Economy: previous-year questions
347 real UPSC Prelims questions (2011–2026) with the official answer and a clear explanation. 96 of them came in the last five papers.
How often UPSC asks this
Questions per year, counted from the official papers.
Subtopics
Agriculture, food security and allied sectors
81 questions
Economic development, reports and indices
28 questions
Economic growth, planning and national income
7 questions
External sector and international economic institutions
70 questions
Financial markets and instruments
36 questions
Fiscal policy, budget and taxation
51 questions
Industry, infrastructure, poverty, employment and social sector
125 questions
Money, banking, monetary policy and inflation
85 questions
Attempt the questions
Newest papers first. Tap an option; the answer and the reason appear instantly.
Consider the following statements :
Statement-I :
India accounts for 3.2% of global export of goods.
Statement-II :
Many local companies and some foreign companies operating in India have taken advantage of India's 'Production-linked Incentive' scheme.
Which one of the following is correct in respect of the above statements?
Answer (d) & explanation
Statement I is wrong but Statement II is correct (d). Statement I is wrong: India's share of world merchandise exports is only about 1.8%, not 3.2%. Its share of services exports is much higher, over 4%, led by IT and business services. Statement II is right: the Production-Linked Incentive scheme (2020) covers 14 sectors, such as mobile phones, pharmaceuticals, solar modules and automobiles, and has drawn both Indian firms and foreign ones such as Apple's suppliers Foxconn and Pegatron.
Notice the success story: India is now a major smartphone exporter, and phones have become one of its top export items. PLI pays firms a share of their extra sales, to boost manufacturing and cut imports.
the 3.2% figure is close to India's share of world GDP or services trade. For goods it is far lower.
Answer as per the official UPSC answer key.
Consider the following statements :
- 1. The Government of India provides Minimum Support Price for niger (Guizotia abyssinica) seeds.
- 2. Niger is cultivated as a Kharif crop.
- 3. Some tribal people in India use niger seed oil for cooking.
How many of the above statements are correct?
Answer (c) & explanation
All three statements are correct (c). Statement 1 is right: nigerseed (Guizotia abyssinica) is one of the 22 crops that get a Minimum Support Price, among the kharif oilseeds. Statement 2 is right: it is sown as a kharif crop, often late in the season, on poor, sloping hilly soils where little else grows. Statement 3 is right: it is grown mainly in the tribal belts of Odisha, Madhya Pradesh, Chhattisgarh and Maharashtra, and tribal families use its oil for cooking.
Notice the MSP list: 14 kharif crops, 6 rabi crops, plus jute and copra, with a Fair and Remunerative Price for sugarcane. The CACP recommends these prices. India still imports much of its edible oil, hence the oilseed missions.
Answer as per the official UPSC answer key.
Consider the following statements :
The 'Stability and Growth Pact' of the European Union is a treaty that
- 1. limits the levels of the budgetary deficit of the countries of the European Union
- 2. makes the countries of the European Union to share their infrastructure facilities
- 3. enables the countries of the European Union to share their technologies
How many of the above statements are correct?
Answer (a) & explanation
Only one statement is correct (a). Statement 1 is right: the Stability and Growth Pact (1997) is a set of fiscal rules for EU members: the budget deficit should stay below 3% of GDP and public debt below 60% of GDP. Countries that break the rules face an excessive deficit procedure. Statement 2 is wrong: it says nothing about sharing infrastructure. Statement 3 is wrong: it says nothing about sharing technology.
Notice that the rules were suspended during COVID-19 and reformed in 2024, giving countries more time to cut debt. The aim is to keep the euro stable, since members share a currency but run their own budgets. India's version is the FRBM Act, 2003, which sets fiscal deficit targets for the Centre.
Answer as per the official UPSC answer key.
Consider the investments in the following assets :
- 1. Brand recognition
- 2. Inventory
- 3. Intellectual property
- 4. Mailing list of clients
How many of the above are considered intangible investments?
