There were 21 Questions from Economy in 2020, of which

• 5 Questions were related to Economy Basics (Interest Coverage Ratio, Non-Financial Debt, Public Investment, Price, WPI & CPI)
• 4 Questions were related to Money & Banking (Money Supply, Monetary Policy, Short-term Credit, KCC)
• 3 Questions were related to Agriculture (MSP, Pulses, Chemical Fertilisers)
• 3 Questions were related to Balance of Payments (Global Financial Crisis, FDI, India- South Asia Trade)
• 2 Questions were related to International Institutions (TRIMS, Reserve Tranche)
• 1 Question was related to Money Market (CP & CD)
• 1 Question was related to Fiscal Policy (FRBM)
• 1 Question was related to Economic Liberalisation
• 1 Question was related to International Trade (West Texas Intermediate)

Examiner tested candidates’ knowledge of basic concepts and understanding of current issues in Economy.

The level of the questions was easy to moderate.

Previous Year UPSC Economy Questions (PYQs) With Explanation 2020

1. Along with the Budget, the Finance Minister also places other documents before the Parliament which includes “The Macro-Economic Framework Statement’. The aforesaid document is presented because this is mandated by 

(a) Long-standing parliamentary convention 

(b) Article 112 and Article 110(1) of the Constitution of India 

(c) Article 113 of the Constitution of India 

(d) Provisions of the Fiscal Responsibility and Budget Management Act, 2003 

Answer: d

Explanation:

Fiscal Responsibility and Budget Management Act, 2003 

This is an Act to provide for the responsibility of the Central Government to ensure intergenerational equity in fiscal management and long-term macro-economic stability by removing fiscal impediments in the effective conduct of monetary policy and prudential debt management consistent with fiscal sustainability through limits on the Central Government borrowings, debt and deficits, greater transparency in fiscal operations of the Central Government and conducting fiscal policy in a medium-term framework and for matters connected therewith or incidental thereto.

As per the Act the Central Government shall lay in each financial year before both Houses of Parliament the following statements of fiscal policy along with the annual financial statement (budget) and [demands for grants except the Medium-term Expenditure Framework Statement], namely:— 

• (a) the Medium-term Fiscal Policy Statement; 
• (b) the Fiscal Policy Strategy Statement; 
• (c) the Macro-economic Framework Statement; 
• (d) the Medium-term Expenditure Framework Statement.

Hence, option d is correct.

2. What is the importance of the term “Interest Coverage Ratio” of a firm in India? 

1. It helps in understanding the present risk of a firm to that a bank is going to give a loan to. 

2. It helps in evaluating the emerging risk of a firm to that a bank is going to give loan to. 

3. The higher a borrowing firm’s level of Interest Coverage Ratio, the worse is its ability to service its debt. 

Select the correct answer using the code given below. 

(a) 1 and 2 only

 (b) 2 only 

(c) 1 and 3 only 

(d) 1, 2 and 3 

Answer: a

Explanation:

Interest Coverage Ratio 

It is a ratio which deals with the servicing of interest on loan. It is a measure of security of interest payable on long-term debts. It expresses the relationship between profits available for payment of interest and the amount of interest payable. 

The interest coverage ratio measures how well a firm can pay the interest due on outstanding debt.

The interest coverage ratio helps lenders, investors, and creditors determine a company’s riskiness for future borrowing.

Hence, statements 1 and 2 are correct.

It is calculated as follows: 

Interest Coverage Ratio = Net Profit before Interest and Tax / Interest on long-term debts 

Significance: It reveals the number of times interest on long-term debts is covered by the profits available for interest. A higher ratio ensures safety of interest on debts.

Hence, statement 3 is incorrect.

3. If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India? 

1. Not depending on short-term foreign borrowings 

2. Opening up to more foreign banks 

3. Maintaining full capital account convertibility 

Select the correct answer using the code given below: 

(a) 1 only 

(b) 1 and 2 only 

(c) 3 only 

(d) 1, 2 and 3 

Answer: a

Explanation:

In the era of globalisation countries are inter-related financially, the deeper the financial relations, the more is advantage, since it permits the free movement of capital. However, if any crisis arises the deeper the financial relations, the harder is the impact of the crisis.

In case of setting up of more foreign banks, more is the chance of getting impacted by the global crisis. 

