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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"Gold Tranche" (Reserve Tranche) refers to
Answer (d) & explanation
The Gold Tranche is an IMF credit system for members (d). Each IMF member has a quota, which sets its contribution, its voting power and how much it can borrow. Part of the quota, originally 25%, is paid in gold or hard currency; this is the reserve tranche, once called the gold tranche. A member can draw it at any time, with no conditions and no interest, because it is really its own money. It is not a World Bank loan system (a), a central bank operation (b), or a WTO credit (c).
Notice that the reserve tranche counts as part of India's forex reserves, with gold, foreign currency assets and SDRs. India's IMF quota share is about 2.75%, and the 16th review aims at a quota increase.
the word "gold" points to a central bank vault. The tranche is a slice of the member's IMF quota.
Answer as per the official UPSC answer key.
In India, under cyber insurance for individuals, which of the following benefits are generally covered, in addition to payment for the loss of funds and other benefits ?
- 1. Cost of restoration of the computer system in case of malware disrupting access to one's computer
- 2. Cost of a new computer if some miscreant wilfully damages it, if proved so
- 3. Cost of hiring a specialized consultant to minimize the loss in case of cyber extortion
- 4. Cost of defence in the Court of Law if any third party files a suit
Select the correct answer using the code given below :
Answer (b) & explanation
Items 1, 3 and 4 are covered (b). Personal cyber insurance in India covers losses from online fraud and attacks, as shaped by IRDAI guidelines. Item 1 is right: it pays to restore data and the computer system after malware blocks access. Item 3 is right: in cyber extortion, such as ransomware, it pays for a specialist consultant to limit the loss. Item 4 is right: it pays legal defence costs if a third party sues, say for a privacy breach. Item 2 is wrong: it does not buy a new computer after deliberate physical damage; that falls under ordinary property insurance.
Notice CERT-In, India's agency for cyber incidents, and the national cybercrime helpline 1930. Other covers include identity theft and phishing losses.
Answer as per the official UPSC answer key.
According to India's National Policy on Biofuels, which of the following can be used as raw materials for the production of biofuels ?
- 1. Cassava
- 2. Damaged wheat grains
- 3. Groundnut seeds
- 4. Horse gram
- 5. Rotten potatoes
- 6. Sugar beet
Select the correct answer using the code given below :
Answer (a) & explanation
Cassava, damaged wheat, rotten potatoes and sugar beet are allowed (a). The National Policy on Biofuels, 2018 widened the raw materials for ethanol. It allows sugarcane juice, sugar beet and sweet sorghum (sugar crops); cassava, corn and other starchy crops; damaged food grains such as wheat and broken rice unfit for eating; and rotten potatoes. So items 1, 2, 5 and 6 are right. Items 3 and 4 are wrong: groundnut (an oilseed) and horse gram (a pulse) are food crops that are not on the list.
Notice the 2022 amendment, which advanced the target of 20% ethanol blending in petrol (E20) to 2025–26; India reached about 20% in 2025. Second-generation (2G) ethanol uses crop waste such as straw.
Answer as per the official UPSC answer key.
If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India ?
- 1. Not depending on short-term foreign borrowings
- 2. Opening up to more foreign banks
- 3. Maintaining full capital account convertibility
Select the correct answer using the code given below :
Answer (a) & explanation
Only statement 1 is correct (a). In a crisis, short-term foreign loans are the first to leave or not be renewed. This happened in the East Asian crisis of 1997, when countries such as Thailand and Indonesia had borrowed heavily short-term. So avoiding them gives protection (1). Statement 2 is wrong because more foreign banks would tie India more closely to world markets. In a crisis, they may pull money back to their home countries. Statement 3 is wrong because full capital account convertibility would let money flow out freely, spreading a shock faster.
India's partial convertibility and large forex reserves helped it weather the 2008 crisis. Notice the Tarapore Committees (1997, 2006), which set preconditions for full convertibility, such as low inflation and a strong banking system.
Answer as per the official UPSC answer key.
