UPSC Prelims 2018 Economy questions: topic-wise weightage
UPSC Prelims 2018 asked 23 economy questions in GS Paper I, spread over 5 topics. See the economy weightage for 2018 below, then attempt each question with the official answer and an explanation.
Economy 2018: questions by topic
- Money, banking, monetary policy and inflation6
- Fiscal policy, budget and taxation4
- Financial markets and instruments1
- Agriculture, food security and allied sectors6
- Industry, infrastructure, poverty, employment and social sector6
Counted from the 23 questions on this page, tagged by topic in the Battle IAS PYQ bank.
Seeing 23 Economy questions spread over 5 topics can feel overwhelming. That's exactly why the Battle IAS PYQ Book maps every question topic by topic, so you know what to study first. Download free sample
Money, banking, monetary policy and inflation 6
Which one of the following best describes the term "Merchant Discount Rate" sometimes seen in news ?
Answer (c) & explanation
MDR is the charge a merchant pays the bank for accepting card payments (c). The Merchant Discount Rate is the fee a shopkeeper pays for each card or digital payment received. It is shared among the issuing bank (the customer's bank), the acquiring bank (which provides the PoS machine) and the card network, such as Visa or RuPay. It is not an incentive paid to the merchant (a, d), and it is not cashback to the customer (b).
Since January 2020, there is no MDR on RuPay debit cards and BHIM-UPI payments, to encourage digital payments, and the government compensates banks through an incentive scheme. Notice the debate: fintech firms and banks say zero MDR makes UPI hard to sustain, and MDR on large merchants keeps coming up in discussion.
options (a) and (d) call it an "incentive". MDR is a charge on the merchant, not a reward.
Answer as per the official UPSC answer key.
Which one of the following links all the ATMs in India ?
Answer (c) & explanation
The NPCI links all ATMs in India (c). The National Financial Switch (NFS), run by the NPCI, connects the ATMs of all banks, so a card from one bank can be used at another bank's ATM. The IDRBT started the NFS in 2004, and it moved to NPCI in 2009. The Indian Banks' Association (a) is an industry lobby group. NSDL (b) is a securities depository for shares and bonds. The RBI (d) regulates payments but does not run the ATM switch.
NPCI also runs UPI, RuPay, IMPS, NACH, AePS, FASTag and BBPS. Notice the RBI's ATM rules: limited free transactions per month, plus interchange fees paid by the card's bank to the ATM owner, which were raised in 2025.
Answer as per the official UPSC answer key.
Consider the following statements :
- 1. Capital Adequacy Ratio (CAR) is the amount that banks have to maintain in the form of their own funds to offset any loss that banks incur if the account-holders fail to repay dues.
- 2. CAR is decided by each individual bank.
Which of the statements given above is/are correct ?
Answer (a) & explanation
Only statement 1 is correct (a). Capital Adequacy Ratio (CAR), also called CRAR, is a bank's own capital as a share of its risk-weighted assets. It is the cushion that absorbs losses when borrowers fail to repay (1). Statement 2 is wrong because the RBI sets it, not each bank, following the Basel III norms. Indian banks must hold 9%, plus a capital conservation buffer of 2.5%, which is stricter than Basel's 8%. Big D-SIBs like SBI, HDFC Bank and ICICI must hold extra capital.
Capital is split into Tier 1 (equity and reserves) and Tier 2 (some bonds). Notice the RBI's Prompt Corrective Action framework, which restricts banks whose CAR or NPAs cross set limits.
Answer as per the official UPSC answer key.
With reference to digital payments, consider the following statements :
- 1. BHIM app allows the user to transfer money to anyone with a UPI-enabled bank account.
- 2. While a chip-pin debit card has four factors of authentication, BHIM app has only two factors of authentication.
Which of the statements given above is/are correct ?
Answer (a) & explanation
Only statement 1 is correct (a). BHIM (Bharat Interface for Money), launched by NPCI in December 2016, is a UPI app that can pay anyone whose bank account is on UPI (1), using a UPI ID, mobile number or QR code. Statement 2 is wrong. A chip-and-PIN debit card uses two factors: something you have (the card) and something you know (the PIN). BHIM is not weaker. It binds your registered phone and device, adds the UPI PIN, and links to your bank account, giving it at least as much security.
