Economy

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Most Probable Topics for UPSC CSE Prelims 2023 - Economy

1. UPI Lite
2. G-Sec
3. Stagflation
4. Depreciation of Rupee
5. Foreign Direct investment
6. ONDC
7. Repo Rate
8. Functions of RBI
9. Minimum Support Price (MSP)
10. National Income
11. Foreign Trade Policy (FTP) 2023
12. Wholesale Price Index (WPI)
13. Standing Deposit Facility
14. 15th Finance Commission
15. Gross Fixed Capital Formation
16. Impact of falling rupee
17. General Anti-Avoidance Rule (GAAR)
18. Indian Depository Receipt
19. Integrated Ombudsman Scheme
20. Millets
21. Pradhan Mantri Anusuchit Jaati Abhyuday Yojna (PM-AJAY)
22. Monetary policy framework
23. Sovereign Green Bonds
24. Treasury Bills
25. Deposit Insurance and Credit Guarantee Corporation (DICGC)
26. Financial Services Institutions Bureau (FSIB)
27. Consumer Price Index for Industrial Workers
28. Precision Farming
29. Co-location issue
30. T+1 settlement plan
31. Cost Push inflation
32. Human capital formation
33. National Mission on Natural Farming (NMNF)
34. Windfall tax
35. Venture Capital Fund
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Q.1) Which of the following is/are not correct with respect to UPILite?
a) It is an on-device wallet functionality for transactions of smaller values.

b) Maximum of Rs. 2000 can be kept in UPI wallet under UPILite.
c) No UPI Pin will be required to do transactions under UPILite.
d) All transactions done through UPILite will be reflected in the account statement.
Answer: (d)
Unified Payment Interface (UPI):

● UPI is the indigenous digital payment system in India that was conceptualised and operated by the
National Payments Corporation of India (NPCI) in 2016.
● It powers multiple bank accounts into a single mobile application merging several banking features,
seamless fund routing & merchant payments into one hood.
● UPI today holds 96.5% market share in overall mobile payments and 56% (volume-wise) in
person-to-merchant payments.
UPILite:
● UPI Lite will be an on-device wallet functionality that will enable offline transactions of smaller values.
○ UPI Lite will work via the wallet system. So, option (a) is correct.
● Transaction limit- Funds have to be added in the UPI Lite wallet and which can be used to make small
payments under Rs 200.
● Wallet limit- There is a Rs 2,000 limit on the amount of money you can have in this UPI Lite wallet. So,
option (b) is correct.
● The users will not be required to enter their UPI PIN while confirming UPI Lite payments. So, option (c) is
correct.
● Adding funds- Any user of UPI app will have the option to enable UPI Lite called “On-Device wallet” on
their UPI app itself.
○ Once enabled, users can allocate funds from their bank account to UPI lite.
○ Adding funds in UPI Lite shall only be allowed in online mode with additional factor authentication
or using UPI AutoPay feature.
● No interest will be payable on the UPI LITE Balance.
● UPI LITE Transactions other than top up Transaction will not be displayed in the statement (pass
book) of the Account. So, option (d) is not correct.
○ You will receive SMS once a day for UPI LITE Transactions from your Issuing Bank containing
history of Transactions carried out during the day
Therefore, option (d) is the correct answer.
Q.2) 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 only
3. American Federal Policy has no impact on G-sec bond yield.
Which of the statements given above is/are correct?
a) 1 and 2 only
b) 2 only
c) 2 and 3 only
d) 1, 2 and 3
Answer: (b)
Government securities:
● A Government Security (G-Sec) is a tradable instrument issued by the Central Government or the
State Governments.
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○ It acknowledges the Government’s debt obligation.

○ Such securities are short term (usually called treasury bills, with original maturities of less than one
year) or long term (usually called Government bonds or dated securities with original maturity of
one year or more).
● In India, the Central Government issues both, treasury bills and bonds or dated securities while the
State Governments issue only bonds or dated securities, which are called the State Development
Loans (SDLs). There are no treasury bills issued by the state government. So, statement 2 is correct.
● G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.
● G-Secs are issued through auctions conducted by RBI.
○ Auctions are conducted on the electronic platform called the E-Kuber, the Core Banking Solution
(CBS) platform of RBI.
○ Commercial banks, scheduled UCBs, Primary Dealers, insurance companies and provident funds,
who maintain funds account (current account) and securities accounts (Subsidiary General Ledger
(SGL) account) with RBI, are members of this electronic platform.
○ All members of E-Kuber can place their bids in the auction through this electronic platform.
