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
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Which one of the following situations best reflects "Indirect Transfers" often talked about in media recently with reference to India ?
Answer (d) & explanation
Indirect transfer means shares abroad deriving value from Indian assets (d). An indirect transfer happens when shares of a foreign company change hands abroad, but those shares get their substantial value from assets located in India. India claims the right to tax the gain. Options (a) and (b) describe ordinary cross-border investment and taxing of profits. Option (c) describes a direct sale of foreign assets by an Indian firm.
Notice the Vodafone case: its 2007 purchase of Hutchison's Indian business through a Cayman Islands company led to a tax demand. The Supreme Court ruled for Vodafone in 2012, and the government then passed a retrospective tax amendment. The Taxation Laws (Amendment) Act, 2021 withdrew that retrospective tax, ending the Cairn dispute as well.
Answer as per the official UPSC answer key.
With reference to Non-Fungible Tokens (NFTs), consider the following statements :
- 1. They enable the digital representation of physical assets.
- 2. They are unique cryptographic tokens that exist on a blockchain.
- 3. They can be traded or exchanged at equivalency and therefore can be used as a medium of commercial transactions.
Which of the statements given above are correct ?
Answer (a) & explanation
Statements 1 and 2 are correct (a). Statement 2 is right: a Non-Fungible Token is a unique cryptographic token recorded on a blockchain, such as Ethereum. Statement 1 is right: an NFT can stand for ownership of digital art, music, game items, or even physical assets like property or luxury goods. Statement 3 is wrong: non-fungible means no two tokens are alike, so they cannot be swapped at par. That is why NFTs cannot work as money, unlike rupees or Bitcoin, which are fungible: any one unit equals any other.
Notice the tax angle: India treats NFTs and crypto as virtual digital assets, with a flat 30% tax on gains and 1% TDS on transfers since 2022. The RBI's own digital currency is the e-rupee.
statement 3 describes fungible tokens. The name itself tells you NFTs are not equivalent to each other.
Answer as per the official UPSC answer key.
With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct ?
- 1. Acquiring new technology is capital expenditure.
- 2. Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure.
Select the correct answer using the code given below :
Answer (a) & explanation
Only statement 1 is correct (a). Statement 1 is right: capital expenditure buys assets that last for years, such as machines, buildings and new technology. Revenue expenditure meets day-to-day costs, such as wages, rent and repairs. Statement 2 is wrong: debt and equity are not expenditure at all; they are sources of funds. A firm raises money by borrowing (debt) or selling shares (equity), and then spends it as capital or revenue expenditure. The statement mixes up how money is raised with how it is spent.
Notice the same split in the Union Budget: the revenue account and the capital account. Interest payments are the largest item of the Centre's revenue expenditure; capital spending builds roads, railways and defence assets.
Answer as per the official UPSC answer key.
In India, which one of the following compiles information on industrial disputes, closures, retrenchments and lay-offs in factories employing workers ?
Answer (c) & explanation
The Labour Bureau compiles this data (c). The Labour Bureau, under the Ministry of Labour and Employment, with offices at Shimla and Chandigarh, collects statistics on industrial disputes, closures, retrenchments and lay-offs. It also compiles the Consumer Price Index for Industrial Workers (CPI-IW), used to set dearness allowance. Option (a) is wrong: the Central Statistics Office, now part of the NSO, handles national accounts and GDP. Option (b) is wrong: DPIIT compiles the Wholesale Price Index and the index of eight core industries. Option (d) is wrong: NTMIS tracked technical manpower supply.
Notice that the Labour Bureau now also runs the Quarterly Employment Survey. The Periodic Labour Force Survey (PLFS), by contrast, comes from the NSO.
Answer as per the official UPSC answer key.
With reference to the Indian economy, consider the following statements :
- 1. A share of the household financial savings goes towards government borrowings.
- 2. Dated securities issued at market-related rates in auctions form a large component of internal debt.
Which of the above statements is/are correct ?