BHIM 3.0 (2025) added shared family payments and spending analytics. Notice the RBI's rules for two-factor authentication on digital payments, including new options beyond SMS OTP from April 2026.
Answer as per the official UPSC answer key.
Which one of the following statements correctly describes the meaning of legal tender money ?
Answer (b) & explanation
Legal tender is money a creditor must accept in settling a debt (b). Legal tender is money that the law requires to be accepted as payment. In India, RBI notes are unlimited legal tender, under the RBI Act. Coins issued by the government are legal tender up to set limits under the Coinage Act, 2011: ₹1,000 for coins of ₹1 and above. Court fees (a) have nothing to do with it. Cheques and drafts (c) are not legal tender, so a creditor may refuse them. Metallic money (d) is too narrow a description.
When the ₹500 and ₹1,000 notes were demonetised in November 2016, they lost their legal tender status. Notice that the RBI's e-rupee (CBDC) is also legal tender, while cryptocurrencies are not.
Answer as per the official UPSC answer key.
With reference to the governance of public sector banking in India, consider the following statements :
- 1. Capital infusion into public sector banks by the Government of India has steadily increased in the last decade.
- 2. To put the public sector banks in order, the merger of associate banks with the parent State Bank of India has been affected.
Which of the statements given above is/are correct ?
Answer (b) & explanation
Only statement 2 is correct (b). Statement 1 is wrong because capital infusion into public sector banks did not rise steadily. It went up and down from year to year, and jumped sharply only around 2017–19, through recapitalisation bonds under the Indradhanush plan and the ₹2.11 lakh crore package. Statement 2 is right because, on 1 April 2017, the five associate banks (State Bank of Bikaner and Jaipur, Hyderabad, Mysore, Patiala and Travancore) and Bharatiya Mahila Bank merged with the State Bank of India.
Further mergers followed: Bank of Baroda with Vijaya and Dena (2019), and ten banks into four in 2020, leaving 12 public sector banks. Notice their turnaround: PSBs made record profits of over ₹1.7 lakh crore in FY2024–25.
Answer as per the official UPSC answer key.
Fiscal policy, budget and taxation 4
With reference to India's decision to levy an equalization tax of 6% on online advertisement services offered by non-resident entities, which of the following statements is/are correct ?
- 1. It is introduced as a part of the Income Tax Act.
- 2. Non-resident entities that offer advertisement services in India can claim a tax credit in their home country under the "Double Taxation Avoidance Agreements".
Select the correct answer using the code given below :
Answer (d) & explanation
Neither statement is correct (d). Statement 1 is wrong because the 6% equalisation levy (2016) was introduced through a separate chapter of the Finance Act, 2016, not the Income Tax Act. The Indian business paying a foreign firm like Google or Facebook for online ads deducted it. Statement 2 is wrong because the levy is not an income tax, so the foreign firm cannot claim credit for it under a DTAA in its home country. This is exactly why it was designed outside the Income Tax Act.
A 2% levy on e-commerce was added in 2020 and dropped in 2024. The 6% levy on ads ended in April 2025. Notice the reason: India is moving towards the OECD Two-Pillar global tax deal and is also under US trade pressure.
statement 2 sounds fair. Tax treaties cover taxes on income; the levy was kept outside the Income Tax Act for exactly this reason.
Answer as per the official UPSC answer key.
Consider the following statements :
- 1. The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt to GDP ratio of 60% for the general (combined) government by 2023, comprising 40% for the Central Government and 20% for the State Governments.
- 2. The Central Government has domestic liabilities of 21% of GDP as compared to that of 49% of GDP of the State Governments.
- 3. As per the Constitution of India, it is mandatory for a State to take the Central Government's consent for raising any loan if the former owes any outstanding liabilities to the latter.
Which of the statements given above is/are correct ?