Answer (c) & explanation
Three of the four are intangible (c). An intangible asset has value but no physical form. Brand recognition (item 1) is intangible: people pay more for a trusted name. Intellectual property (item 3), such as patents, copyrights and trademarks, is intangible. A mailing list of clients (item 4) is intangible: it is information that brings in business. Item 2 is wrong: inventory means goods in stock, raw material, half-made goods or finished products, so it is a tangible asset you can touch and count.
Notice why this matters: in modern firms like tech companies, most value lies in intangibles such as software, data and brands, not machines. This makes them harder to value, tax and lend against.
Answer as per the official UPSC answer key.
Consider the following statements about G-20 :
- 1. The G-20 group was originally established as a platform for the Finance Ministers and Central Bank Governors to discuss the international economic and financial issues.
- 2. Digital public infrastructure is one of India's G-20 priorities.
Which of the statements given above is/are correct?
Answer (c) & explanation
Both statements are correct (c). Statement 1 is right: the G-20 began in 1999, after the Asian financial crisis, as a meeting of finance ministers and central bank governors to discuss global economic issues. It was raised to leaders' level in 2008, after the global financial crisis. Statement 2 is right: during its 2023 presidency, India pushed digital public infrastructure, such as UPI and Aadhaar-style platforms, as a key priority, and the New Delhi Declaration endorsed it.
Notice India's other G-20 wins: the African Union became a permanent member, and the theme was "Vasudhaiva Kutumbakam", One Earth, One Family, One Future. India also launched the Global Biofuels Alliance. South Africa held the presidency in 2025, the first in Africa.
Answer as per the official UPSC answer key.
Consider the following :
- 1. Demographic performance
- 2. Forest and ecology
- 3. Governance reforms
- 4. Stable government
- 5. Tax and fiscal efforts
For the horizontal tax devolution, the Fifteenth Finance Commission used how many of the above as criteria other than population, area and income distance?
Answer (b) & explanation
Three of the five were criteria (b). The 15th Finance Commission, chaired by N.K. Singh, shared central taxes among States using: income distance 45%, population (2011 Census) 15%, area 15%, forest and ecology 10%, demographic performance 12.5% and tax and fiscal effort 2.5%. So items 1, 2 and 5 count. Item 3 is wrong: governance reforms was not a criterion. Item 4 is wrong: stable government was never used. The States' total share was 41% of the divisible pool.
Notice that demographic performance rewards States that brought down fertility, mostly southern States, which feared losing out by the use of the 2011 Census. The 16th Finance Commission, chaired by Arvind Panagariya, covers 2026–31.
Answer as per the official UPSC answer key.
Consider the following infrastructure sectors :
- 1. Affordable housing
- 2. Mass rapid transport
- 3. Health care
- 4. Renewable energy
On how many of the above does UNOPS Sustainable Investments in Infrastructure and Innovation (S3i) initiative focus for its investments?
Answer (c) & explanation
S3i focuses on three of the four (c). The UN Office for Project Services (UNOPS) launched Sustainable Investments in Infrastructure and Innovation (S3i) in 2018 to bring private money into infrastructure in developing countries. Its three focus areas are affordable housing, renewable energy and health infrastructure. Item 2 is wrong: mass rapid transport is not one of them. So options (a), (b) and (d) are wrong.
Notice that S3i projects included plans for affordable homes in countries such as Ghana, Kenya and Pakistan, and renewable projects in the Caribbean. UNOPS itself is a UN body based in Copenhagen that manages projects for governments and other UN agencies. The initiative later ran into financial mismanagement concerns and was wound down.
Answer as per the official UPSC answer key.
Consider the following statements :
- 1. India has more arable area than China.
- 2. The proportion of irrigated area is more in India as compared to China.
- 3. The average productivity per hectare in Indian agriculture is higher than that in China.
How many of the above statements are correct?
Answer (a) & explanation
Only one statement is correct (a). Statement 1 is right: India has about 156 million hectares of arable land, among the largest in the world and more than China's roughly 120 million. Statement 2 is wrong: by the data used for the question, China irrigated a larger share of its farmland than India, where much farming still depends on the monsoon. Statement 3 is wrong: China's yields per hectare of rice and wheat are much higher than India's, thanks to more fertiliser, seeds and mechanisation.