● In terms of Sec. 21A (1) (b) of the Reserve Bank of India Act, 1934, the RBI may, by agreement with
any State Government, undertake the management of the public debt of that State.
○ Accordingly, the RBI has entered into agreements with 29 State Governments and one Union
Territory (UT of Puducherry) for management of their public debt.
○ Under Article 293(3) of the Constitution of India (Under section 48A of Union territories Act, in case
of Union Territory), a State Government has to obtain the permission of the Central
Government for any borrowing as long as there is any outstanding loan that the State
Government may have from the Centre.
○ Market borrowings are raised by the RBI on behalf of the State Governments to the extent of
the allocations under the Market Borrowing Program as approved by the Ministry of Finance in
consultation with the Planning Commission.
○ Currently, SDL auctions are held generally on Tuesdays every week. As in case of Central
Government securities, the auction is held on the E-Kuber Platform.
● Both the Central government and state government’s securities are managed by RBI. So, statement 1
is not correct.
Treasury Bills (T-bills)
● Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued
by the Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 364 day.
● Treasury bills are zero coupon securities and pay no interest. Instead, they are issued at a discount and
redeemed at the face value at maturity.
Cash Management Bills (CMBs)
● In 2010, Government of India, in consultation with RBI introduced a new short-term instrument,
known as Cash Management Bills (CMBs), to meet the temporary mismatches in the cash flow of the
Government of India.
● The CMBs have the generic character of T-bills but are issued for maturities less than 91 days.
Dated G-Secs
● Dated G-Secs are securities which carry a fixed or floating coupon (interest rate) which is paid on the
face value, on a half-yearly basis.
● Generally, the tenor of dated securities ranges from 5 years to 40 years.
Yield on government bonds:
● Yield to maturity on Government bonds are determined by multiple factors which includes:
○ Federal interest rates of USA: any hike in the interest rate will see outflow of funds from
emerging markets including India resulting in decrease in bond yield and vice-versa. So, statement
3 is not correct.
○ RBI’ Policies: The multifaceted roles played by the RBI in the payment system, monetary
policy, financial stability policy, and policy coordination with the Treasury gives it the
operational ability to influence government bonds’ nominal yields by setting and changing the
short-term interest rate and using other tools of monetary policy as it deems appropriate.
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○ Inflation: pace of inflation is another key driver of interest rates and yield to maturity on government
bonds.
Therefore, option (b) is the correct answer.
Q.3) With reference to Stagflation, consider the following statements:

1. High inflation.
2. Increase in unemployment
3. Medium to high economic growth.
4. It goes on the lines of the Phillips curve.
Which of the statements given above is/are correct in context of stagflation?
a) 1 and 2 only
b) 1 and 3 only
c) 1, 2 and 4 only
d) 1, 2, and 3 only
Answer: (a)
Stagflation:
● Stagflation is an economic condition when stagnant economic growth, high unemployment, and high
inflation combine together. So, statements 1 and 2 are correct and statement 3 is not correct.
● Stagflation is a difficult economic condition to address because the traditional tools used to combat
inflation, such as raising interest rates, may exacerbate the economic slowdown and increase
unemployment.
○ At the same time, policies that are designed to stimulate economic growth, such as increasing
government spending or cutting taxes, may further fuel inflation.
Peculiarity of Stagflation:
● Based on popular economic theories, typically, inflation rises when the economy is growing fast.
○ This is because, with economic growth, people earn more and more money and have higher
disposable incomes resulting in higher demand in the economy.
○ This higher demand results in higher prices for the goods. Also when the economy stalls, inflation
tends to dip as well as there is less money now chasing the same quantity of goods.
○ Stagflation characterized by high inflation rates and low economic growth rate varies from
this trend.
● Also, stagflation counters the economic theory of the Phillips Curve, which proposes an inverse
relationship between inflation and unemployment.
○ The theory claims that with economic growth comes inflation, which in turn should lead to more
jobs and less unemployment and vice versa.
○ Stagflation with a high inflation rate and a high unemployment rate goes against the Phillips
curve. So, statement 4 is not correct.
Therefore, option (a) is the correct answer.
Q.4) Which of the following steps RBI can take to arrest the fall of Rupee?
1. Selling dollars in the open market.
2. Raising benchmark interest rates.
3. Increase capital inflows in NRI accounts.
Which of the statements given below is/are correct?
a) 1 only
b) 1 and 2 only
c) 2 and 3 only
d) 1, 2, and 3
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Answer: (d)
Depreciation of Rs:
● The Indian Rupee depreciated by around 10% against the US dollar and the rupee was the
worst-performing Asian currency in 2022.