Answer (c) & explanation
Both statements are correct (c). Statement 1 is right: household savings kept in banks, insurance, provident funds and small savings schemes are partly lent to the government, because these institutions buy G-Secs, and small savings funds go into the National Small Savings Fund. Statement 2 is right: dated securities, long-term bonds sold through RBI auctions at market rates, are the largest part of the Centre's internal debt, far ahead of Treasury Bills and other items.
Notice the difference: internal debt is owed within India; external debt is owed abroad. India's public debt is mostly internal and in rupees, which lowers risk. The RBI manages government borrowing as its debt manager.
Answer as per the official UPSC answer key.
In India, what is the role of the Coal Controller's Organization (CCO) ?
- 1. CCO is the major source of Coal Statistics in Government of India.
- 2. It monitors progress of development of Captive Coal/Lignite blocks.
- 3. It hears any objection to the Government's notification relating to acquisition of coal-bearing areas.
- 4. It ensures that coal mining companies deliver the coal to end users in the prescribed time.
Select the correct answer using the code given below :
Answer (a) & explanation
Statements 1, 2 and 3 are correct (a). The Coal Controller's Organisation, based in Kolkata under the Ministry of Coal, does three things named here. Statement 1 is right: it is the main source of coal statistics in the Government of India. Statement 2 is right: it monitors progress of captive coal and lignite blocks. Statement 3 is right: it hears objections to notifications for acquiring coal-bearing land under the Coal Bearing Areas (Acquisition and Development) Act, 1957. Statement 4 is wrong: timely delivery of coal to buyers is a commercial matter between companies and their customers.
Notice that Coal India produces about three-quarters of India's coal. Commercial coal mining by private firms was opened up in 2020.
Answer as per the official UPSC answer key.
"System of Rice Intensification" of cultivation, in which alternate wetting and drying of rice fields is practised, results in :
- 1. Reduced seed requirement
- 2. Reduced methane production
- 3. Reduced electricity consumption
Select the correct answer using the code given below :
Answer (d) & explanation
All three results follow (d). The System of Rice Intensification (SRI) changes how rice is grown. Item 1 is right: it transplants young single seedlings with wide spacing, so it needs far less seed, often only 5–8 kg per hectare against 40–50 kg normally. Item 2 is right: fields are not kept flooded; alternate wetting and drying lets air into the soil, which cuts the bacteria that produce methane. Item 3 is right: less water to pump means less electricity for tube wells.
Notice that SRI was developed in Madagascar in the 1980s by Henri de Laulanié. Notice related methods: Direct Seeded Rice and System of Wheat Intensification. SRI also often raises yields.
Answer as per the official UPSC answer key.
With reference to the "Tea Board" in India, consider the following statements :
- 1. The Tea Board is a statutory body.
- 2. It is a regulatory body attached to the Ministry of Agriculture and Farmers Welfare.
- 3. The Tea Board's Head Office is situated in Bengaluru.
- 4. The Board has overseas offices at Dubai and Moscow.
Which of the statements given above are correct ?
Answer (d) & explanation
Statements 1 and 4 are correct (d). Statement 1 is right: the Tea Board was set up under the Tea Act, 1953, so it is a statutory body. Statement 4 is right: it keeps overseas offices in Dubai and Moscow to promote Indian tea in key markets. Statement 2 is wrong: like the Coffee, Rubber and Spices boards, it works under the Ministry of Commerce and Industry, because these are export crops, not under the Agriculture Ministry. Statement 3 is wrong: its head office is in Kolkata; it is the Coffee Board that sits in Bengaluru.
Notice the other boards: the Spices Board is in Kochi and the Rubber Board in Kottayam. The commodity boards have long been under review for merger and reform.
plantation crops are farm products, but their Boards sit with Commerce. Bengaluru belongs to the Coffee Board.
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Answer as per the official UPSC answer key.
"Rapid Financing Instrument" and "Rapid Credit Facility" are related to the provisions of lending by which one of the following ?