Notice the lesson: India's problem is not land but productivity. Small fragmented holdings, rain-fed farming and low investment hold it back, which is why schemes stress micro-irrigation and seeds.
India's big farm area tempts you to tick all three. Area is not productivity.
Answer as per the official UPSC answer key.
Consider the following statements with reference to India :
- 1. According to the 'Micro, Small and Medium Enterprises Development (MSMED) Act, 2006', the 'medium enterprises' are those with investments in plant and machinery between ₹15 crore and ₹25 crore.
- 2. All bank loans to the Micro, Small and Medium Enterprises qualify under the priority sector.
Which of the statements given above is/are correct?
Answer (b) & explanation
Only statement 2 is correct (b). Statement 1 is wrong: since 2020, a medium enterprise has had a combined test of investment and turnover, and the limits were raised again in 2025 to investment up to ₹125 crore and turnover up to ₹500 crore. The old 2006 limit for medium manufacturing firms was ₹10 crore. None of these is ₹15–25 crore. Statement 2 is right: under the RBI's priority sector rules, all bank loans to MSMEs that meet the MSMED definition count as priority sector lending.
Notice the target: banks must give 40% of their loans to priority sectors, with a sub-target of 7.5% for micro enterprises. MSMEs register on the Udyam portal, and over 6 crore firms have done so.
Answer as per the official UPSC answer key.
With reference to India's projects on connectivity, consider the following statements :
- 1. East-West Corridor under Golden Quadrilateral Project connects Dibrugarh and Surat.
- 2. Trilateral Highway connects Moreh in Manipur and Chiang Mai in Thailand via Myanmar.
- 3. Bangladesh-China-India-Myanmar Economic Corridor connects Varanasi in Uttar Pradesh with Kunming in China.
How many of the above statements are correct?
Answer (d) & explanation
None of the statements is correct (d). Statement 1 is wrong: the East-West Corridor links Silchar in Assam to Porbandar in Gujarat, and it was part of NHDP Phase II, not the Golden Quadrilateral, which links Delhi, Mumbai, Chennai and Kolkata. Statement 2 is wrong: the India–Myanmar–Thailand Trilateral Highway runs from Moreh in Manipur to Mae Sot in Thailand, not Chiang Mai. Statement 3 is wrong: the BCIM corridor was planned from Kolkata to Kunming, not from Varanasi.
Notice that each statement has one wrong end-point; UPSC tests exact names. India has gone cool on BCIM because it overlaps China's Belt and Road, preferring the Kaladan project and the Trilateral Highway.
each statement keeps one correct name. UPSC changed only one end of each route.
Answer as per the official UPSC answer key.
With reference to Central Bank digital currencies, consider the following statements :
- 1. It is possible to make payments in a digital currency without using US dollar or SWIFT system.
- 2. A digital currency can be distributed with a condition programmed into it such as a time-frame for spending it.
Which of the statements given above is/are correct?
Answer (c) & explanation
Both statements are correct (c). Statement 1 is right: Central Bank Digital Currencies can be exchanged directly between central banks or users on a shared platform, as tested in projects like mBridge, with no need for the US dollar or the SWIFT messaging network. Statement 2 is right: CBDCs can be programmable: money can be issued only for a set purpose, or with an expiry date, as tested in India's e-rupee pilots for targeted payments such as subsidies.
Notice India's e-rupee, issued by the RBI since December 2022 in wholesale and retail forms. Unlike crypto, a CBDC is legal tender, a direct liability of the central bank. Programmability raises privacy concerns, which the RBI says it will handle carefully.
Answer as per the official UPSC answer key.
Consider the following statements :
Statement-I :
Interest income from the deposits in Infrastructure Investment Trusts (InvITs) distributed to their investors is exempted from tax, but the dividend is taxable.
Statement-II :
InvITs are recognized as borrowers under the 'Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002'.
Which one of the following is correct in respect of the above statements?
