in India.

Question 70Question →

Consider the following statements regarding demographic indicators, official employment metrics, and skill development initiatives in India:

1. The demographic dividend phase is mathematically reflected by a declining Total Dependency Ratio, which occurs when the proportion of the working-age population ( $15-64$ years) increases relative to the dependent age groups ( $0-14$ and $65+$ years).
2. Under the Periodic Labour Force Survey (PLFS) framework, the Worker Population Ratio (WPR) is defined as the percentage of employed persons relative to the total labor force.
3. The National Apprenticeship Promotion Scheme (NAPS) is administered by the Ministry of Skill Development and Entrepreneurship (MSDE) and provides financial co-sharing of stipends to encouraging establishments.

Which of the statements given above are correct?

1 and 3 only

1 and 2 only

2 and 3 only

1, 2 and 3

Show answer & explanation

Answer: 1 and 3 only

Answer

Statements 1 and 3 are correct, while statement 2 is incorrect.

Statement 1 accurately describes the demographic dividend mechanism where an expanding working-age demographic (

15-64

years) lowers the overall dependency ratio. Statement 3 correctly identifies that the National Apprenticeship Promotion Scheme (NAPS) is executed by MSDE to provide partial stipend funding to apprenticeship providers. Statement 2 is incorrect because the Worker Population Ratio (WPR) measures employed individuals as a proportion of the entire population, rather than strictly those within the labor force.

Step-by-Step Solution

Analyze Statement 1 regarding demographic dividend metrics.

The Total Dependency Ratio is given by

\frac{\text{Population}(0-14) + \text{Population}(65+)}{\text{Population}(15-64)} \times 100

. A shift towards a higher proportion of working-age population reduces this ratio, defining the demographic dividend window. Statement 1 is correct.

Demographic dividend represents economic growth potential resulting from shifts in a population's age structure.

Analyze Statement 2 regarding PLFS employment definitions.

By National Sample Survey Office (NSSO)/PLFS definitions, Labour Force Participation Rate (LFPR) =

\frac{\text{Labour Force}}{\text{Total Population}} \times 100

, while Worker Population Ratio (WPR) =

\frac{\text{Employed Persons}}{\text{Total Population}} \times 100

. The denominator for WPR is the total population, NOT the labor force. Statement 2 is incorrect.

Distinguishing between population-based rates (LFPR, WPR) and labor force-based rates (Unemployment Rate) is crucial for accurate macroeconomic interpretation.

Analyze Statement 3 regarding National Apprenticeship Promotion Scheme (NAPS).

NAPS was launched by the Ministry of Skill Development and Entrepreneurship (MSDE) to incentivize employers to engage apprentices by sharing

25\%

of prescribed stipend (up to a ceiling). Statement 3 is correct.

Verifying nodal ministry and primary operational mechanisms of major national skill initiatives.

Key Concept

Demographic Dividend Ratios, PLFS Labor Market Indicators, and National Skill Framework Architecture

Question 71Question →

In a sample economy comprising $5$ individuals, the daily per capita consumption expenditures are recorded as $₹20$ , $₹30$ , $₹40$ , $₹50$ , and $₹110$ . The official poverty line for this economy is established at $₹50$ per day. What is the Poverty Gap Index ( $PGI$ ) of this economy, expressed as a percentage?

Show answer & explanation

Answer: 24

Answer

The Poverty Gap Index of the economy is 24%

The Poverty Gap Index (

PGI

) is calculated as the average of normalized poverty gaps across the entire population:

PGI = \frac{1}{N} \sum_{i=1}^{N} \left(\frac{Z - y_i}{Z}\right)

for all

y_i < Z

. For this population (

N=5

Z=50

), the normalized gaps are

0.60

0.40

0.20

0

, and

0

. Taking the mean gives

1.20 / 5 = 0.24

, which equals

24\%

Step-by-Step Solution

Identify poor individuals and determine consumption shortfalls relative to the poverty line