In India, which of the following can be considered as public investment in agriculture ?
- 1. Fixing Minimum Support Price for agricultural produce of all crops
- 2. Computerization of Primary Agricultural Credit Societies
- 3. Social Capital development
- 4. Free electricity supply to farmers
- 5. Waiver of agricultural loans by the banking system
- 6. Setting up of cold storage facilities by the governments
Select the correct answer using the code given below :
Answer (c) & explanation
Items 2, 3 and 6 are public investment (c). Investment creates lasting assets that raise future output. Item 2 is right because computerising PACS builds systems that last. Item 3 is right because social capital, such as farmer groups and trained cooperatives, is a lasting asset. Item 6 is right because cold storage cuts post-harvest losses for years. Item 1 is wrong: MSP is a price policy, not an asset. Items 4 and 5 are wrong: free electricity and loan waivers are subsidies or transfers; they support current income but build nothing.
Notice the common critique that heavy farm subsidies crowd out public investment in irrigation, research and roads. Public investment is part of gross capital formation in agriculture.
loan waivers and free power cost the government a lot. Big spending is not the same as investment.
Answer as per the official UPSC answer key.
With reference to pulse production in India, consider the following statements :
- 1. Black gram can be cultivated as both kharif and rabi crop.
- 2. Green gram alone accounts for nearly half of pulse production.
- 3. In the last three decades, while the production of kharif pulses has increased, the production of rabi pulses has decreased.
Which of the statements given above is/are correct ?
Answer (a) & explanation
Only statement 1 is correct (a). Statement 1 is right: black gram (urad) is grown in both kharif and rabi, especially in the south and in rice fallows. Statement 2 is wrong: gram (chickpea), a rabi crop, gives nearly half of India's pulses; green gram (moong) has a much smaller share. Statement 3 is wrong: rabi pulse output, led by chickpea, has grown strongly over the past three decades, so the statement is reversed.
Notice that India is the world's largest producer, consumer and importer of pulses. Pulses are legumes that fix nitrogen. The Mission for Aatmanirbharta in Pulses (2025) aims to cut imports, focusing on tur, urad and masoor.
"gram" and "green gram" are different crops. Chickpea is the big one.
Answer as per the official UPSC answer key.
If you withdraw ₹1,00,000 in cash from your Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will be
Answer (d) & explanation
The money supply stays unchanged (d). Money supply, both M1 (narrow money) and M3 (broad money), is mainly currency with the public plus deposits with banks. When you withdraw ₹1 lakh in cash from a demand deposit, such as a savings or current account, your deposit falls by ₹1 lakh, and currency with the public rises by the same ₹1 lakh. The total does not change; only its form does. So options (a), (b) and (c) are wrong. Over time, lower bank reserves can reduce lending, but the question asks only about the immediate effect.
Notice the other measures: M0 is reserve money, and M3 includes time deposits. The RBI uses M3 as its main measure of money supply.
Answer as per the official UPSC answer key.
What is the importance of the term "Interest Coverage Ratio" of a firm in India ?
- 1. It helps in understanding the present risk of a firm that a bank is going to give loan to.
- 2. It helps in evaluating the emerging risk of a firm that a bank is going to give loan to.
- 3. The higher a borrowing firm's level of Interest Coverage Ratio, the worse is its ability to service its debt.
Select the correct answer using the code given below :
Answer (a) & explanation
Statements 1 and 2 are correct (a). The Interest Coverage Ratio = earnings before interest and tax (EBIT) divided by the interest payable. It shows how many times a firm's profit covers its interest bill. Statement 1 is right because banks use it to judge a borrower's present risk. Statement 2 is right because a falling ratio warns of emerging risk before the firm defaults. Statement 3 is wrong because a higher ratio means a better, not worse, ability to service debt. A ratio below 1 means the firm cannot meet its interest from its earnings.
Notice related ratios: the debt-to-equity ratio and the Debt Service Coverage Ratio. Firms with a ratio below 1 for years are often called "zombie" companies.
Answer as per the official UPSC answer key.