The Tarapore Committee (2006), defined capital account convertibility as the “freedom to convert local financial assets into foreign financial assets and vice versa.”  Full capital account convertibility facilitates easy flight of capital, as experienced during East-Asian crisis. 

Depending on short-term foreign borrowings leads to uncertainties during the financial crisis.

Hence, statement 1 is correct and 2 and 3 are incorrect.

4. If you withdraw Rs. 1,00,000 in cash from your Demand Deposit Account at your bank, the immediate effect on the aggregate money supply in the economy will be 

(a) to reduce it by Rs. 1,00,000 

(b) to increase it by Rs. 1,00,000 

(c) to increase it by more than Rs. 1,00,000 

(d) to leave it unchanged 

Answer: d

Explanation:

Money Supply =  CU+DD

CU = Currency with public

DD = Demand Deposits

In the above case if 1 lakh is withdrawn, demand deposit will reduce by 1 lakh and currency held by public will increase by 1 lakh. So there won’t be any immediate change in the money supply in the economy.

Hence, option d is correct.

5. With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic? 

(a) It is the investment through capital instruments essentially in a listed company.

(b) It is a largely non-debt-creating capital flow. 

(c) It is the investment that involves debt-servicing. 

(d) It is the investment made by foreign institutional investors in the Government Securities. 

Answer: b

Explanation:

Concept of FDI as per OECD

Foreign direct investment reflects the objective of obtaining a lasting interest by a resident entity in one economy (‘‘direct investor’’) in an entity resident in an economy other than that of the investor (‘‘direct investment enterprise’’). The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence on the management of the enterprise. Direct investment involves both the initial transaction between the two entities and all subsequent capital transactions between them and among affiliated enterprises, both incorporated and unincorporated. 

According to RBI, in India, Foreign Direct Investment (‘FDI’) means investment through equity instruments by a person resident outside India in an unlisted Indian company; or in 10% or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company. 

Advantage of FDI:

• Non- debt creating capital inflows
• Technology transfer- modern skills, innovation and new ideas
• Such an investment is not a burden on taxpayer
• Profits are reinvested in modernisation and expansion of existing units
• Makes real addition to the productive capacity of the capital importing countries

Foreign Portfolio Investment

Portfolio investment includes investments by a resident entity in one country in the equity and debt securities of an enterprise resident in another country which seek primarily capital gains and do not necessarily reflect a significant and lasting interest in the enterprise. The category includes investments in bonds, notes, money market instruments and financial derivatives other than those included under direct investment, or in other words, investments which are both below the ten per cent rule and do not involve affiliated enterprises. In addition to securities issued by enterprises, foreigners can also purchase sovereign bonds issued by governments.

Hence, option b is correct.

6. In the context of the Indian economy, non-financial debt includes which of the following?

1. Housing loans owed by households

 2. Amounts outstanding on credit cards 

3. Treasury bills 

Select the correct answer using the code given below: 

(a) 1 only 

(b) 1 and 2 only 

(c) 3 only 

(d) 1, 2 and 3 

Answer: d

Explanation:

Non Financial Sectors includes three major domestic economic sectors – House holds (HH), non-financial companies (NFCs; private and state-owned) and general government (GG; Center + States). 

Hence, option d is correct.

7. With reference to Trade-Related Investment Measures (TRIMS), which of the following statements is/are correct?

1. Quantitative restrictions on imports by foreign investors are prohibited. 

2. They apply to investment measures related to trade in both goods and services. 

3. They are not concerned with the regulation of foreign investment. 

Select the correct answer using the code given below: 

(a) 1 and 2 only 

(b) 2 only 

(c) 1 and 3 only 

(d) 1, 2 and 3 

Answer: c

Explanation:

Trade-Related Investment Measures (TRIMS)

The Agreement on Trade-Related Investment Measures (TRIMS) recognizes that certain investment measures can restrict and distort trade.  It states that WTO members may not apply any measure that discriminates against foreign products or that leads to quantitative restrictions, both of which violate basic WTO principles.  A list of prohibited TRIMS, such as local content requirements, is part of the Agreement.  The TRIMS Committee monitors the operation and implementation of the Agreement.

Hence statement 1 is correct.