Three individuals have expenditures below

₹50

, with shortfalls of

₹30

₹20

, and

₹10

Poverty gap measures depth of poverty, considering only individuals below or at the poverty line (

y_i \le Z

Calculate the normalized poverty gap for each individual

Normalized gaps are

0.60

0.40

0.20

0.00

, and

0.00

Normalizing by the poverty line (

Z

) expresses individual shortfalls as proportions of

Z

Sum normalized gaps and average over total population N

PGI = \frac{1}{5} (0.60 + 0.40 + 0.20 + 0 + 0) = 0.24

24\%

The Poverty Gap Index formula is

PGI = \frac{1}{N} \sum_{i=1}^{N} \frac{\max(0, Z - y_i)}{Z}

Key Concept

Poverty Gap Index (PGI) calculation and intensity of poverty measurement

Question 72Question →

Match the Reserve Bank of India (RBI) monetary policy instruments in List I with their correct operational descriptions in List II.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Cash Reserve Ratio (CRR) corresponds to mandatory cash balances kept with the RBI; Statutory Liquidity Ratio (SLR) corresponds to holding liquid assets like cash, gold, or government securities; Marginal Standing Facility (MSF) corresponds to the overnight borrowing facility at a penal rate; Open Market Operations (OMO) correspond to the direct buying and selling of government securities.

Cash Reserve Ratio (CRR) represents cash reserves parked with the RBI, Statutory Liquidity Ratio (SLR) represents liquid assets maintained by banks themselves, Marginal Standing Facility (MSF) represents overnight penal borrowing from the RBI, and Open Market Operations (OMO) represent the purchase and sale of government securities.

Step-by-Step Solution

Identify the defining feature of Cash Reserve Ratio (CRR)

CRR requires banks to keep cash reserves exclusively with the RBI based on a percentage of their NDTL.

CRR is held purely in cash form with the central bank.

Identify the defining feature of Statutory Liquidity Ratio (SLR)

SLR mandates banks to maintain liquid reserves (gold, approved securities, cash) themselves.

It ensures the solvency of banks and drives investment in government securities.

Determine the operational mechanism of Marginal Standing Facility (MSF)

MSF provides scheduled banks an overnight liquidity window during acute cash shortages at a penal rate.

It acts as a lender-of-last-resort overnight emergency facility.

Determine the operational mechanism of Open Market Operations (OMO)

OMO consists of the sale and purchase of government bonds by the RBI to regulate liquidity levels.

Selling G-Secs absorbs excess liquidity while buying G-Secs injects rupee liquidity into the financial system.

Key Concept

Quantitative Tools of RBI Monetary Policy

Question 73Question →

Chronologically arrange the following historical milestones and policy initiatives related to Indian economic planning and structural reforms from the earliest to the latest:

Drag items to arrange them in the correct order

Show answer & explanation

Answer

The correct chronological sequence from earliest to latest is: 1) Formation of the National Planning Committee (1938), 2) Introduction of the Rolling Plan concept (1978), 3) Appointment of the Tax Reforms Committee chaired by Raja Chelliah (1991), and 4) Establishment of NITI Aayog (2015).

The correct sequence follows the precise historical timeline of Indian planning and structural reform milestones: National Planning Committee (1938), Rolling Plan (1978), Raja Chelliah Tax Reforms Committee (1991), and NITI Aayog establishment (2015).

Step-by-Step Solution

Determine the year of establishment for the National Planning Committee.

1938

The committee was formed pre-independence to formulate a comprehensive planning blueprint for India.

Determine the period when the Rolling Plan concept was introduced.

1978

It was introduced by the Janata Party administration for 1978–1980 after ending the Fifth Five-Year Plan a year early.

Identify the year of constitution for the Raja Chelliah Tax Reforms Committee.

1991

The committee was set up immediately following the 1991 economic crisis to guide structural tax reforms.

Determine the date of NITI Aayog's establishment.

2015

NITI Aayog came into effect on January 1, 2015, replacing the 65-year-old Planning Commission.

Key Concept

Chronological Evolution of Planning History and Economic Reforms in India

Question 74Question →

Which of the following statements regarding demographic dividend and employment types in India are correct?

Select all that apply

Demographic dividend refers to the economic growth potential that arises when the proportion of the working-age population (15 to 64 years) is higher than the dependent population.

Disguised unemployment is a scenario where more workers are employed in an activity than required, making the marginal productivity of additional labor zero.

Frictional unemployment occurs due to long-term structural shifts in the economy that create a permanent skill mismatch among workers.

Seasonal unemployment is most commonly observed in the formal Information Technology (IT) sector during annual performance cycles.

Show answer & explanation

Answer: Demographic dividend refers to the economic growth potential that arises when the proportion of the working-age population (15 to 64 years) is higher than the dependent population.; Disguised unemployment is a scenario where more workers are employed in an activity than required, making the marginal productivity of additional labor zero.