Answer (c) & explanation
Statements 1 and 3 are correct (c). The N. K. Singh FRBM Review Committee (2017) suggested a general government debt limit of 60% of GDP by 2023: 40% for the Centre and 20% for the States (1). It also proposed a fiscal council. Statement 2 is wrong because it reverses the numbers. The Centre's liabilities are far larger, about 49% of GDP, against about 21% for the States. Statement 3 is right because, under Article 293(3), a State that owes money to the Centre needs the Centre's consent to borrow.
Kerala challenged the Centre's borrowing limits in the Supreme Court in 2024, and the case went to a Constitution Bench. Notice that the Centre now aims for a debt-to-GDP ratio of about 50% by 2031.
statement 2 has the right numbers in the wrong places.
Traps like this come back in new clothes. The PYQ Book collects all of them, topic by topic, so none catch you twice. Try the free sample
Answer as per the official UPSC answer key.
If a commodity is provided free to the public by the Government, then
Answer (c) & explanation
The opportunity cost moves from the users to the taxpaying public (c). Nothing is truly free. The resources used to make a "free" good could have produced something else, and that lost alternative is its opportunity cost. When the government gives something away free, the users do not pay, but taxpayers do, because the government's money comes from taxes. The cost is not zero (a), and it is not ignored (b). Option (d) is wrong because the government is only the channel, spending the public's money.
This is the logic behind the "freebies" debate. The Supreme Court and the Election Commission have looked at the line between welfare and freebies. Notice the related idea of merit goods, such as education and health, where free supply is justified.
option (d) says the government bears the cost. The government spends; taxpayers finally pay.
Answer as per the official UPSC answer key.
Consider the following items :
- 1. Cereal grains hulled
- 2. Chicken eggs cooked
- 3. Fish processed and canned
- 4. Newspapers containing advertising material
Which of the above items is/are exempted under GST (Goods and Services Tax) ?
Answer (c) & explanation
Items 1, 2 and 4 are exempt (c). Under GST, basic, unprocessed and unbranded food is exempt to keep everyday essentials cheap. This covers hulled cereal grains (1) and eggs (2), including the cooked eggs listed in the exemption. Printed newspapers (4) are exempt even if they carry advertisements, although the ad services themselves are taxed. Processed and canned fish (3) is a value-added, packaged product, so it is taxed, which is why (d) is wrong.
GST came into force on 1 July 2017 after the 101st Amendment. Notice GST 2.0 (September 2025), which simplified rates into mainly two slabs of 5% and 18%, plus a 40% rate for luxury and sin goods.
eggs "cooked" sound processed. The GST exemption entry covers birds' eggs "in shell, fresh, preserved or cooked".
Answer as per the official UPSC answer key.
Financial markets and instruments 1
Consider the following statements :
- 1. The Reserve Bank of India manages and services Government of India Securities but not any State Government Securities.
- 2. Treasury bills are issued by the Government of India and there are no treasury bills issued by the State Governments.
- 3. Treasury bills offer are issued at a discount from the par value.
Which of the statements given above is/are correct ?
Answer (c) & explanation
Statements 2 and 3 are correct (c). Statement 1 is wrong because the RBI manages public debt for the Centre by law (RBI Act, Section 21) and for State Governments by agreement (Section 21A). It auctions their State Development Loans (SDLs). Statement 2 is right because Treasury Bills are issued only by the Centre. States raise short-term money through other means, such as Ways and Means Advances. Statement 3 is right: T-bills are zero-coupon instruments sold at a discount and repaid at face value, and the difference is the investor's return.
Today's T-bills come in 91, 182 and 364-day maturities. Notice the RBI Retail Direct platform (2021), which lets ordinary people buy G-secs and T-bills directly.
Answer as per the official UPSC answer key.
Agriculture, food security and allied sectors 6
Consider the following statements :
- 1. The quantity of imported edible oils is more than the domestic production of edible oils in the last five years.
- 2. The Government does not impose any customs duty on all the imported edible oils as a special case.
Which of the statements given above is/are correct ?
Answer (a) & explanation
Only statement 1 is correct (a). India is the world's largest importer of edible oil. It imports about 55–60% of what it uses, which is more than it produces at home (1). Most imports are palm oil from Indonesia and Malaysia, and soybean and sunflower oil from Argentina, Brazil, Russia and Ukraine. Statement 2 is wrong because the government changes customs duty on crude and refined edible oils often, lowering it when prices rise and raising it to protect farmers. It has never exempted all edible oils from duty as a fixed rule.