With reference to the current trends in the cultivation of sugarcane in India, consider the following statements :
- 1. A substantial saving in seed material is made when 'bud chip settlings' are raised in a nursery and transplanted in the main field.
- 2. When direct planting of setts is done, the germination percentage is better with single-budded setts as compared to setts with many buds.
- 3. If bad weather conditions prevail when setts are directly planted, single-budded setts have better survival as compared to large setts.
- 4. Sugarcane can be cultivated using settlings prepared from tissue culture.
Which of the statements given above is/are correct ?
Answer (c) & explanation
Statements 1 and 4 are correct (c). Statement 1 is right: in the bud chip method, only a small chip with one bud is raised in a nursery and then transplanted, saving about 80% of seed cane. Statement 2 is wrong: when planted directly in the field, single-bud setts dry out and germinate poorly; two- or three-bud setts do better. Statement 3 is wrong for the same reason: in bad weather, larger setts survive better. Statement 4 is right: tissue culture produces disease-free settlings for planting.
Notice the Sustainable Sugarcane Initiative (SSI), which combines nursery-raised seedlings, wide spacing and drip irrigation. Uttar Pradesh is the top sugarcane producer; Maharashtra often leads in sugar.
Answer as per the official UPSC answer key.
With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic ?
Answer (b) & explanation
FDI is largely a non-debt creating flow (b). Foreign Direct Investment buys ownership (equity) in an Indian business, usually with a say in management. There is no fixed interest to pay and no loan to return, so it adds no external debt and is a stable source of capital. Option (a) is wrong because FDI can go into listed or unlisted companies; in a listed company, a holding of 10% or more counts as FDI, below that as portfolio investment. Option (c) describes External Commercial Borrowings, which need debt-servicing. Option (d) describes FPI in government securities, which is portfolio debt.
Notice the two FDI routes: automatic (no prior approval) and government approval. Singapore and Mauritius have long been the top sources of FDI into India.
option (a) says "essentially in a listed company". FDI often goes into unlisted companies too.
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Answer as per the official UPSC answer key.
Which of the following factors/policies were affecting the price of rice in India in the recent past ?
- 1. Minimum Support Price
- 2. Government's trading
- 3. Government's stockpiling
- 4. Consumer subsidies
Select the correct answer using the code given below :
Answer (d) & explanation
All four affect rice prices (d). The government shapes the rice market at every step. Item 1 is right: the Minimum Support Price sets a floor for farmers and lifts market prices. Item 2 is right: government trading, such as open-market sales by FCI and export curbs (like the 2023 ban on non-basmati white rice exports), changes supply in the market. Item 3 is right: stockpiling by the Food Corporation of India takes grain off the market and keeps buffer stocks. Item 4 is right: consumer subsidies through the PDS lower what poor buyers pay and reduce market demand.
Notice the National Food Security Act, 2013, and PM Garib Kalyan Anna Yojana, which now gives free grain to about 81 crore people.
Answer as per the official UPSC answer key.
In the context of India, which of the following is/are considered to be practice(s) of eco-friendly agriculture?
- 1. Crop diversification
- 2. Legume intensification
- 3. Tensiometer use
- 4. Vertical farming
Select the correct answer using the code given below :
Answer (a) & explanation
Items 1, 2 and 3 are eco-friendly practices (a). Item 1 is right: crop diversification breaks pest cycles, improves soil and spreads risk. Item 2 is right: legumes fix atmospheric nitrogen, cutting the need for chemical fertiliser. Item 3 is right: a tensiometer measures soil moisture, so farmers water only when needed and save water. Item 4 was not counted: in India, vertical farming is a high-energy, indoor urban technique using artificial light and controlled climate, so UPSC did not treat it as eco-friendly farm practice.
Notice other sustainable practices: zero tillage, mulching, integrated pest management, drip irrigation and natural farming. The National Mission on Natural Farming was launched in 2024.
Answer as per the official UPSC answer key.
With reference to the international trade of India at present, which of the following statements is/are correct ?