Answer (b) & explanation
Both are IMF lending windows (b). The Rapid Financing Instrument (RFI) and the Rapid Credit Facility (RCF) are emergency windows of the International Monetary Fund for countries facing an urgent balance of payments need, such as after a natural disaster, a conflict or the COVID-19 shock. The RFI is open to all members. The RCF gives concessional (zero or low-interest) loans to low-income countries through the Poverty Reduction and Growth Trust. Neither needs a full IMF programme. The ADB (a), UNEP FI (c) and World Bank (d) do not run these facilities.
Notice the IMF's other tools: the Extended Fund Facility and Stand-By Arrangements, and Special Drawing Rights (SDRs). India took an IMF loan in 1991.
"Financing" and "Credit" sound like a development bank. Quick, short-term BoP help is the IMF's job.
Answer as per the official UPSC answer key.
Consider the following statements :
- 1. Tight monetary policy of US Federal Reserve could lead to capital flight.
- 2. Capital flight may increase the interest cost of firms with existing External Commercial Borrowings (ECBs).
- 3. Devaluation of domestic currency decreases the currency risk associated with ECBs.
Which of the statements given above are correct ?
No official answer (question dropped) & notes
UPSC dropped this question, so no answer was counted. Still, the ideas are core economy. Statement 1 is sound: when the US Federal Reserve raises rates, investors pull money out of emerging markets for safer US returns. This is capital flight, and it weakens their currencies. Statement 2 is sound: a weaker rupee means a firm with External Commercial Borrowings needs more rupees to pay the same dollar interest. Statement 3 is wrong: devaluation raises, not lowers, the currency risk of foreign-currency loans.
Notice the 2013 "taper tantrum", when Fed hints sank the rupee. That is why the RBI asks firms to hedge ECBs and keeps large forex reserves.
UPSC did not evaluate this question, so no official answer exists. Use it for practice only.
UPSC dropped this question from evaluation; there is no official answer.
With reference to the Indian economy, consider the following statements :
- 1. An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee.
- 2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness.
- 3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and REER.
Which of the above statements are correct ?
Answer (c) & explanation
Statements 1 and 3 are correct (c). Statement 1 is right: NEER (Nominal Effective Exchange Rate) is a weighted average of the rupee against a basket of trading partners' currencies; a rise means the rupee has appreciated. Statement 2 is wrong: REER adjusts NEER for inflation differences. A rising REER means Indian goods are getting dearer abroad, so competitiveness falls, not improves. Statement 3 is right: if India's inflation runs higher than its partners', REER rises even when NEER does not, so the two drift apart.
Notice that the RBI publishes NEER and REER on 40-currency and 6-currency baskets. A REER above 100 suggests the rupee is overvalued against the base year.
statement 2 reverses the effect. A stronger real rupee hurts exporters; it does not help them.
Answer as per the official UPSC answer key.
Consider the following statements :
- 1. In India, credit rating agencies are regulated by Reserve Bank of India.
- 2. The rating agency popularly known as ICRA is a public limited company.
- 3. Brickwork Ratings is an Indian credit rating agency.
Which of the statements given above are correct ?
Answer (b) & explanation
Statements 2 and 3 are correct (b). Statement 2 is right: ICRA began in 1991 as the Investment Information and Credit Rating Agency and is a public limited company listed on the stock exchanges; Moody's is its major shareholder. Statement 3 is right: Brickwork Ratings was an Indian credit rating agency set up in Bengaluru, though SEBI cancelled its registration in 2022 for lapses. Statement 1 is wrong: credit rating agencies are registered and regulated by SEBI under the CRA Regulations, 1999, not by the RBI. The RBI only lists which agencies banks may use for capital rules.
Notice the other Indian agencies: CRISIL (S&P), CARE, India Ratings (Fitch) and Acuité.
ratings are used by banks, so the RBI comes to mind. The RBI only accredits agencies for bank capital rules; SEBI regulates them.