● As a matter of policy, the RBI has usually tried to slow down or smoothen (rather than reverse or
prevent) the fall in exchange value of the Rupee against the US Dollar.
● The aim of the RBI’s policy is to allow the Rupee to find its natural value in the market but without undue
volatility or causing unnecessary panic among investors.
● State-run banks are usually instructed by the RBI to sell Dollars in order to offer some support to the
Rupee. By selling Dollars in the open market in exchange for Rupees, the RBI can improve demand for
the Rupee and cushion its fall. So, statement 1 is correct.
● The RBI is also seen raising benchmark interest rates to defend the Rupee by preventing any rapid
outflow of capital from India as done by it in May 2022. So, statement 2 is correct.
● RBI can ask importers to hedge however it cannot be made mandatory.
● Increase capital inflows into NRI accounts:
○ The RBI might take steps to stimulate capital inflows into NRI accounts.
○ When NRIs begin to deposit money in India, they will be selling dollars in order to convert them
to rupees, which will support the cause. So, statement 3 is correct.
○ The RBI can contact banks to encourage them to offer higher interest rates on deposits and
short-term bonds to non-residents.
Q.5) Consider the following statements:

1. Foreign Direct investment brings investment in productive assets whereas Foreign Institutional investments
brings investment in financial assets.
2. FDI investors adopt a long term approach whereas institutional investors generally have a short term
investment plan.
3. Foreign Direct investments are more easy to withdraw than institutional investments.
a) 1 and 3 only
b) 1 and 2 only
c) 2 and 3 only
d) 1, 2 and 3
Answer: (b)
Foreign Investments:
● Foreign Direct Investment (FDI) implies that foreign investors are directly investing in the productive
assets of another nation.
● On the other hand, there is no difference between FPI and FII.
○ Foreign institutional investors (FII) are single investors of a group of investors that brings in foreign
portfolio investments. Hence, they are one and the same.
○ They involve investing in financial assets like the bonds and stocks of another country. So,
statement 1 is correct.
Features of FDIs and FIIs/FPIs:
● Type of Asset:
○ FDIs tend to invest in productive assets like machinery and plants for their business. The value
of these assets increases with time.
○ Foreign institutional investments put their money into financial assets like the bonds, mutual
funds, and stocks of the nation.
■ The value of these financial assets may increase, or decrease with time depending upon
the company in charge, economic, and political consensus.
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● Investment Tenure for FDI vs FII vs FPI

○ Foreign director investors tend to take a longer-term approach to their FDI investments.
■ It can take anywhere between 6 months to a couple of years to advance from the planning
stage to the project implementation stage.
○ The difference with respect to foreign portfolio investments of FIIs is that the investors have a
much shorter investment horizon. So, statement 2 is correct.
■ FIIs may be invested for the long haul however, the investment horizon continues to
remain small, especially when one’s local economy is turbulent.
● Liquidity of FDI vs FII vs FPI Investments:
○ Due to the length of the investment horizon, FDI investors also cannot depart as easily from their
investments as FII portfolio investments.
○ FDI assets can even be considered larger and definitely less liquid than FII portfolio
investments. So, statement 3 is not correct.
■ Lack of liquidity reduces the buying power of an investor and increases the risk. This is
why investors prepare for long periods before investing in FDI assets.
● Control Exercised in FDI vs FII vs FPI
○ In general, FDI investors are actively involved in the management of their investments.
■ FDI investors take controlling positions in two ways: either through joint ventures or in
domestic firms.
○ FII investors tend to take on more passive positions in their investments.
■ FIIs are considered passive investors and aren’t involved in the day-to-day functioning
and operation as well as strategic planning required by any domestic companies.
Q.6) Consider the following statements with respect to Open Network for Digital Commerce:
1. It will connect buyers from one e-commerce platform to sellers from another e-commerce site.
2. It is a freely accessible government backed platform to democratize the e-commerce market.
3. It is mandatory for all existing digital commerce applications and platforms to join the network.
Which of the above statements is/are correct?
a) 2 and 3 only
b) 1 and 3 only
c) 1 and 2 only
d) 1, 2 and 3
Answer: (c)
● Open Network for Digital Commerce (ONDC) is a freely accessible government-backed platform that
aims to democratise e-commerce by moving it from a platform-centric model to an open network for
buying and selling of goods and services. So, statement 2 is correct.
○ Under ONDC, it is envisaged that a buyer registered on one participating e-commerce site (for
example, Amazon) may purchase goods from a seller on another participating e-commerce
site (for example, Flipkart). So, statement 1 is correct.
○ Presently, buyers and sellers have to be on the same app for a transaction which happens through
the same platform. For example, a buyer needs to go to Amazon, to buy a product from a seller on
Amazon.