- 1. India's merchandise exports are less than its merchandise imports.
- 2. India's imports of iron and steel, chemicals, fertilisers and machinery have decreased in recent years.
- 3. India's exports of services are more than its imports of services.
- 4. India suffers from an overall trade/current account deficit.
Select the correct answer using the code given below :
No official answer (question dropped) & notes
UPSC dropped this question, so no answer was scored. The likely reason is statement 4: India usually runs a current account deficit, but in 2020–21 it posted a small surplus as imports collapsed during COVID. The lasting facts are clear. Statement 1 is right: India's merchandise imports (crude oil, gold, electronics) exceed its exports, giving a large trade deficit. Statement 3 is right: India has a big services surplus from software and IT exports. Statement 2 is wrong: imports of iron and steel, chemicals, fertilisers and machinery have generally risen, not fallen.
Notice the full balance of payments: the current account (goods, services, remittances) and the capital account (FDI, FPI, loans). India is the world's largest receiver of remittances.
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.
Consider the following statements :
- 1. The value of Indo-Sri Lanka trade has consistently increased in the last decade.
- 2. "Textile and textile articles" constitute an important item of trade between India and Bangladesh.
- 3. In the last five years, Nepal has been the largest trading partner of India in South Asia.
Which of the statements given above is/are correct ?
Answer (b) & explanation
Only statement 2 is correct (b). Statement 1 is wrong because India–Sri Lanka trade rose and fell with Sri Lanka's troubles, including its 2022 economic crisis; it did not rise "consistently". Statement 2 is right because cotton, yarn and textiles are a major part of India's exports to Bangladesh, which is one of the world's biggest garment exporters and needs raw material. Statement 3 is wrong because Bangladesh, not Nepal, is India's largest trading partner in South Asia.
Notice the India–Sri Lanka Free Trade Agreement (1998, in force 2000) and SAFTA (2004/2006) for South Asia. Nepal is a landlocked country that depends heavily on India for transit and trade, but its total trade is smaller than Bangladesh's.
"consistently" in statement 1. One bad year breaks the claim.
Answer as per the official UPSC answer key.
What are the advantages of fertigation in agriculture ?
- 1. Controlling the alkalinity of irrigation water is possible.
- 2. Efficient application of Rock Phosphate and all other phosphatic fertilizers is possible.
- 3. Increased availability of nutrients to plants is possible.
- 4. Reduction in the leaching of chemical nutrients is possible.
Select the correct answer using the code given below :
Answer (c) & explanation
Statements 1, 3 and 4 are correct (c). Fertigation feeds dissolved fertiliser through drip or sprinkler lines. Statement 1 is right: acids can be added to the water to correct its alkalinity, which also keeps drippers clean. Statement 3 is right: nutrients reach the roots in small, timely doses, so plants take up more. Statement 4 is right: because less fertiliser is applied at once, less is leached below the roots into groundwater. Statement 2 is wrong: rock phosphate does not dissolve in water, so it cannot be applied this way, and nor can all phosphatic fertilisers.
Notice that fertigation pairs naturally with micro-irrigation, promoted under Per Drop More Crop (PMKSY). Fertigation is common in Israel.
the word "all" in statement 2. Fertigation needs fully water-soluble fertilisers.
Answer as per the official UPSC answer key.
The term 'West Texas Intermediate', sometimes found in news, refers to a grade of
Answer (a) & explanation
WTI is a grade of crude oil (a). West Texas Intermediate is a light, sweet (low-sulphur) crude from US oilfields, priced at the delivery hub of Cushing, Oklahoma. It is one of the three main world price benchmarks, along with Brent (North Sea) and Dubai/Oman (Gulf). In April 2020, WTI futures briefly traded below zero as storage ran out during COVID. It has nothing to do with bullion (b), which means gold and silver bars; rare earth elements (c), which are metals such as neodymium; or uranium (d).
Notice that the Indian crude basket is mostly Dubai-Oman (sour grades) and Brent (sweet). Light, sweet crude is easier and cheaper to refine into petrol and diesel.