The coverage of the Agreement is defined in Article 1, which states that the Agreement applies to investment measures related to trade in goods only. Thus, the TRIMs Agreement does not apply to services.

Hence statement 2 is incorrect.

The term “trade-related investment measures” (“TRIMs”) is not defined in the Agreement. As an agreement that is based on existing GATT disciplines on trade in goods, the Agreement is not concerned with the regulation of foreign investment. 

Hence statement 3 is correct.

8. If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do? 

1. Cut and optimize the Statutory Liquidity Ratio 

2. Increase the Marginal Standing Facility Rate 

3. Cut the Bank Rate and Repo Rate 

Select the correct answer using the code given below: 

(a) 1 and 2 only 

(b) 2 only 

(c) 1 and 3 only 

(d) 1, 2 and 3 

Answer: b

Explanation 

Expansionary Monetary Policy Explained: Expansionary monetary policy, often referred to as loose monetary policy, involves increasing the supply of money and credit in the economy to stimulate growth. Central banks typically implement this policy during challenging economic conditions as a strategy to reduce unemployment and encourage investment.

The primary objective of expansionary monetary policy is to promote consumer spending and borrowing. This is achieved by lowering interest rates, which makes loans more accessible and affordable for individuals and businesses. According to economic principles, an increased availability of capital at reduced costs encourages consumers and businesses to purchase more goods and services, thereby stimulating economic growth.. 

Cut and optimize the Statutory Liquidity Ratio – leads to decrease in interest rate

Increase the Marginal Standing Facility Rate-  leads to an increase in interest rate

Cut the Bank Rate and Repo Rate- leads to decrease in interest rate

Hence, option b is correct.

9. With reference to the Indian economy after the 1991 economic liberalization, consider the following statements: 

1. Worker productivity (rs. per worker at 2004-05 prices) increased in urban areas while it decreased in rural areas. 

2. The percentage share of rural areas in the workforce steadily increased.

3. In rural areas, the growth in the non-farm economy increased.

4. The growth rate in rural employment decreased 

Which of the statements given above is/are correct? 

(a) 1 and 2 only 

(b) 3 and 4 only 

(c) 3 only 

(d) 1, 2 and 4 only 

Answer: b

Explanation:

 Trends in woker productivity (at current prices) across different worker categories in India (Rs / Worker) 

The above table clearly shows Worker productivity in urban areas and rural areas has increased

In 2004-05 productivity of Rural worker was Rs. 37273 in 2011-12, it increased to Rs.101755, similarly In 2004-05 productivity of urban worker was Rs.120419  in 2011-12, it increased to  Rs. 282515

Hence, statement 1 is incorrect.

Changes in population and economically active persons in rural areas between 2004-05 and 2011-12 (million) 

In 2004-05 work force in rural areas was 343 million , in 2011-12 work force in rural areas decreased to 336 million, eventually share of  rural workforce  to total workforce declined  

Hence, statement 2 is incorrect. 

During the period 2004-05 to 2011-12, agriculture sector witnessed revival and registered impressive annual growth rate of 4.27 per cent. Similarly, non-farm sectors growth accelerated to 9.21 per cent. Based on acceleration in growth in agriculture as well as nonfarm sectors, this period is termed as the “period of economic acceleration”.  

Most of the employment opportunities have to be created in the nonfarm sector as the natural choice of the educated youth would be to join more productive nonfarm sectors instead of agriculture. In rural areas in 2004-05, 94 million people were employed  by 2011-12  it increased to 121 million people   

Hence, statement 3 is correct.

After 1999-00, growth rate of rural economy picked up the pace and reached at par with the growth rate of urban economy. This led to stabilization in rural contribution in total NDP at around 48 per cent. The rural share in national NDP dropped slightly during 2004-05 to 2011- 12 despite acceleration in growth rate .   

Growth rates in rural employment (Usual status)

Growth  rate of employment in  in rural ares in 1970-71 to 1993-94 (termed as pre-reform period) was 2.16 , 1993-94 to 2004-05 (termed as postreform period) was 1.45 and 2004-05 to 2011-12 (termed as period of economic acceleration) was -0.28 ,  so the growth  rate  of rural employment  after economic reforms decreased .  

Hence, statement 4 is correct. 