● It is a not-for-profit organization that will offer a network to enable local digital commerce stores
across industries to be discovered and engaged by any network-enabled applications.
○ The open network concept extends beyond the retail sector, to any digital commerce domains
including wholesale, mobility, food delivery, logistics, travel, urban services, etc.
● It is neither an aggregator application nor a hosting platform, and all existing digital commerce
applications and platforms can voluntarily choose to adopt and be a part of the ONDC network. So,
statement 3 is not correct.
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● The ONDC aims at promoting open networks developed on open-sourced methodology, using open
specifications and open network protocols, independent on any specific platform.
● The project to integrate e-commerce platforms through a network based on open-source technology
has been tasked to the Quality Council of India.
○ Open source refers to a software program or platform with source code that is readily accessible
and which can be modified or enhanced by anyone. Open source access grants users of an
application permission to fix broken links, enhance the design, or improve the original code.
Therefore, option (c) is the correct answer.
Q.7) Which of the following will be the Impact of an increase in the Repo Rate by RBI?
1. EMIs on loans will increase.
2. Rates of Fixed term deposit will rise.
3. Overall demand in the economy will decrease.
a) 1 and 3 only
b) 1 and 2 only
c) 2 and 3 only
d) 1, 2 and 3
Answer: (d)
Repo Rate:
● It is the rate at which the central bank of a country lends money to commercial banks in the event of
any shortfall of funds.
● Repo rate is used by monetary authorities to control inflation.
● If the Repo rate is hiked,
○ The banks will now have to pay a higher amount of interest to the RBI which in turn shall be
collected from the retail/ corporate borrowers of the banks.
○ This would result in higher interest outflow on loans taken from the banks, thus the loans in general
will become costlier by 1-2%.
● Overall Impact on the economy:
○ Lending rates of banks are expected to go up as the cost of funds is expected to rise further.
○ EMIs on vehicles, home and personal loans will also rise. So, statement 1 is correct.
○ The external benchmark linked lending rate (EBLR) of banks will rise as such loans are linked
to the Repo rate.
○ Deposit rates, mainly fixed term rates, are also set to rise. So, statement 2 is correct.
○ Some analysts say that consumption and demand can be impacted by the repo rate hike.
■ With RBI increasing Repo rates will result in hike in Bank’s lending rate leading to
reduction in the demand in the economy. So, statement 3 is correct.
○ Marginal cost of funds-based lending rates (MCLR) which accounts for 49.2% of the loans
portfolio of banks is also expected to move up. So, statement 2 is correct.
○ Since the Repo rate is hiked the banks will now have to pay a higher amount of interest to the
RBI which in turn shall be collected from the retail/ corporate borrowers of the banks. This would
result in higher interest outflow on loans taken from the banks. Thus, the loans in general will
become costlier by 1-2%.
Q.8) With reference to functions of RBI, consider the following statements:

1. Implementation and monitoring of monetary and fiscal policies.
2. RBI is responsible for maintaining the forex reserve.
3. Issue directives to commercial banks to lend loans to small scale industrial units.
4. Promotional functions that encourage rural and agricultural economic development.
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a) 1, 2 and 3 only
b) 2, and 4 only
c) 2 and 3 only
d) 2, 3 and 4 only
Answer: (d)
Reserve Bank of India:

● RBI is an institution of national importance and the pillar of the surging Indian economy.
● It is a member of the International Monetary Fund (IMF).
Functions of Reserve Bank of India:
● Monetary Authority
○ Implementation of monetary policies.
○ Monitoring the monetary policies
○ Ensuring price stability in the country considering the economic growth of the country.
Note: Fiscal policy is determined and implemented by the Government and not RBI. So,
● Regulator and Administrator of the Financial System
○ The RBI determines the comprehensive parameters of banking operations.
○ These methods are responsible for the functioning of the country’s banking and financial system.
Methods such as:
■ License issuing
■ Liquidity of assets
■ Bank mergers
■ Branch expansion, etc.
● Managing Foreign Exchange
○ RBI manages the FOREX Reserves of India. So, statement 2 is correct.
○ It is responsible for maintaining the value of the Rupee outside the country.
○ It aids foreign trade payment.
● Issuer of currency:
○ The Reserve Bank of India is responsible for providing the public with a sufficient supply of
currency notes and coins.
○ The quality of currency notes and coins is also taken care of by the RBI.
○ RBI is in charge of issuing and exchanging of currency and coins.
○ Also, the destruction of currency and coins that are not fit for circulation.
● RBI’s Developmental role
○ Promotional functions that support national objectives are organized by RBI that encourage
rural and agricultural economic development. So, statement 4 is correct.