Answer (d) & explanation
Statement I is wrong but Statement II is correct (d). Statement I is wrong because it is reversed: interest income that an InvIT passes on to investors is taxable in their hands. Dividends are usually exempt, as long as the project company has not opted for the lower corporate tax regime. Statement II is right: the Finance Act, 2021 made InvITs and REITs borrowers under the SARFAESI Act, 2002, so lenders can enforce security against them, which makes lending to them safer.
Notice what an InvIT is: like a mutual fund for infrastructure. It pools investors' money into income-earning assets such as toll roads, power lines and pipelines, and passes on most of the income. SEBI regulates both InvITs and REITs. The government uses InvITs for asset monetisation.
Statement I swaps interest and dividend. One swap is enough to make it wrong.
Answer as per the official UPSC answer key.
In the context of finance, the term 'beta' refers to
Answer (d) & explanation
Beta measures how a stock moves with the market (d). Beta tells how much a share price moves when the whole market moves. A beta of 1 means it moves in step with the market. Above 1, it swings more, so it is riskier, like many tech shares. Below 1, it is steadier, like utilities. Option (a) describes arbitrage: buying cheap on one platform and selling dear on another. Option (b) describes asset allocation. Option (c) describes basis risk, not beta.
Notice its partner, alpha: the extra return a fund manager earns beyond what beta predicts. Index funds aim for a beta of exactly 1 at low cost. Beta captures market risk only, not risks special to one company.
Answer as per the official UPSC answer key.
Consider the following statements :
Statement-I :
In the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes.
Statement-II :
Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means.
Which one of the following is correct in respect of the above statements?
Answer (a) & explanation
Both statements are correct and II explains I (a). Statement I is right: after 2021, prices rose sharply worldwide because of supply chains broken by the pandemic and the Ukraine war. The US Federal Reserve, the European Central Bank, the Bank of England and the RBI all raised policy rates; the RBI raised the repo rate by 250 basis points in 2022–23, to 6.5%. Statement II is right and is the reason: central banks believe that dearer credit cools spending and demand, and so brings inflation down.
Notice the limit: monetary policy works on demand, but much of that inflation came from supply shocks, such as fuel and food. With inflation falling, the RBI began cutting rates again in 2025.
Answer as per the official UPSC answer key.
With reference to the Indian economy, what are the advantages of "Inflation-Indexed Bonds (IIBs)" ?
- 1. Government can reduce the coupon rates on its borrowing by way of IIBs.
- 2. IIBs provide protection to the investors from uncertainty regarding inflation.
- 3. The interest received as well as capital gains on IIBs are not taxable.
Which of the statements given above are correct ?
Answer (a) & explanation
Statements 1 and 2 are correct (a). In an Inflation-Indexed Bond, the principal, and so the interest, is adjusted for inflation. Statement 2 is right: this protects the investor's real return from uncertain inflation. Statement 1 is right: because of this cover, investors accept a lower coupon, which saves the government money on its borrowing. Statement 3 is wrong: there is no tax break; interest and capital gains on IIBs are taxable like any other bond.
Notice that India's IIBs of 2013 were linked to the WPI, and later ones to the CPI, but they drew little interest. Other countries' versions include the US TIPS. The Sovereign Gold Bond (2015) offered a different hedge, linked to gold prices.
statement 3 adds a tax benefit that sounds attractive. Indian IIBs never had one.
Answer as per the official UPSC answer key.
Consider the following :
- 1. Asian Infrastructure Investment Bank
- 2. Missile Technology Control Regime
- 3. Shanghai Cooperation Organisation
India is a member of which of the above ?
Answer (d) & explanation
India is a member of all three (d). Item 1 is right: India is a founding member of the Asian Infrastructure Investment Bank, which began work in 2016 in Beijing, and is its second-largest shareholder after China, as well as its largest borrower. Item 2 is right: India joined the Missile Technology Control Regime in June 2016, which helps it buy and sell missile technology. Item 3 is right: India became a full member of the Shanghai Cooperation Organisation in 2017, along with Pakistan. So options (a), (b) and (c) all leave something out.
Notice India's place in the export control clubs: it is in the MTCR, the Wassenaar Arrangement (2017) and the Australia Group (2018), but its bid for the Nuclear Suppliers Group stays blocked by China.
