UPSC Prelims 2014 · GS Paper I: In the context of Indian economy, which of the following is/are the purpose/purposes of…
In the context of Indian economy, which of the following is/are the purpose/purposes of 'Statutory Reserve Requirements'?
- 1. To enable the Central Bank to control the amount of advances the banks can create
- 2. To make the people's deposits with banks safe and liquid
- 3. To prevent the commercial banks from making excessive profits
- 4. To force the banks to have sufficient vault cash to meet their day-to-day requirements
Select the correct answer using the code given below.
Answer (a) & explanation
Statutory reserve requirements are the CRR and SLR. By raising or lowering them, the RBI changes how much money banks can lend, so their key purpose is to control credit creation (1 correct). Deposit safety and liquidity (2) are only a side effect, not the stated purpose in UPSC's key. Curbing bank profits (3) is no aim at all, and keeping vault cash for daily needs (4) is the bank's own business.
The CRR is held as cash with the RBI; the SLR is kept in liquid assets such as government securities. Notice how these are quantitative tools, unlike qualitative tools such as moral suasion.
statement 2 sounds right because SLR assets are safe and liquid. The question asks for the purpose, which is credit control.
Answer as per the official UPSC answer key.
Same theme in UPSC Mains
- MAINS UPSC Mains 2026 · GS Paper III · Q1What do you mean by Digital Rupee? In this context, explain the working and progress of India's Central Bank Digital Currency (CBDC).
- MAINS UPSC Mains 2026 · GS Paper II · Q12What is meant by judicial legislation? In this context, discuss the verdicts of the apex court allowing “passive euthanasia” and a “living will”.
- MAINS UPSC Mains 2025 · GS Paper II · Q14Examine the evolving pattern of Centre-State financial relations in the context of planned development in India. How far have the recent reforms impacted the fiscal federalism…
Related questions from other years
Which one of the following best describes the key objective of India's 'Open Network for Digital Commerce' (ONDC) initiative ?
Answer (c) & explanation
ONDC aims to break the dominance of large platforms (c). The Open Network for Digital Commerce, a DPIIT initiative (2021-22), is an open set of rules, like UPI for shopping. A buyer on one app can buy from a seller listed on another app. This interoperability lets small sellers reach buyers without joining a giant platform. Option (a) is wrong: it does not give the government control of transactions. Option (b) is wrong: private players can join; they are not replaced. Option (d) is wrong: it does not force UPI payments.
Notice ONDC's design: it is a not-for-profit company and part of India's Digital Public Infrastructure, along with Aadhaar, UPI and DigiLocker. It now covers food, groceries and mobility too.
options (a), (b) and (d) use strong words: "all", "replace", "mandate". A public digital platform usually opens a market; it does not take it over.
Answer as per the official UPSC answer key.
Which one of the following statements about Unified Payments Interface (UPI) and Central Bank Digital Currency (Digital Rupee) is not correct ?
Answer (d) & explanation
Statement (d) is not correct (d). Under UPI, money moves between bank accounts; the deposit is a liability of the bank. The Digital Rupee (e₹) is like a currency note in digital form, a direct liability of the RBI, not of users or banks. Option (a) is correct: UPI is a payment system, while the e-rupee is sovereign currency. Option (b) is correct: an e-rupee transfer moves value from wallet to wallet with no separate settlement. Option (c) is correct: e-rupee wallet transactions do not appear in bank statements.
Notice the legal base: the RBI Act was amended in 2022 to let the RBI issue a CBDC. Pilots began that year in wholesale (e₹-W) and retail (e₹-R) forms.
a "not correct" question. Look for the statement that puts the RBI's liability on someone else.
Answer as per the official UPSC answer key.
Which of the following statements about Real-World Assets (RWA) Tokenization are correct ?
- 1. Tokenization is the process of turning real world assets into digital tokens using blockchain technology.
- 2. Tokenization of real world assets offers 24x7 access, promoting financial inclusion.
- 3. Tokenization of real world assets will allow the access to high growth investment opportunities for individuals in India.
Select the answer using the code given below :
Answer (a) & explanation
All three statements are correct (a). Statement 1 is right: tokenization turns a real asset, like a building, bond or gold, into digital tokens recorded on a blockchain. Statement 2 is right: tokens can be traded 24x7, which widens financial inclusion. Statement 3 is right: small, fractional tokens let ordinary individuals get into high-growth investments that once needed crores. So options (b), (c) and (d) fail.
Notice the risks: unclear regulation, cyber threats and weak investor protection. In India, related steps include Fractional Ownership Platforms and REITs and InvITs, which already let small investors own slices of real estate and infrastructure. The RBI is also testing tokenized deposits and government securities in sandbox pilots.
Answer as per the official UPSC answer key.
A bond whose proceeds are used only to finance or refinance a combination of both environmental and social projects is called :
Answer (c) & explanation
This is a sustainability bond (c). Under the ICMA principles followed worldwide, a bond that funds a mix of environmental and social projects is a sustainability bond. Option (a) is wrong: a green bond funds only environmental projects, like solar power. Option (b) is wrong: a social bond funds only social projects, like affordable housing. Option (d) is wrong: a sovereign bond is any bond issued by a national government, whatever its use.
Notice India's practice: India has issued Sovereign Green Bonds since January 2023, with the money going to projects like metro rail and renewable energy. A sustainability-linked bond is different: its money can go anywhere, but its interest rate depends on meeting ESG targets.
"Green Bond" is the most familiar term. The words "both environmental and social" point to the combined label.
Answer as per the official UPSC answer key.
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