○ The RBI will regularly issue directives to the commercial banks to lend loans to small-scale
industrial units. So, statement 3 is correct.
Q.9) With reference to Minimum Support Price, consider the following statements:
1. The Commission for Agricultural Costs & Prices (CACP) recommends MSPs for mandated crops.
2. C2 costs are used as benchmark reference costs by CACP to determine MSP.
3. MSP is not declared for commercial crops.
a) 1 and 2 only
b) 1 and 3 only
c) 2 and 3 only
d) 1, 2 and 3
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Answer: (a)
Minimum Support Price:

● About:
○ The MSP is the rate at which the government purchases crops from farmers, and is based on
a calculation of at least one-and-a-half times the cost of production incurred by the farmers.
○ MSP is a “minimum price” for any crop that the government considers as remunerative for farmers
and hence deserving of “support”.
● Crops under MSP:
○ The Commission for Agricultural Costs & Prices (CACP) recommends MSPs for 22
mandated crops and fair and remunerative price (FRP) for sugarcane. So, statement 1 is
correct.
■ CACP is an attached office of the Ministry of Agriculture and Farmers Welfare.
○ The mandated crops include 14 crops of the kharif season, 6 rabi crops and 2 other
commercial crops. So, statement 3 is not correct.
○ In addition, the MSPs of toria and de-husked coconut are fixed on the basis of the MSPs of
rapeseed/mustard and copra, respectively.
● Factors for Recommending the MSP:
○ The CACP considers various factors while recommending the MSP for a commodity, including
cost of cultivation.
○ It takes into account the supply and demand situation for the commodity, Market price trends
(domestic and global) and Parity vis-à-vis other crops, Implications for consumers (inflation),
environment (soil and water use) and terms of trade between agriculture and non-agriculture
sectors.
● Three Kinds of Production Cost:
○ The CACP projects three kinds of production cost for every crop, both at state and all-India
average levels.
■ ‘A2’: Covers all paid-out costs directly incurred by the farmer in cash and kind on
seeds, fertilisers, pesticides, hired labour, leased-in land, fuel, irrigation, etc.
■ ‘A2+FL’: Includes A2 plus an imputed value of unpaid family labour.
■ ‘C2’: It is a more comprehensive cost that factors in rentals and interest forgone on
owned land and fixed capital assets, on top of A2+FL.
○ CACP considers both A2+FL and C2 costs while recommending MSP.
■ CACP reckons only A2+FL cost for return.
■ However, C2 costs are used by CACP primarily as benchmark reference costs
(opportunity costs) to see if the MSPs recommended by them at least cover these costs in
some of the major producing States. So, statement 2 is correct.
○ The Cabinet Committee on Economic Affairs (CCEA) of the Union government takes a final
decision on the level of MSPs and other recommendations made by CACP.
Q.10) Which of the following is/are correct with regard to calculation of national income?
a) The production method of calculating national income does not take factor income from abroad into account
b) The expenditure method is the total of consumption, government expenditure, investments as well as net
exports from the country.
c) Income method takes into account transfer payments to calculate the national income.
d) All the statements are correct.
Answer: (b)
National Income:
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● During a year, all goods and services produced in the country must be recorded and converted to monetary
value. As a result, whatever is produced is either consumed or saved.
● Thus, the national output may be calculated at three different levels: production, income, and expenditure.
As a result, there are three ways of calculating national income.
1. Production or value-added method
2. Income method or factor earning method
3. Expenditure method
Production Method Or Value-added method.
● Product method measures the output of the country. It is also called an inventory method.
● Under this method, the gross value of output from different sectors like agriculture, industry, trade
and commerce, etc., is obtained for the entire economy during a year.
○ The value obtained is actually the GNP at market prices. Care must be taken to avoid double
counting.
i. GNPMP is the value of all the final goods and services that are produced by the
normal residents of India and is measured at the market prices, in a year.
ii. GNP refers to all the economic output produced by a nation’s normal residents, whether
they are located within the national boundary or abroad.
iii. Everything is valued at market prices.
iv. GNPMP = GDPMP + NFIA (Net Factor Income from Abroad). So, option (a) is not
correct.
● The value of the final product is derived by the summation of all the values added in the productive
process. To avoid double-counting, either the value of the final output should be taken into the estimate of
GNP or the sum of values added should be taken.
● Challenges of using this method
○ The product method is followed in underdeveloped countries, but it is less reliable because the
margin of error in this method is large.
○ In India, this method is applied to agriculture, mining and manufacturing, including handicrafts.