Notice the self-reliance schemes: the National Mission on Edible Oils – Oil Palm (2021), focused on the northeast and Andaman, and NMEO–Oilseeds (2024), which aims to make India more self-reliant by 2030–31.
"all" in statement 2. Duties on some oils are cut at times, never on all as a fixed policy.
Answer as per the official UPSC answer key.
With reference to the provisions made under the National Food Security Act, 2013, consider the following statements :
- 1. The families coming under the category of 'below poverty line (BPL)' only are eligible to receive subsidised food grains.
- 2. The eldest woman in a household, of age 18 years or above, shall be the head of the household for the purpose of issuance of a ration card.
- 3. Pregnant women and lactating mothers are entitled to a 'take-home ration' of 1600 calories per day during pregnancy and for six months thereafter.
Which of the statements given above is/are correct ?
Answer (b) & explanation
Only statement 2 is correct (b). Statement 1 is wrong because the National Food Security Act, 2013 covers up to 75% of rural and 50% of urban people, far more than the BPL list. Priority households get 5 kg of grain per person per month, and Antyodaya families get 35 kg per household. Statement 2 is right because the eldest woman aged 18 or above is the head of the household for the ration card. Statement 3 is wrong because pregnant women and nursing mothers get a free meal or take-home ration of about 600 calories a day, not 1,600, plus a maternity benefit of at least ₹6,000.
Since January 2024, grain under PMGKAY is free for five years. Notice the One Nation One Ration Card scheme, which lets ration cards be used anywhere in India.
the 1600 figure. The real norm is 600 calories plus 18-20 g of protein.
Answer as per the official UPSC answer key.
With reference to the 'Global Alliance for Climate-Smart Agriculture (GACSA)', which of the following statements is/are correct ?
- 1. GACSA is an outcome of the Climate Summit held in Paris in 2015.
- 2. Membership of GACSA does not create any binding obligations.
- 3. India was instrumental in the creation of GACSA.
Select the correct answer using the code given below :
Answer (b) & explanation
Only statement 2 is correct (b). Statement 1 is wrong because the Global Alliance for Climate-Smart Agriculture was launched at the UN Climate Summit in New York, September 2014, not at Paris 2015. The FAO hosts its facilitation unit. Statement 2 is right because it is a voluntary alliance of governments, farmer groups, NGOs and companies, and membership creates no binding obligations. Statement 3 is wrong because India is not a member and played no part in creating it.
Climate-smart agriculture has three goals: raising productivity, building resilience (adaptation), and cutting emissions where possible. Notice India's own effort, the National Innovations in Climate Resilient Agriculture (NICRA), run by ICAR since 2011.
"Paris" is the most famous climate meeting. GACSA came a year earlier, in New York.
Traps like this come back in new clothes. The PYQ Book collects all of them, topic by topic, so none catch you twice. Try the free sample
Answer as per the official UPSC answer key.
With reference to the circumstances in Indian agriculture, the concept of "Conservation Agriculture" assumes significance. Which of the following fall under the Conservation Agriculture?
- 1. Avoiding the monoculture practices
- 2. Adopting minimum tillage
- 3. Avoiding the cultivation of plantation crops
- 4. Using crop residues to cover soil surface
- 5. Adopting spatial and temporal crop sequencing/crop rotations
Select the correct answer using the code given below :
Answer (c) & explanation
Practices 2, 4 and 5 are correct (c). The FAO defines conservation agriculture by three principles: minimum soil disturbance, such as zero or minimum tillage (2); permanent soil cover using crop residues or cover crops (4); and crop diversification through rotation and sequencing in space and time (5). Statement 3 is wrong because nothing in it forbids plantation crops. Statement 1 is a trap: less monoculture is a result, but the actual named practice is crop rotation, so the key leaves it out.
Notice India's use: the Happy Seeder and zero-till drills in Punjab and Haryana sow wheat straight into rice stubble. This cuts stubble burning, a major cause of Delhi's winter smog.