10. Consider the following statements: 

1. In terms of short-term credit delivery to the agriculture sector, District Central Cooperative Banks (DCCBs) deliver more credit in comparison to Scheduled Commercial Banks and Regional Rural Banks. 

2. One of the most important functions of DCCBs is to provide funds to the Primary Agriculture Credit Societies. 

Which of the statements given above is/are correct? 

(a) 1 only 

(b) 2 only 

(c) Both 1 and 2 

(d) Neither 1 nor 2 

Answer: b 

Explanation:  

Flow of  short term Institutional Credit to Agriculture sector in India(Rs. crore)

Source: Department of Agriculture, Cooperation & Farmers Welfare

In terms of short-term credit, Commercial banks provide the highest institutional credit to agriculture.

Rural co-operative banks: These banks have a three tier structure:

i) PACS : Primary agricultural credit societies at the village levels. These societies can be formed

by a group of ten farmers, they provide loan to small and marginal farmers.

ii) District central co-operative banks (DCCBs): They are confederation of PACS at the district level, they lend to PACS.

iii) State co-operative banks: They operate in the apex level in the states, they act as link between

NABARD and the lower levels.

Hence statement 1 is incorrect and 2 is correct.

11. In India, which of the following can be considered as public investment in agriculture?

1. Fixing Minimum Support Price for agricultural produce of all crops. 

2. Computerization of Primary Agricultural Credit Societies 

3. Social Capital Development

4. Free electricity supply to farmers 

5. Waiver of agricultural loans by the banking system 

6. Setting up of cold storage facilities by the governments. 

Select the correct answer using the code given below. 

(a) 1, 2 and 5 only 

(b) 1, 3, 4 and 5 only 

(c) 2, 3 and 6 only 

(d) 1, 2, 3, 4, 5 and 6 

Answer: c

Explanation:

Public investment usually refers to gross fixed capital formation (total value of acquisitions, less disposals, of fixed assets) by the state, whether through central or local governments or through publicly owned industries or corporations.

Public investment encompasses physical or tangible investment in infrastructure (such as transport, telecommunications, and buildings), but in a broader sense, public investment can include human or intangible investment in education, skills, and knowledge.  

Computerization of Primary Agricultural Credit Societies, Setting up of cold storage facilities by the governments are tangible or physical public investment and Social Capital Development is intangible public investment.

Hence, option c is correct.

12. The term ‘West Texas Intermediate’, sometimes found in the news, refers to a grade of 

(a) Crude oil     

(b) Bullion     

(c) Rare earth elements     

(d) Uranium

Answer: a

Explanation:

West Texas Intermediate (WTI) is a type of crude oil that serves as one of the primary benchmarks for oil pricing, alongside Brent and Dubai Crude. Known for its high quality, WTI is relatively easy to refine, making it a popular choice in the oil market.

Hence, option a is correct.

13. Which of the following factors/policies were affected the price of rice in India in the recent past? 

1. Minimum Support Price 

2. Government’s trading 

3. Government’s stockpiling 

4. Consumer subsidies 

Select the correct answer using the code given below. 

(a) 1, 2 and 4 only 

(b) 1, 3 and 4 only 

(c) 2 and 3 only 

(d) 1, 2, 3 and 4 

Answer: d

Explanation:

The price of any commodity depends on the input cost and the market conditions like demand and supply. 

MInimum Support Price (MSP) affects the price of the rice. An increase in MSP will automatically lead to increase in the prices because one of the parameters for MSP is input cost.

Government trading companies like MMTC export rice. This causes fluctuations in demand and supply, same is the case with government stockpiling the food grains for long term food secuirty affects the supply of rice.

Consumer subsidies in the form of Public distribution system PDS rice affects the demand side which influences price of rice in the market.

Hence, option d is correct.

14. Consider the following statements:

1. The value of Indo-Sri Lanka trade has consistently increased in the last decade 

2. “Textile and textile articles” constitute an important item of trade between India and Bangladesh. 

3. In the last five years, Nepal has been the largest trading partner of India in South Asia.

Which of the statements given above is/are correct? 