○ Double counting is to be avoided under the value-added method. Any commodity which is either
raw material or intermediate good for the final product should not be included.
i. For example, the value of cotton enters the value of yarn as cost, and the value of yarn
in cloth and that of cloth in garments. At every stage value-added only should be
calculated.
○ The value of output used for self-consumption should be counted while measuring national income.
○ In the case of durable goods, the sale and purchase of second-hand goods (for example
pre-owned cars) should not be included.
Income Method (Factor Earning Method)

● This method approaches national income from the distribution side. Under this method, national income
is calculated by adding up all the incomes generated by all producing units in the course of
producing national products.
● Income received by basic factors like labour, capital, land and entrepreneurship are summed up.
● NI is estimated by adding up incomes of all the factors of production as follows:
○ wages and salaries + Rents & Royalties + Interest + Profit + Mixed income of self-employed.
● Items not to be included
1. Transfer payments are not to be included in the estimation of national income as these
payments are not received for any services provided in the current year such as a pension, social
insurance etc. So, option (c) is not correct.
2. The receipts from the sale of second-hand goods should not be treated as part of national
income as they do not create a new flow of goods or services in the current year.
3. Windfall gains such as lotteries are also not to be included as they do not represent receipts
from any current productive activity.
4. Corporate profit tax should not be separately included as it has been already included as a part of
company profit.
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● Items to be included
1. The imputed value of rent for self-occupied houses or offices is to be included.
2. Imputed value of services provided by owners of production units (family labour) is to be included.
The Expenditure Method
● Under this method, the total expenditure incurred by the society in a particular year is added together.
● To calculate the expenditure of a society, it includes personal consumption expenditure, net domestic
investment, government expenditure on consumption as well as capital goods and net exports. So,
option (b) is correct.
GNP = C + I + G + (X-M)
C - Private consumption expenditure
I - Private Investment Expenditure
G - Government expenditure
X-M = Net exports
Q.11) With reference to various provisions of Foreign Trade Policy (FTP) 2023, consider the following statements:
1. The government aims to increase India’s overall exports to USD 2 trillion by 2030.
2. It will create Towns of Export Excellence (TEE) which will have priority access to export promotion funds.
3. It aims at building partnerships with State governments and taking forward the States as an Export Hubs
initiative.
a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3
Answer: (a)
Foreign Trade Policy (FTP) 2023

● FTP 2023 is a policy document which is based on continuity of time-tested schemes facilitating exports as
well as a document which is nimble and responsive to the requirements of trade.
● The policy is based on the principles of trust and partnership with exporters and aims at process
re-engineering and automation to facilitate ease of doing business for exporters.
● The Key Approach is based on Four Pillars:
○ Incentive to Remission,
○ Export promotion through collaboration - Exporters, States, Districts, Indian Missions,
○ Ease of doing business, reduction in transaction cost and e-initiatives, and
○ Emerging Areas – E-Commerce Developing Districts as Export Hubs and streamlining Special
Chemicals, Organisms, Materials, Equipment, and Technologies (SCOMET) policy
● The government aims to increase India’s overall exports to USD 2 trillion by 2030, with equal
contributions from the merchandise and services sectors. So, statement 1 is correct.
● The government also intends to encourage the use of the Indian currency in cross-border trade, aided
by a new payment settlement framework introduced by the RBI in July 2022.
● This could be particularly advantageous in the case of countries with which India enjoys a trade surplus.
● Towns of Export Excellence (TEE):
○ Four new towns, namely Faridabad, Mirzapur, Moradabad, and Varanasi, have been
designated as TEE in addition to the existing 39 towns.
○ The TEEs will have priority access to export promotion funds under the MAI scheme and will
be able to avail Common Service Provider (CSP) benefits for export fulfillment under the Export
Promotion Capital Goods (EPCG) Scheme. So, statement 2 is correct.
● Promoting Export from the Districts:
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○ The FTP aims at building partnerships with State governments and taking forward the
Districts as Export Hubs (DEH) initiative to promote exports at the district level and accelerate
the development of a grassroots trade ecosystem. So, statement 3 is not correct.
Q.12) Regarding the Wholesale Price Index (WPI) and Consumer Price Index (CPI), which of the following
statements is correct?
a) Both WPI and CPI take into account the change in prices of both goods and services.
b) In WPI, highest weightage is given to petroleum goods, while in CPI highest weightage is given to
manufactured goods.
c) The Reserve Bank of India uses CPI to set the monetary and credit policy.
d) CPI is released on the monthly basis whereas WPI is released on quarterly basis.