Answer as per the official UPSC answer key.
In which one of the following groups are all the four countries members of G20 ?
Answer (a) & explanation
Argentina, Mexico, South Africa and Turkey are all G20 members (a). The G20 has 19 countries plus the European Union, and the African Union joined in 2023 at India's New Delhi summit. The 19 are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the UK and the USA. Option (b) fails because of Malaysia and New Zealand. Option (c) fails because of Iran and Vietnam. Option (d) fails because of Singapore.
Notice that the G20 began in 1999 as a meeting of finance ministers after the Asian financial crisis and became a leaders' summit in 2008. It has no permanent secretariat; the troika of past, present and next presidencies guides it.
each wrong option has three members and one outsider. Find the outsider: Malaysia, Iran, Singapore.
Answer as per the official UPSC answer key.
With reference to chemical fertilizers in India, consider the following statements :
- 1. At present, the retail price of chemical fertilizers is market-driven and not administered by the Government.
- 2. Ammonia, which is an input of urea, is produced from natural gas.
- 3. Sulphur, which is a raw material for phosphoric acid fertilizer, is a by-product of oil refineries.
Which of the statements given above is/are correct ?
Answer (b) & explanation
Statements 2 and 3 are correct (b). Statement 1 is wrong: the retail price of urea is fixed by the government (about ₹242 for a 45 kg bag), and P and K fertilisers get a fixed subsidy under Nutrient Based Subsidy (2010), so prices are not purely market-driven. Statement 2 is right: ammonia, the input for urea, is made mostly from natural gas, much of it imported as LNG. Statement 3 is right: sulphur recovered from oil refining is used to make sulphuric acid, which then makes phosphoric acid for DAP.
Notice neem-coated urea (100% since 2015) and nano urea from IFFCO. Fertiliser subsidy is among the biggest items in the Union budget.
Answer as per the official UPSC answer key.
In the context of the Indian economy, non-financial debt includes which of the following ?
- 1. Housing loans owed by households
- 2. Amounts outstanding on credit cards
- 3. Treasury bills
Select the correct answer using the code given below :
Answer (d) & explanation
All three are non-financial debt (d). Non-financial debt is the debt owed by the non-financial sectors of an economy: households, non-financial companies and the government. Statement 1 is right because a housing loan is household debt. Statement 2 is right because credit card dues are also household debt. Statement 3 is right because Treasury Bills are short-term borrowing by the government. The only debt left out is that owed by banks and other financial firms, because counting it would double-count money already lent on.
Notice the related measures: the debt-to-GDP ratio of each sector, and the Bank for International Settlements (BIS), which publishes data on total credit to the non-financial sector. Treasury Bills have maturities of 91, 182 and 364 days.
"non-financial" sounds like it excludes loans and bills. It refers to who owes the debt, not what kind it is.
Answer as per the official UPSC answer key.
Under the Kisan Credit Card scheme, short-term credit support is given to farmers for which of the following purposes ?
- 1. Working capital for maintenance of farm assets
- 2. Purchase of combine harvesters, tractors and mini trucks
- 3. Consumption requirements of farm households
- 4. Post-harvest expenses
- 5. Construction of family house and setting up of village cold storage facility
Select the correct answer using the code given below :
Answer (b) & explanation
Items 1, 3 and 4 are covered (b). The Kisan Credit Card scheme (1998) gives farmers a revolving short-term credit limit. It covers crop cultivation, post-harvest expenses (item 4), consumption needs of the farm household (item 3), and working capital for maintaining farm assets and allied work (item 1). Item 2 is wrong because tractors, harvesters and mini trucks are long-term assets financed by term loans. Item 5 is wrong because a family house and a village cold storage are also long-term investments, not short-term credit.
Notice the interest subvention scheme: KCC loans up to ₹3 lakh carry a low rate, with an extra rebate for prompt repayment. KCC was extended to animal husbandry and fisheries in 2018–19.
Answer as per the official UPSC answer key.