Answer as per the official UPSC answer key.
With reference to the Indian economy, consider the following statements :
- 1. If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities.
- 2. If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market.
- 3. If interest rates in the USA or European Union were to fall, that is likely to induce RBI to buy dollars.
Which of the statements given above are correct ?
Answer (b) & explanation
Statements 2 and 3 are correct (b). Statement 1 is wrong: to fight high inflation, the RBI sells government securities through open market operations, pulling money out of the system; buying them would add money. Statement 2 is right: to stop the rupee falling fast, the RBI sells dollars from its forex reserves, which raises the supply of dollars. Statement 3 is right: when US or EU interest rates fall, foreign money flows into India and the rupee tends to rise, so the RBI buys dollars to smooth this and add to reserves.
Notice sterilisation: when the RBI buys dollars it releases rupees, so it may sell bonds to soak them up. India's forex reserves crossed $700 billion in 2024.
statement 1 has the right tool but the wrong direction. Always ask: does this action add money or remove it?
Answer as per the official UPSC answer key.
With reference to the 'Banks Board Bureau (BBB)', which of the following statements are correct ?
- 1. The Governor of RBI is the Chairman of BBB.
- 2. BBB recommends for the selection of heads for Public Sector Banks.
- 3. BBB helps the Public Sector Banks in developing strategies and capital raising plans.
Select the correct answer using the code given below :
Answer (b) & explanation
Statements 2 and 3 are correct (b). The Banks Board Bureau was set up in 2016 under the Indradhanush plan to clean up how public sector banks were run. Statement 2 is right: it recommended heads and whole-time directors of public sector banks and state-run financial institutions. Statement 3 is right: it advised these banks on strategy, governance and capital raising. Statement 1 is wrong: its chairman was an eminent professional, the first being former CAG Vinod Rai, not the RBI Governor.
Notice that in 2022 the BBB was replaced by the Financial Services Institutions Bureau (FSIB), which now also selects heads of public sector insurance companies. Indradhanush stood for seven reforms: Appointments, BBB, Capitalisation, De-stressing, Empowerment, Accountability and Governance.
the RBI Governor heads many bodies, so statement 1 looks safe. BBB was deliberately kept independent of the regulator.
Answer as per the official UPSC answer key.
With reference to the "G20 Common Framework", consider the following statements :
- 1. It is an initiative endorsed by the G20 together with the Paris Club.
- 2. It is an initiative to support Low Income Countries with unsustainable debt.
Which of the statements given above is/are correct ?
Answer (c) & explanation
Both statements are correct (c). Statement 1 is right: the Common Framework for Debt Treatments beyond the DSSI was agreed in November 2020 by the G20 together with the Paris Club of creditor nations. Statement 2 is right: it lets low-income countries with unsustainable debt seek restructuring with all official creditors at one table, including newer lenders such as China that are not in the Paris Club. Zambia, Ghana and Ethiopia applied under it.
Notice its forerunner, the Debt Service Suspension Initiative (DSSI) of 2020, which paused repayments during COVID. India, as G20 president in 2023, pushed for faster debt relief for the Global South. Critics say the framework has been slow.
Answer as per the official UPSC answer key.
With reference to Convertible Bonds, consider the following statements :
- 1. As there is an option to exchange the bond for equity, Convertible Bonds pay a lower rate of interest.
- 2. The option to convert to equity affords the bondholder a degree of indexation to rising consumer prices.
Which of the statements given above is/are correct ?
Answer (c) & explanation
Both statements are correct (c). A convertible bond pays fixed interest but lets the holder turn it into the company's shares later. Statement 1 is right: investors value that option, so the company can pay a lower coupon than on a plain bond. Statement 2 is right: when consumer prices rise, company revenues and share prices usually rise too, so the right to convert gives some protection, a partial indexation, against inflation. A plain fixed-coupon bond loses real value as prices rise.