Answer

The statements defining demographic dividend as a high proportion of working-age population and disguised unemployment as labor engagement with zero marginal productivity are correct.

The statements accurately capture that demographic dividend is driven by an expanded working-age demographic (15-64 years) and that disguised unemployment features surplus labor with zero marginal productivity.

Step-by-Step Solution

Evaluate the definition of Demographic Dividend

Confirmed correct: It represents economic growth potential driven by a higher ratio of working-age individuals (15–64 years) relative to dependents.

Demographic transition reduces dependency ratios, allowing greater savings and investments.

Evaluate the definition of Disguised Unemployment

Confirmed correct: It refers to hidden unemployment where extra labor contribution yields zero marginal output.

This is a characteristic feature of primary sectors like agriculture in developing economies.

Evaluate the statement on Frictional Unemployment

Identified incorrect: Permanent structural skill mismatch defines structural unemployment, whereas frictional unemployment is short-term job search time.

Distinguishing between short-term job search dynamics and long-term structural changes.

Evaluate the statement on Seasonal Unemployment

Identified incorrect: Seasonal unemployment affects agro-based and seasonal businesses, not formal corporate IT sectors.

Industry characteristics dictate seasonal work patterns.

Key Concept

Demographic Dividend and Employment Classifications

Estimated Time:1m 0s

Question 75Question →

Consider the following statements regarding the mechanism of fiscal transfers and grants-in-aid under the Indian Constitution:

1. Statutory grants under Article 275 are awarded on the recommendations of the Finance Commission and are charged directly upon the Consolidated Fund of India.
2. Discretionary grants under Article 282 permit both the Union and the States to make financial grants for any public purpose, outside the obligatory recommendations of the Finance Commission.
3. Special capital and revenue grants provided to states for promoting the welfare of Scheduled Tribes or raising the administration level of Scheduled Areas are governed under Article 282.

Which of the statements given above are correct?

1 and 2 only

2 and 3 only

1 and 3 only

1, 2, and 3

Show answer & explanation

Answer: 1 and 2 only

Answer

Statements 1 and 2 are correct, while Statement 3 is incorrect.

The correct response identifies that Statements 1 and 2 accurately describe Constitutional fiscal provisions. Statutory grants under Article 275 are non-tax transfers recommended by the Finance Commission and charged to the Consolidated Fund of India. Discretionary grants under Article 282 allow policy-driven transfers for any public purpose. Statement 3 misidentifies tribal welfare grants, which are constitutionally anchored in the proviso of Article 275(1).

Step-by-Step Solution

Analyze Statement 1 regarding Article 275

Statement 1 is correct.

Article 275 empowers Parliament to make grants-in-aid to states in need of assistance on the recommendation of the Finance Commission. These statutory grants are charged on the Consolidated Fund of India.

Analyze Statement 2 regarding Article 282

Statement 2 is correct.

Article 282 is a miscellaneous financial provision enabling both the Union and States to allocate grants for any public purpose, regardless of whether that purpose falls within their legislative jurisdiction. These lie outside the Finance Commission statutory devolution framework.

Analyze Statement 3 regarding Tribal Area Grants

Statement 3 is incorrect.

Grants for schemes promoting the welfare of Scheduled Tribes or raising the level of administration of Scheduled Areas in a state are specifically provided under the second proviso to Article 275(1), making them statutory grants under Article 275, not discretionary grants under Article 282.

Key Concept

Constitutional provisions governing statutory grants (Article 275) versus discretionary public purpose grants (Article 282) in Indian public finance.

Estimated Time:1m 30s

Question 76Question →

In the context of India's Balance of Payments (BoP) accounting, which of the following is classified as a component of the Current Account?

Foreign Direct Investment (FDI)

Remittances received from workers abroad

External Commercial Borrowings (ECBs)

Portfolio investment by Foreign Institutional Investors (FIIs)

Show answer & explanation

Answer: Remittances received from workers abroad

Answer

Remittances received from workers abroad are classified as a component of the Current Account in India's Balance of Payments.

Remittances received from Indian workers abroad constitute unilateral transfer payments and are listed under the invisibles section of the Current Account. They do not alter the debt or asset liability position of the nation.

Step-by-Step Solution

Identify the main components of the Balance of Payments

BoP consists of the Current Account (trade in goods, services, income, and transfer payments) and the Capital Account (FDI, FPI, loans, and external borrowings).

Categorizing transactions depends on whether they alter foreign financial assets/liabilities or represent trade and unilateral transfers.