Answer as per the official UPSC answer key.
Consider the following :
- 1. Areca nut
- 2. Barley
- 3. Coffee
- 4. Finger millet
- 5. Groundnut
- 6. Sesamum
- 7. Turmeric
The Cabinet Committee on Economic Affairs has announced the Minimum Support Price for which of the above ?
Answer (b) & explanation
Barley, finger millet, groundnut and sesamum get an MSP (b). The CCEA announces Minimum Support Prices for 22 crops on the advice of the CACP, plus a Fair and Remunerative Price for sugarcane. These include 14 kharif crops, such as paddy, jowar, bajra, ragi (finger millet), groundnut, sesamum and cotton; 6 rabi crops, such as wheat, barley, gram and mustard; and copra and jute. Areca nut, coffee and turmeric are plantation or spice crops with no MSP, so options containing 1, 3 or 7 are wrong.
Since 2018–19, MSP is set at least 1.5 times the cost of production (A2+FL). Notice the farmer unions' demand for a legal guarantee of MSP, which is still under debate.
Answer as per the official UPSC answer key.
With reference to organic farming in India, consider the following statements :
- 1. 'The National Programme for Organic Production' (NPOP) is operated under the guidelines and directions of the Union Ministry of Rural Development.
- 2. 'The Agricultural and Processed Food Products Export Development Authority' (APEDA) functions as the Secretariat for the implementation of NPOP.
- 3. Sikkim has become India's first fully organic State.
Which of the statements given above is/are correct ?
Answer (b) & explanation
Statements 2 and 3 are correct (b). Statement 1 is wrong because the National Programme for Organic Production (NPOP), started in 2001, runs under the Ministry of Commerce and Industry, not Rural Development. It sets India's organic standards and accredits certification bodies, mainly for exports. Statement 2 is right because APEDA is its secretariat. Statement 3 is right because Sikkim was declared India's first fully organic state in January 2016, after phasing out chemical fertilisers and pesticides.
Sikkim won the FAO's Future Policy Award in 2018. Notice the domestic schemes: Paramparagat Krishi Vikas Yojana (PKVY), MOVCDNER for the North-East, and the National Mission on Natural Farming (2024).
organic farming sounds like a rural or agriculture subject. NPOP is an export programme, so it sits with Commerce.
UPSC repeats traps like this year after year. The PYQ Book gathers every trap in one place, so you see them coming. Try the free sample
Answer as per the official UPSC answer key.
Industry, infrastructure, poverty, employment and social sector 6
Consider the following statements :
- 1. In India, State Governments do not have the power to auction non-coal mines.
- 2. Andhra Pradesh and Jharkhand do not have gold mines.
- 3. Rajasthan has iron ore mines.
Which of the statements given above is/are correct ?
Answer (d) & explanation
Only statement 3 is correct (d). Statement 1 is wrong because, under the MMDR Act, State Governments own and auction most non-coal mineral blocks. The 2015 amendment made auctions compulsory. The 2023 amendment let the Centre auction critical minerals, such as lithium and REEs. Statement 2 is wrong because Jharkhand has gold at Parasi and Lawa, and Andhra Pradesh has gold at Chigargunta and Ramagiri. Statement 3 is right because Rajasthan has iron ore in Jaipur, Jhunjhunu (Dabla–Singhana) and Udaipur.
Karnataka's Hutti is India's main working gold mine. Notice the newer resources: lithium found in Reasi, J&K (2023), and the National Critical Mineral Mission (2025), which looks for these minerals at home and abroad.
Answer as per the official UPSC answer key.
International Labour Organization's Conventions 138 and 182 are related to
Answer (a) & explanation
ILO Conventions 138 and 182 deal with child labour (a). Convention 138 (1973) sets the minimum age for work, which is usually not below the age of finishing compulsory schooling. Convention 182 (1999) bans the worst forms of child labour, such as slavery, trafficking, child soldiers and hazardous work. India ratified both in June 2017, after amending its Child Labour Act in 2016 to ban all work below 14 and hazardous work for those aged 14–18. They do not deal with climate adaptation (b), food prices (c), or gender parity (d), which is covered by Conventions 100 and 111.