Answer: (c)
● Wholesale Price Index (WPI) measures the average change in prices of goods at the wholesale level. It
does not include services rendered in the economy. However, Consumer Price Index (CPI) calculates
the average change in prices of both goods and services at the retail level. So, option (a) is not correct.
● In WPI, more weightage is given to manufactured goods, while in CPI, more weightage is given to
food items. So, option (b) is not correct.
○ The WPI comprises of three major groups:
■ Primary Articles (eg- Food Articles, Vegetables, Milk, Minerals etc) with 22.62 weightage.
■ Fuel and Power (eg- LPG, Petrol etc) with 13.15 weightage.
■ Manufactured Products (eg- manufacture of food products, sugar, manufacture of
textiles etc) with 64.23 weightage.
○ The major component in CPI (C) are as follows (along with their weights)
■ Food and Beverages – 45.86
■ Housing – 10.07
■ Fuel and Light – 6.84
■ Clothing and Footwear – 6.53
■ Pan, tobacco and intoxicants – 2.38
■ Miscellaneous – 28.32 Housing Inflation is not considered in CPI (Rural)
● The Reserve Bank of India (RBI) uses the Consumer Price Index (CPI) (combined) as the key measure
of inflation to set the monetary and credit policy. Earlier, RBI had given more weightage to Wholesale
Price Index (WPI) than CPI as the key measure of inflation for all policy purposes. So, option (c) is correct.
● WPI data is published by the Office of Economic Adviser, Ministry of Commerce and Industry, while CPI
data is published by the National Statistical Office (NSO), Ministry of Statistics and Programme
Implementation (MoSPI).
● The base year for WPI is 2011-12 while the base year for CPI is 2012. However, both the figures are
released on the monthly basis. So, option (d) is not correct.
Q.13) With reference to Standing Deposit Facility, consider the following statements:
1. It is a tool for absorbing liquidity without any collateral.
2. It is operated on a monthly basis.
3. It will replace the fixed-rate reverse repo (FRRR) as the floor of the liquidity adjustment facility corridor.
a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3
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Answer: (c)
Standing Deposit Facility (SDF),

● In 2018, the amended Section 17 of the RBI Act empowered the Reserve Bank to introduce the SDF – an
additional tool for absorbing liquidity without any collateral. So, statement 1 is correct.
● By removing the binding collateral constraint on the RBI, the SDF strengthens the operating framework
of monetary policy.
● The SDF is also a financial stability tool in addition to its role in liquidity management.
● Deposits under the SDF shall not be reckoned as balances eligible for the maintenance of the cash
reserve ratio (CRR) under Section 42 of the RBI Act, 1934, but shall be an eligible asset for maintenance
of the statutory liquidity ratio (SLR) under Section 24 of the Banking Regulation Act, 1949.
● The SDF will replace the fixed-rate reverse repo (FRRR) as the floor of the liquidity adjustment facility
corridor. So, statement 3 is correct.
● Both the standing facilities — the MSF (marginal standing facility) and the SDF will be available on all days
of the week, throughout the year.
● It is operated on an overnight basis, with the flexibility to absorb liquidity for longer tenor with appropriate
pricing;So, statement 2 is not correct.
● With this, the fixed-rate overnight reverse repo has ceased to be the floor of the LAF corridor. However,
the reverse repo continues to remain in the toolkit of the RBI as a monetary policy instrument and its
operation will be at the discretion of the RBI for purposes specified from time to time.
Q.14) With respect to the 15th Finance Commission, consider the following statements:
1. Demographic performance
2. Income distance
3. Area of the state
4. Forest and ecology
5. Tax and fiscal efforts.
Arrange the weight/criteria used in the horizontal devolution of funds by the 15th Finance Commission from highest to
lowest?
a) 3>4>5>1>2
b) 5>4>3>1>2
c) 2>3>1>4>5
d) 1>3>4>5>2
Answer: (c)
Explanation:
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● The Finance Commission is a Constitutionally mandated body that is at the center of fiscal
federalism.
● Under Article 280, of the Constitution, the President of India is required to constitute a Finance
Commission at an interval of five years or earlier, its core responsibility is to evaluate the state of finances
of the Union and State Governments, recommend the sharing of taxes between them, lay down the
principles determining the distribution of these taxes among States.
● Its working is characterized by extensive and intensive consultations with all levels of governments,
thus strengthening the principle of cooperative federalism.
● The criteria and the weights assigned for horizontal devolution are:
○ Population: 15%
○ Area: 15%
○ Forest & Ecology: 10%
○ Income Distance: 45%
○ Tax and Fiscal Efforts: 2.5%
○ Demographic Performance: 12.5%
● The commission has also re-introduced the tax effort criterion to reward fiscal performance.