Analyze remittances from workers abroad

Remittances fall under private unilateral transfers under the 'Invisibles' section of the Current Account.

Transfers do not create future claims, debt liabilities, or asset ownership shifts.

Key Concept

Classification of Current Account versus Capital Account items in Balance of Payments

Question 77Question →

With reference to inflation metrics, price indices, and liquidity control mechanisms in India, consider the following statements:

1. Core inflation excludes food and fuel/energy groups from headline inflation to capture underlying, long-term price dynamics.
2. The Consumer Price Indices for Industrial Workers (CPI-IW) and Agricultural Labourers (CPI-AL) are compiled and published monthly by the National Statistical Office (NSO).
3. An increase in the Statutory Liquidity Ratio (SLR) by the Reserve Bank of India increases the credit creation capacity of commercial banks, thereby intensifying demand-pull inflation.

Which of the statements given above is/are correct?

1 only

1 and 2 only

1 and 3 only

1, 2 and 3

Show answer & explanation

Answer: 1 only

Answer

1 only

The option stating '1 only' is correct because statement 1 accurately defines core inflation by excluding volatile food and fuel components. Statement 2 wrongly attributes CPI-IW and CPI-AL compilation to the NSO instead of the Labour Bureau. Statement 3 incorrectly claims an increased SLR expands bank lending capacity, whereas raising SLR actually impounds bank liquidity to contract credit and lower demand-pull inflation.

Step-by-Step Solution

Evaluate Statement 1 regarding Core Inflation

Statement 1 is CORRECT.

Core inflation is calculated by stripping away transient and volatile components—specifically food and fuel/energy items—from Headline Inflation. This provides monetary authorities with a clearer picture of underlying price stability and demand trends.

Evaluate Statement 2 regarding CPI Releasing Agencies

Statement 2 is INCORRECT.

The National Statistical Office (NSO) under MoSPI compiles CPI (Rural, Urban, Combined). However, sector-specific consumer price indices such as CPI for Industrial Workers (CPI-IW), CPI for Agricultural Labourers (CPI-AL), and CPI for Rural Labourers (CPI-RL) are compiled and released by the Labour Bureau (an attached office of the Ministry of Labour and Employment).

Evaluate Statement 3 regarding SLR and Liquidity Control

Statement 3 is INCORRECT.

Statutory Liquidity Ratio (SLR) is a quantitative monetary tool. When the RBI increases the SLR, commercial banks must maintain a larger proportion of Net Demand and Time Liabilities (NDTL) in safe liquid assets (like government securities). This reduces the available lendable surplus with banks, contracting money supply and suppressing demand-pull inflation, rather than expanding credit.

Key Concept

Inflation Dynamics, Specific CPI Publishing Agencies, and Quantitative Monetary Transmission

Question 78Question →

According to the budget estimates of a state government for the financial year 2025–26, total expenditure is estimated at ₹ $1,20,000$ crore, while total receipts excluding borrowings are estimated at ₹ $85,000$ crore. If the state's revenue receipts are ₹ $75,000$ crore, revenue expenditure is ₹ $95,000$ crore, and interest payments on previous debts account for ₹ $12,500$ crore, what is the Primary Deficit of the state for the financial year 2025–26 (in ₹ crore)?

Show answer & explanation

Answer: 22500

Answer

The Primary Deficit of the state for the financial year 2025–26 is ₹22,500 crore.

Primary Deficit indicates the net borrowing requirement of the government to fulfill current fiscal commitments, excluding past debt obligations. Gross Fiscal Deficit is calculated as Total Expenditure minus Non-debt Receipts: ₹1,20,000 crore - ₹85,000 crore = ₹35,000 crore. Subtracting the interest payments of ₹12,500 crore yields a Primary Deficit of ₹22,500 crore.

Step-by-Step Solution

Calculate the Fiscal Deficit of the state.

Fiscal Deficit = ₹1,20,000 crore - ₹85,000 crore = ₹35,000 crore.

Fiscal deficit measures the total borrowing requirements of the government, defined as the excess of total expenditure over total non-debt receipts.

Subtract Interest Payments from the Fiscal Deficit to compute the Primary Deficit.

Primary Deficit = ₹35,000 crore - ₹12,500 crore = ₹22,500 crore.

Primary deficit reflects the government's borrowing requirement for current expenses exclusive of past interest obligations.