Convention 182 became the first ILO convention ratified by every member (2020). Notice the eight core conventions; India has ratified six of them, but not 87 and 98 on freedom of association.
Answer as per the official UPSC answer key.
Increase in absolute and per capita real GNP do not connote a higher level of economic development, if
Answer (c) & explanation
GNP growth is not development if poverty and unemployment rise (c). Growth is a rise in output. Development means a better life for most people: less poverty, more jobs, and better health and education. If GNP and even per capita GNP rise while poverty and unemployment increase, the gains have gone to a few, and the economy has grown without developing. Options (a) and (b) describe changes in the structure of output, and (d) describes trade, not people's welfare.
This is why UNDP's Human Development Index (1990, Mahbub ul Haq and Amartya Sen) looks at health, education and income. Notice the related ideas: "jobless growth", inequality measured by the Gini coefficient, and the Multidimensional Poverty Index used by NITI Aayog.
Answer as per the official UPSC answer key.
Consider the following statements :
Human capital formation as a concept is better explained in terms of a process which enables
- 1. individuals of a country to accumulate more capital.
- 2. increasing the knowledge, skill levels and capacities of the people of the country.
- 3. accumulation of tangible wealth.
- 4. accumulation of intangible wealth.
Which of the statements given above is/are correct ?
Answer (c) & explanation
Statements 2 and 4 are correct (c). Human capital formation is the process of adding to people's knowledge, skills, health and abilities through education, training, health care and migration (2). These skills cannot be seen or touched and cannot be sold separately from the person, so they count as intangible wealth (4). Building up ordinary capital (1) or tangible wealth (3), such as machines and buildings, is physical capital formation.
The NCERT Economics textbook uses this exact framing. Notice how India invests in human capital: NEP 2020, Skill India, and Ayushman Bharat. Economists such as T. W. Schultz and Gary Becker showed that spending on people brings returns just like spending on machines.
Answer as per the official UPSC answer key.
Despite being a high saving economy, capital formation may not result in significant increase in output due to
Answer (d) & explanation
A high capital-output ratio is the reason (d). The capital-output ratio, or ICOR (incremental capital-output ratio), is how much investment is needed to raise output by one unit. If it is high, a lot of saving and investment produces only a little extra output. This happens when capital is used inefficiently, when projects take years to finish, or when money is locked in idle capacity. Weak administration (a), illiteracy (b), and population density (c) may matter, but this is the direct economic reason.
The Harrod–Domar model says growth = savings rate ÷ ICOR, and it shaped India's early Five-Year Plans. Notice India's ICOR of about 4 today. The Economic Survey often warns that it needs to come down.
Answer as per the official UPSC answer key.
With reference to Pradhan Mantri Kaushal Vikas Yojana, consider the following statements :
- 1. It is the flagship scheme of the Ministry of Labour and Employment.
- 2. It, among other things, will also impart training in soft skills, entrepreneurship, financial and digital literacy.
- 3. It aims to align the competencies of the unregulated workforce of the country to the National Skill Qualification Framework.
Which of the statements given above is/are correct ?
Answer (c) & explanation
Statements 2 and 3 are correct (c). Statement 1 is wrong because PMKVY, launched in 2015, is the flagship scheme of the Ministry of Skill Development and Entrepreneurship (MSDE), not the Labour Ministry. It is run through the National Skill Development Corporation (NSDC). Statement 2 is right because, besides trade skills, it trains people in soft skills, entrepreneurship, and financial and digital literacy. Statement 3 is right because its Recognition of Prior Learning (RPL) part tests and certifies informal workers against the National Skills Qualifications Framework (NSQF).
The scheme is now in PMKVY 4.0, with a focus on new-age skills such as AI, drones and coding. Notice the related Skill India Digital Hub and the PM Vishwakarma scheme (2023) for traditional artisans.
"Labour and Employment" sounds right for a jobs scheme. Skilling has had its own ministry since 2014.
Answer as per the official UPSC answer key.
All years by topic
Every question from 2011 to 2026, grouped by syllabus topic, with year-wise trends.