(a) 1 and 2 only 

(b) 2 only 

(c) 3 only 

(d) 1, 2 and 3 

Answer: b

Explanation:

India Srilanka Trade:

India has traditionally been among Sri Lanka’s largest trade partners and Sri Lanka remains among the largest trade partners of India in the SAARC. India is Sri Lanka’s largest trading partner. The Value of trade between India and Sri Lanka is not showing a consistent increasing trend instead it is increasing and decreasing hence following a zigzag pattern.

India’s Bilateral Trade with Srilanka (2018-2023) Value in USD Million

Hence, statement 1 is incorrect.

India and Bangladesh trade: Bangladesh is the largest trading partner of India in South Asia.

• Major principal commodities exported from India to Bangladesh include cotton yarn, fabrics, made-ups, handloom products(US$ 1.52 billion), followed by mineral fuels, mineral oils, and products of their distillation; bituminous substances; mineral waxes (US$ 1.17 billion); vehicles other than railway or tramway rolling stock, and parts and accessories thereof; nuclear reactors, boilers, machinery and mechanical appliances; and residues and waste from the food industries; prepared animal fodder, in April-October FY25.
• Major principal commodities imported by India from Bangladesh include articles of apparel and clothing accessories knitted or crocheted and not knitted or crocheted (US$ 595.53 million), followed by other vegetable textile fibres, paper yarn, and woven fabrics of paper yarn aircraft (US$ 217.51 million), spacecraft, and parts thereof (US$ 176.02 million) in FY24.

Hence, statement 2 is correct.

India and South Asia Trade:

• India is the biggest trading partner for Nepal, Bhutan and Sri Lanka. 
• As per 2024 data, Bangladesh is the largest trading partner of India in South Asia, followed by Nepal, Sri Lanka, Pakistan, Bhutan, Maldives and Afghanistan. 
• India enjoys a substantial trade surplus with all the countries in South Asia.

Indias trade with SOUTH ASIA (2019-20 ) Value in USD Million

Hence, statement 3 is incorrect. 

15. Under the Kisan Credit Card scheme, short-term credit support is given to farmers for which of the following purposes? 

1. Working capital for maintenance of farm assets 

2. Purchase of combine harvesters, tractors, and mini trucks. 

3. Consumption requirements of farm households 

4. Post-harvest expense 

5. Construction of family house and setting up of village cold storage facility. 

Select the correct answer using the code given below: 

(a) 1, 2 and 5 only 

(b) 1, 3 and 4 only 

(c) 2, 3, 4 and 5 only 

(d) 1, 2, 3 4 and 5 

Answer: b

Explanation:

The KCC Scheme was introduced with the objective of providing adequate and timely credit to the farmers for their agricultural operations. The Government of India provides interest subvention of 2% and Prompt Repayment Incentive of 3% to the farmers, thus making the credit available at a very subsidized rate of 4% per annum. 

The Kisan Credit Card scheme aims at providing adequate and timely credit support from the banking system under a single window with the flexible and simplified procedures to the farmers for their cultivation and other needs as indicated below :

1. To meet the short term credit requirements for the cultivation of crops;
2. Post-harvest expenses;
3. Produce marketing loan;
4. Consumption requirements of farmer household;
5. Working capital for maintenance of farm assets and activities allied to agriculture;
6. Investment credit requirement for agriculture and allied activities

Hence statement 1, 3 and 4 are only correct.

16. Consider the following statements: 

1. The weightage of food in the Consumer Price Index (CPI) is higher than that in the Wholesale Price Index (WPI). 

2. The WPI does not capture changes in the prices of services, which CPI does. 

3. The Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates. 

Which of the statements given above is/are correct? 

(a) 1 and 2 only 

(b) 2 only 

(c) 3 only 

(d) 1, 2 and 3 

Answer: a

Explanation:

Wholesale Price Index

• Wholesale price is generally defined to capture all bulk transactions of goods carried out in the domestic market. The universe of WPI, therefore, comprises all possible transactions at first point of bulk sale in the domestic market. However, there are, in practice, many points of bulk sale, such as for agricultural items for which it refers to the mandi price; for minerals, it refers to ex-mine prices; and for petroleum products it refers to Refinery Transfer Price (RTP)
• The Office of the Economic Advisor (OEA), Ministry of Commerce and Industry, publishes WPI with effect from 1942 onwards.  
• The WPI commodity basket has three constituent commodity groups (a) primary articles, (b) fuel, power, light, and lubricants and (c) manufactured products, with weights primary articles 20.618 %, fuel, power, light, and lubricants 13.152 % and manufactured products 64. 230%. 