AIIB is led by China, so many assume India stayed out. India is in fact its largest borrower.
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Answer as per the official UPSC answer key.
With reference to foreign-owned e-commerce firms operating in India, which of the following statements is/are correct ?
- 1. They can sell their own goods in addition to offering their platforms as market-places.
- 2. The degree to which they can own big sellers on their platforms is limited.
Select the correct answer using the code given below :
Answer (d) & explanation
Neither statement is correct (d). India allows 100% FDI in e-commerce only in the marketplace model, where the platform connects buyers and sellers. Statement 1 is wrong: a foreign-owned platform may not hold its own inventory and sell its own goods; the inventory model is barred for FDI. Statement 2 is wrong as worded: since the 2018 rules, a seller in which the platform or its group has any equity cannot sell on that platform at all. This is a ban, not a limit on the degree of ownership.
Notice that the rules targeted Amazon and Flipkart (Walmart). India also built ONDC (Open Network for Digital Commerce, 2022), a government-backed open network meant to give small sellers a fairer chance.
statement 2 sounds mild and true. The rule does not limit such ownership; it bars those sellers outright.
Answer as per the official UPSC answer key.
Consider the following statements :
- 1. Vietnam has been one of the fastest growing economies in the world in the recent years.
- 2. Vietnam is led by a multi-party political system.
- 3. Vietnam's economic growth is linked to its integration with global supply chains and focus on exports.
- 4. For a long time Vietnam's low labour costs and stable exchange rates have attracted global manufacturers.
- 5. Vietnam has the most productive e-service sector in the Indo-Pacific region.
Which of the statements given above are correct ?
Answer (c) & explanation
Statements 1, 3 and 4 are correct (c). Statement 1 is right: Vietnam has grown at about 6–7% a year for most of the past decade, among the fastest anywhere. Statement 3 is right: that growth comes from joining global supply chains and exporting electronics, phones and garments. Statement 4 is right: low wages and a stable currency drew makers such as Samsung, and many firms moving out of China. Statement 2 is wrong: Vietnam is a one-party state run by the Communist Party. Statement 5 is wrong: nothing marks its e-services as the region's most productive.
Notice the "China plus one" strategy, under which companies add a second base outside China. Vietnam is India's main rival for these factories, which India chases through PLI schemes.
Answer as per the official UPSC answer key.
Which of the following activities constitute real sector in the economy ?
- 1. Farmers harvesting their crops
- 2. Textile mills converting raw cotton into fabrics
- 3. A commercial bank lending money to a trading company
- 4. A corporate body issuing Rupee Denominated Bonds overseas
Select the correct answer using the code given below :
Answer (a) & explanation
Harvesting crops and making fabric are real sector activities (a). The real sector produces goods and services: farming, mining, manufacturing, construction and the like. Item 1 is right: farmers harvesting crops produce real goods. Item 2 is right: textile mills turning cotton into fabric create real output. Item 3 is wrong: a bank lending money is a financial sector activity; it moves money, not goods. Item 4 is wrong: a firm issuing Rupee Denominated Bonds overseas, called masala bonds, is also a financial activity.
Notice that GDP counts real output; the financial sector adds value through its services, but its transfers of money are not new goods. The Twin Balance Sheet problem linked stressed real-sector firms with stressed banks.
Answer as per the official UPSC answer key.
In India, which one of the following is responsible for maintaining price stability by controlling inflation ?
Answer (d) & explanation
The Reserve Bank of India controls inflation (d). The RBI Act, 1934, amended in 2016, says the primary objective of monetary policy is price stability while keeping growth in mind. The government sets a CPI inflation target of 4%, with a band of 2–6%, and the six-member Monetary Policy Committee sets the repo rate to meet it. Option (a) is wrong: the Department of Consumer Affairs tracks prices of essentials and runs consumer protection. Option (b) is wrong: the Expenditure Management Commission (2014) only advised on government spending. Option (c) is wrong: the FSDC, chaired by the Finance Minister, looks after financial stability, not inflation.
Notice that if inflation stays outside the band for three quarters in a row, the RBI must explain it in writing to the government.
Answer as per the official UPSC answer key.