Key Concept

Primary Deficit and Fiscal Deficit Metrics

Question 79Question →

In the context of public finance and government budgeting in India, which of the following transactions are classified as Capital Receipts in the Union Budget?

Select all that apply

Recovery of loans and advances extended by the Union Government to State Governments

Disinvestment proceeds realized from the equity sale of Central Public Sector Enterprises

Interest payments received on loans given by the Union Government to States and public enterprises

Market loans and treasury bill issuances raised by the Central Government

Show answer & explanation

Answer: Recovery of loans and advances extended by the Union Government to State Governments; Disinvestment proceeds realized from the equity sale of Central Public Sector Enterprises; Market loans and treasury bill issuances raised by the Central Government

Answer

The transactions classified as Capital Receipts in the Union Budget are the recovery of loans extended to State Governments, disinvestment proceeds from public sector enterprises, and market borrowings/treasury bill issuances.

Capital Receipts consist of receipts that create financial liabilities (such as market loans, treasury bills, and small savings) or reduce government assets (such as loan recoveries and disinvestment proceeds). Recovery of loans, disinvestment proceeds, and market borrowings satisfy these exact criteria.

Step-by-Step Solution

Analyze the constitutional and accounting criteria for Capital Receipts versus Revenue Receipts

Capital Receipts are defined as government receipts that either create a financial liability or cause a reduction in financial/physical assets.

Understanding the fundamental definition distinguishes receipts that impact net liability/asset positions from routine income.

Evaluate non-debt capital receipts

Recovery of loans reduces the asset balance of loans outstanding, while disinvestment reduces the equity holdings (assets) of the government.

Both transactions liquidate existing government assets, fitting the criteria for non-debt capital receipts.

Evaluate debt capital receipts and revenue receipts

Market borrowings create a debt liability (Capital Receipt). Conversely, interest payments received represent return on assets without altering the capital asset base or creating liabilities, making them Non-Tax Revenue Receipts.

Interest earned is classified under revenue receipts as it is a recurring return on capital, whereas borrowings increase public debt liability.

Key Concept

Classification of Union Budget Receipts: Capital Receipts (Debt and Non-Debt) vs. Revenue Receipts

Estimated Time:1m 15s

Question 80Question →

Consider the following statements regarding the national income accounting methodology adopted in India:

Statement I: Gross Value Added (GVA) at basic prices includes production taxes and excludes production subsidies.
Statement II: Gross Domestic Product (GDP) at market prices is derived by adding product taxes and subtracting product subsidies from GVA at basic prices.
Statement III: The GDP deflator reflects price changes across all domestically produced final goods and services, whereas the Consumer Price Index (CPI) covers a specific basket of consumer goods that includes imported goods.

Which of the statements given above are correct?

1 and 2 only

2 and 3 only

1 and 3 only

1, 2 and 3

Show answer & explanation

Answer: 1, 2 and 3

Answer

All three statements (1, 2 and 3) are correct.

All three statements are conceptually and methodologically correct. Statement I accurately states that GVA at basic prices equals factor cost plus production taxes minus production subsidies. Statement II accurately defines the transition from GVA at basic prices to GDP at market prices by adding net product taxes (product taxes minus product subsidies). Statement III correctly captures the key conceptual distinction between the GDP deflator (which covers all domestic production) and CPI (which covers a fixed consumer basket including imported items).

Step-by-Step Solution

Analyze Statement I regarding GVA at basic prices

Basic Price = Factor Cost + Production Taxes - Production Subsidies. Production taxes/subsidies are independent of actual production volume (e.g., land revenues, stamp registration fees, land subsidies). Thus, Statement I is correct.

Verify the structural definition of GVA at basic prices established by the Central Statistics Office.

Analyze Statement II regarding GDP at market prices

GDP at Market Prices = GVA at basic prices + Product Taxes - Product Subsidies. Product taxes/subsidies depend directly on volume produced/sold (e.g., GST, excise duties). Thus, Statement II is correct.

Verify the conversion link between sectoral GVA aggregates and economy-wide aggregate GDP.

Analyze Statement III regarding price deflator coverage

The GDP deflator measures price changes for the entire basket of domestically produced final goods and services (including capital equipment and exports). CPI measures prices of a specific, fixed retail consumer basket that includes imported consumption goods. Thus, Statement III is correct.

Distinguish between comprehensive national accounts deflators and targeted price index series.

Key Concept

National Income Accounting Identifies, Basic Prices vs Market Prices, and Price Deflators

Estimated Time:1m 30s

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