Selection of Base Year 

The well-known criteria for the selection of a new base year are:

(i) a normal year, i.e., a year in which there are no abnormalities in the level of production, trade and in the price level and price variations

(ii) a year for which reliable production, price and other required data are available, and 

(iii) a year as recent as possible and comparable with other data series.  

The year 2011-12 was assessed to be a normal year from the point of view of agriculture production and commodity prices. The Central Statistics Office (CSO) shifted its National Account Statistics (NAS) base to the new base year of 2011-12. In order to make the WPI series compatible with other important series in terms of a common base to all of them it was decided that the year 2011-12 would be the new base year for the new WPI series also.  

Base year revised from 2004-05 to 2011-12 in 2015

2004-05 The set of Wholesale Price Index numbers with base year 2004-05 was introduced with effect from 14th September, 2010. Significant structural changes have taken place in the Indian economy since then. Therefore, it became necessary to revise the index basket of the existing series of Index numbers of Wholesale Price in India (Base 2004-05=100).and revisit a range of issues such as examination of the coverage of commodities, base year, and weighting diagram etc. 

Comparative Statement of Weight assigned to Product Groups  in old and new WPI series

Consumer Price Index (CPI) 

• CPI measure changes over time in general level of prices of goods and services that households acquire for the purpose of consumption. 
• CPI numbers are widely used as a macroeconomic indicator of inflation, as a tool by governments and central banks for inflation targeting and for monitoring price stability, and as deflators in the national accounts. 
• CPI is also used for indexing dearness allowance to employees for increase in prices. CPI is therefore considered as one of the most important economic indicators. 
• National Statistical Office under MOSPI publishes CPI.
• In India, the most important category in the consumer price index is Food and beverages have the highest weightage (45.86 percent of total weight), {of which Cereals and products (9.67 percent), Milk and products (6.61 percent), Vegetables (6.04 percent), Prepared meals, snacks, sweets, etc. (5.55 percent), Meat and fish (3.61 percent), and Oils and fats (3.56 percent)}. 
• Miscellaneous accounts for 28.32 percent, {of which Transport and communication (8.59 percent), health (5.89 percent), and education (4.46 percent). 
• Housing accounts for 10.07 percent; Fuel and light for 6.84 percent; Clothing and footwear for 6.53 percent; and Pan, tobacco and intoxicants for 2.38 percent.

Hence, statements 1 and 2 are correct.

In 2013, the consumer price index replaced the wholesale price index (WPI) as a main measure of inflation. RBI  uses CPI-combined as a measure of inflation. 

Core inflation, measured by excluding food and energy items from CPI headline inflation. 

(Headline inflation includes all items in basket)

Core Inflation corresponds to the component of inflation that is likely to continue for a long period. Thus, core inflation captures the underlying trend of inflation and is, therefore, more stable. Unlike the non-core component of inflation, core inflation is not affected by temporary shocks. In India, core inflation is generally measured by excluding highly volatile components from the headline inflation. By their very nature, food and fuel have been highly volatile. Therefore, we arrive at core inflation by removing food and fuel components from the headline inflation. As headline inflation exhibits volatility due to short run shocks, Central banks in many countries focus on core inflation.

Hence, statement 3 is incorrect.

17. Consider the following statements: 

1. In the case of all cereals, pulses, and oil seeds, the procurement at Minimum Support Price (MSP) is unlimited in any State/UT of India. 

2. In the case of cereals and pulses, the MSP is fixed in any State/UT at a level to which the market price will never rise. 

Which of the statements given above is/are correct? 

(a) 1 only 

(b) 2 only 

(c) Both 1 and 2 

(d) Neither 1 nor 2 

Answer: d

Explanation:

The Central Government extends price support to paddy, coarse grains and wheat through the Food Corporation of India and the State Agencies.  

The procurement policy of Government of India (GOI) is open ended, under which paddy and wheat offered by farmers all over the country within the stipulated period (conforming to specifications prescribed in advance by GOI) are purchased for Central Pool at Minimum Support Price (MSP) by Food Corporation of India (FCI)/State Governments/State. 

Central pool refers to stocks procured through MSP operations for welfare schemes and calamity relief. 