Notice the Indian link: Foreign Currency Convertible Bonds (FCCBs) let Indian firms borrow abroad cheaply. Compare inflation-indexed bonds, whose principal itself rises with prices, and perpetual bonds, which never mature.
Answer as per the official UPSC answer key.
Which among the following steps is most likely to be taken at the time of an economic recession?
Answer (b) & explanation
Raising spending on public projects is the likely step (b). In a recession, demand is weak, factories cut output and jobs are lost. The government tries to add demand through expansionary fiscal policy. Spending more on public works such as roads, housing and irrigation creates jobs and incomes, and those incomes are spent again (the multiplier effect). Option (a) is wrong: it pairs a tax cut (expansionary) with a rate hike (contractionary). Option (c) is wrong: it pairs a tax hike (contractionary) with a rate cut (expansionary). Option (d) is plainly contractionary and would deepen the slump.
Notice Keynes, who argued for public spending in the Great Depression. India raised capital expenditure sharply after COVID to revive growth.
options (a) and (c) each contain one correct half. In a recession, both tax and interest should move down.
Answer as per the official UPSC answer key.
With reference to 'WaterCredit', consider the following statements :
- 1. It puts microfinance tools to work in the water and sanitation sector.
- 2. It is a global initiative launched under the aegis of the World Health Organization and the World Bank.
- 3. It aims to enable the poor people to meet their water needs without depending on subsidies.
Which of the statements given above are correct?
Answer (c) & explanation
Statements 1 and 3 are correct (c). WaterCredit was started by the non-profit Water.org, co-founded by Gary White and actor Matt Damon. Statement 1 is right: it puts microfinance tools to work, through partner lenders that give small loans to poor households for a tap connection or a toilet. Statement 3 is right: the idea is to help people meet water needs through credit they repay, not through subsidies. Statement 2 is wrong: it was not launched under the WHO or the World Bank.
Notice India's own water programmes: the Jal Jeevan Mission (2019), which aims at a tap connection for every rural home, and the Swachh Bharat Mission for toilets. SDG 6 covers clean water and sanitation.
Answer as per the official UPSC answer key.
Consider the following statements :
Other things remaining unchanged, market demand for a good might increase if
- 1. price of its substitute increases
- 2. price of its complement increases
- 3. the good is an inferior good and income of the consumers increases
- 4. its price falls
Which of the above statements are correct?
Answer (a) & explanation
Statements 1 and 4 are correct (a). Statement 1 is right: if a substitute gets dearer, people switch to this good. If tea costs more, demand for coffee rises. Statement 2 is wrong: if a complement gets dearer, demand falls. If petrol costs more, people buy fewer cars. Statement 3 is wrong: for an inferior good, such as coarse grain, demand falls as income rises, because people switch to better goods. Statement 4 is right: by the law of demand, a fall in a good's own price raises the quantity demanded.
Notice the exceptions to the law of demand: Giffen goods and Veblen goods (luxury status goods). Also note the difference between a movement along the demand curve (own price) and a shift of the curve (other factors).
Answer as per the official UPSC answer key.
In India, the central bank's function as the 'lender of last resort' usually refers to which of the following?
- 1. Lending to trade and industry bodies when they fail to borrow from other sources
- 2. Providing liquidity to the banks having a temporary crisis
- 3. Lending to governments to finance budgetary deficits
Select the correct answer using the code given below.
Answer (b) & explanation
Only statement 2 describes the lender of last resort (b). As lender of last resort, the RBI gives emergency funds to a basically sound bank that faces a sudden shortage of cash, so that panic does not spread to other banks and the system stays stable. The Marginal Standing Facility is one such window. Statement 1 is wrong: the RBI does not lend directly to trade or industry bodies. Statement 3 is wrong: lending to governments through ways and means advances is its role as banker to the government, not as lender of last resort.
Notice the idea came from Walter Bagehot's Lombard Street (1873): lend freely to solvent banks, against good collateral, at a penalty rate.
Answer as per the official UPSC answer key.