UPSC Prelims 2014 · GS Paper I: If the interest rate is decreased in an economy, it will

A lower interest rate makes borrowing cheaper, so firms invest more in plant and machinery (c). Option (a) is wrong because cheaper credit usually raises, not lowers, consumption on homes, cars and consumer goods. Option (d) is wrong because saving earns less and becomes less attractive, so savings tend to fall. Any rise in tax collection (b) would be indirect and uncertain, not a direct effect.

This is why the RBI's Monetary Policy Committee cuts the repo rate to support growth and raises it to fight inflation. Notice how one policy rate ripples through loans, deposits, investment and prices.

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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.

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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.

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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.

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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.

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