Government Agencies to help farmers get remunerative price and prevent distress cell.  However, if any producer/farmer gets better price in comparison to MSP, he/she is free to sell his/her produce in open market. Coarse grains are procured at MSP by State Government as per the procurement plan prepared in consultation with FCI and approved by the Central Government.  

Decentralized Procurement of food grains 

The scheme of Decentralized Procurement of food grains was introduced by the Government in 1997-98 with a view to enhancing the efficiency of procurement and PDS and encouraging local procurement to the maximum extent thereby extending the benefits of MSP to local farmers as well as to save on transit costs. This also enables procurement of food grains more suited to the local taste. Under the decentralized procurement scheme, the State Government itself undertakes direct purchase of paddy and wheat. Purchase centres are opened by the State Governments and their agencies as per their requirements. The State Governments procure, store and distribute food grains under TPDS and other welfare schemes. In the event of the total quantity of wheat and rice thus procured falling short of the total allocation made by the Central Government for meeting the requirement of TPDS and other schemes, the Central Government, through FCI, meets the deficit out of the Central Pool stocks. The Central Government undertakes to meet the entire expenditure incurred by the State Governments on the procurement operations as per the approved costing. The Central Government also monitors the quality of food grains procured under the scheme and reviews the arrangements made to ensure that the procurement operations are carried on smoothly.

Hence, both statements are incorrect.

18. With reference to the Indian economy, consider the following statements: 

1. ‘Commercial Paper’ is a short-term unsecured promissory note. 

2. ‘Certificate of Deposit’ is a long-term instrument issued by the Reserve Bank of India to a corporation. 

3. ‘Call Money’ is a short-term finance used for interbank transactions. 

4. ‘Zero-Coupon Bonds are the interest-bearing short-term bonds issued by the Scheduled Commercial Banks to corporations. 

Which of the statements given above is/are correct? 

(a) 1 and 2 only 

(b) 4 only 

(c) 1 and 3 only 

(d) 2, 3, and 4 only 

Answer: c

Explanation:

Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. CP, as a privately placed instrument with a view to enable highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors.

Corporates, primary dealers (PDs) and all-India financial institutions (FIs) that have been permitted to raise short-term resources under the umbrella limit fixed by the Reserve Bank of India are eligible to issue CP.

Hence, statement 1 is correct.

Certificate of Deposit (CD) is a negotiable money market instrument and issued in dematerialised form against funds deposited at a bank or other eligible financial institution for a specified time period. 

CDs can be issued by (i) scheduled commercial banks excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs); and (ii) select all-India Financial Institutions that have been permitted by RBI to raise short-term resources within the umbrella limit fixed by RBI.

Hence, statement 2 is incorrect.

The call/notice money market forms an important segment of the Indian Money Market. Under call money market, funds are transacted on overnight basis and under notice money market, funds are transacted for the period between 2 days and 14 days.

Hence, statement 3 is correct.

Zero Coupon Bonds – Zero coupon bonds are bonds with no coupon/ interest payments. Treasury bills are zero coupon securities and pay no interest

Hence, statement 4 is incorrect.

19. With reference to pulse production in India, consider the following statements: 

1. Black gram can be cultivated as both kharif and rabi crops. 

2. Green gram alone accounts for nearly half of pulse production. 

3. In the last three decades, while the production of kharif pulses has increased the production of rabi pulses has decreased. 

Which of the statements given above is/are correct? 

(a) 1 only 

(b) 2 and 3 only 

(c) 2 only 

(d) 1, 2 and 3 

Answer: a

Explanation: 

India  is the largest pulses producing country in the world. It ranks first in area and production 

Pulses are grown in all three seasons. The three crop seasons for the commodity are:

Kharif  :  Arhar (Tur), Urd (Blackgram), Moong (Greengram), Lobia (Cowpea),  Kulthi (Horsegram) and Moth;   

Rabi   : Gram, Lentil, Pea, Lathyrus and Rajmash;   

Summer : Greengram, Blackgram and Cowpea. 

                       Sowing, harvesting season of major pulses and major producing States

The production of pulses in 1950-51 was 84.1 lakh MT with an average yield of 441 kg/ hectare, increased to 192.7 lakh MT with the average yield almost doubling (764 kg/hectare) in 2013-14. However, for the aforesaid period, rice production has increased five-fold, with nearly four-fold increase in yield. Wheat production has increased 15-fold with four and a half times’ enhancement in yield. 

As three decade period is a very long period there is no consistent increase or decrease in kharif and rabi pulse production.         

Source: DES, Min. of Agri. & FW, GOI

Hence, option a is correct.

20. “Gold Tranche” (Reserve Tranche) refers to 

(a) a loan system of the World Bank 

(b) one of the operations of a Central Bank 

(c) a credit system granted by WTO to its members 

(d) a credit system granted by the IMF to its members

Answer: d

Explanation:

The Reserve Tranche represents the member’s unconditional drawing right on the IMF, created by the foreign exchange portion of the quota subscription, plus increase (decrease) through the IMF’s sale (repurchase) of the member’s currency to meet the demand for use of IMF resources by other members in need of balance of payments financing. A member’s reserve position in the IMF constitutes part of its reserve assets in the international investment position.

Hence, option d is correct.

21. With reference to chemical fertilisers in India, consider the following statements : 

1. At present, the retail price of chemical fertilisers is market-driven and not administered by the Government.

2. Ammonia, which is an input of urea, is produced from natural gas.

3. Sulphur, which is a raw material for phosphoric acid fertiliser, is a by-product of oil refineries. 

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 and 3 only

(c) 2 only

(d) 1, 2 and 3

Answer: b

Explanation:

Urea, is provided to the farmers at a statutorily notified Maximum Retail Price (MRP).

As far as market-linking of urea prices is concerned, the MRP of urea is statutorily fixed by the Government. 

The difference between the delivered cost of fertilizers at farm gate and MRP payable by the farmer is given as subsidy to the fertilizer manufacturer/importer by the Government of India.

For Phosphatic & Potassic (P&K) fertilizers, the Government has implemented Nutrient Based Subsidy (NBS) scheme w.e.f. 1.4.2010. Under the NBS scheme, a fixed amount of subsidy, decided on an annual/bi-annual basis, is provided on subsidized P&K fertilizers depending on their nutrient content including Di-Ammonium Phosphate (DAP). Under this scheme, MRP is fixed by fertilizer companies as per market dynamics at a reasonable level which is monitored by the Government. The P&K sector is decontrolled and under the NBS scheme the companies are free to take initiatives to produce/import fertilizers as per market dynamics.

So prices of all chemical fertilizers are not administered prices.

Hence statement 1 is incorrect.

Ammonia is  produced  by the Haber-Bosch process, which converts hydrogen and nitrogen to ammonia, this  is one of the most important industrial chemical reactions ever developed. The Haber–Bosch process to synthesize ammonia enabled an increase in food production

Haber-Bosch process consumes alot of energy . The reaction, which runs at temperatures around 500 °C and at pressures up to about 20 MPa, sucks up about 1% of the world’s total energy production. 

The carbon footprint of ammonia synthesis goes well beyond its energy demands. Hydrogen used for the reaction comes from natural gas, coal, or oil through processes that release CO2. 

Hence statement 2 is correct.

Phosphoric acid is produced either by acidulatton of phosphate rock by a mineral acid in a wet process or by burning of phosphorus produced through electro-thermal process. Processes using sulphuric acid are the commonest and most important and may be classified according to the hydrate form in which calcium sulphate crystallises, viz, anhydrate (CaSO4), hemihydrate (CaSO4.l/2H2O) and dihydrate (CaSO4.2H2O). The hydrate form is controlled mainly by temperature and acid concentration. 

Sulphur is an essential raw material for many chemical industries and is essentially used for the production of sulphuric acid, which in turn is used for the production of phosphoric acid chemical fertilizers, textiles, dyestuffs.

In India, presently there are no mineable elemental sulphur reserves. Sulphur combines directly with almost all the elements with the exception of gold, platinum and the noble gases. Sulphide occurs naturally in mineral ores, oil and coal deposits.  Petroleum refineries and gas processing plants extract H2S when making “clean fuels” and use it as a feed stock to produce sulphur and water. The domestic production of elemental sulphur is limited to by-product recoveries from petroleum refineries and fuel oil used as feedstock for manufacturing fertilizer.

Hence statement 3 is correct.