● So, the correct increasing order is 2 > 3 > 1 > 4 > 5.
● Criticism about the 15th Finance Commission:
○ Sole reliance on the 2011 population figures would discriminate against states such as
Kerala that have a better record of controlling population growth and reducing their share in the
national population.
○ It has added to the 2011 population figures a demographic criterion that favors states that
have reduced fertility rates to lower levels.
○ In the 14th FC’s recommendations, the 1971 population was given a 17.5% weight and the 2011
population a 10% weight when arriving at horizontal devolution figures.
○ The Fifteenth Finance Commission has reduced the performance-based grant to just ₹8,000
crore - and that too for building new cities, leaving out the Panchayati Raj Institutions (PRIs)
altogether.
Q.15) With respect to the gross fixed capital formation, consider the following statements:
1. It is the aggregate of gross additions to fixed assets and changes in stocks during the accounting period.
2. It is a component of the expenditure approach to calculating Gross Domestic Product (GDP).
a) 1 only
b) 2 only
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c) Both 1 and 2
d) Neither 1 nor 2
Answer: (c)
Explanation:
● Gross Fixed Capital Formation(GFCF) represents investment demand in the economy.
● As per RBI, GFCF refers to the aggregate of gross additions to fixed assets (i.e. fixed capital formation)
plus changes in stocks during the accounting period. Fixed asset refers to the construction, machinery,
and equipment. So, statement 1 is correct.
● It is a component of the expenditure approach to calculating Gross Domestic Product (GDP). GFCF is
an indicator for gauging the fixed capital formation. A downward trajectory in gross fixed capital
formation would indicate that the fixed capacities are not being ramped up. So, statement 2 is
correct.
● Impact of increase in GFCF are:
○ In macro theory, a rise in investment should contribute towards higher aggregate demand
and also increase productive capacity.
○ Increasing investment should lead to higher economic growth in the long-term though it
depends on how effective the investment is.
Q.16) With respect to the Indian Rupee, consider the following statements:
1. Price of commodities to be imported to India will increase.
2. Exports from India will become costlier for other nations.
3. It may lead to foreign investors pulling out of Indian markets
Which of the statements given above are the impacts of the fall in the value of the Indian rupee?
a) 1 and 3 only
b) 2 and 3 only
c) 1 and 2 only
d) 1, 2, and 3
Answer: (a)
Explanation:
● Depreciation of currency refers to the decline in the value of a nation’s money in relation to one or
more foreign reference currencies, most frequently occurring through an unofficial, floating exchange
rate regime.
● By making its goods and services more accessible to consumers, a country’s export activity may be
boosted by a controlled currency devaluation. However, a country’s currency depreciation could spread
to its neighbours.
● Rupee depreciation in India means that the value of the rupee relative to the US dollar has decreased. It
means that the rupee is less strong today than it was.
● The various consequences of a fall in indian rupee are:
○ Since, India imports many raw materials, the price of finished goods could go up thus
impacting the consumers. India’s high import dependence for fuel means oil price trajectories
affect most macro parameters, including inflation, growth, current account balances, fiscal
management and the rupee. So, statement 1 is correct.
○ In an ideal scenario, a devalued rupee could lead to an increase in exports. A fall in value of
Rupee will make the export of goods and services manufactured in India affordable for other
nations. Fall in value of rupee benefits export-related companies like pharma and IT. So,
○ Rupee depreciation may see foreign investors pulling out of Indian markets, resulting in a
decline in stocks and equity mutual fund investments. So, statement 3 is correct.
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○ It will cost more rupees for travelers and students studying abroad to purchase dollars from
banks.
○ Costlier imports will increase both the trade and current account deficits, putting pressure on
the currency rate. The nation’s current account deficit will increase.
Q.17) With respect to the General Anti-Avoidance Rule (GAAR), consider the following statements:
1. It is intended to prevent tax avoidance.
2. The government can deny a tax benefit if there is no sound business for that transaction.
3. The NK Singh committee was set up to establish the General Anti-Avoidance Rule framework in India.
a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3
Answer: (a)
Explanation:
● General Anti-Avoidance Rule (GAAR) refers to a framework or a set of rules used by the revenue
authorities against aggressive tax planning for the objective of tax avoidance. GAAR targets any
financial transaction or business arrangements entered specifically to avoid taxes. The GAAR
provisions are effective from assessment year 2018-19 onwards, i.e. financial year 2017-18 onwards.
● The GAAR is mainly intended to prevent tax avoidance by taking the advantage of international tax
treaties and laws. So, statement 1 is correct.
● According to the GAAR, the government can deny a tax benefit if there is no sound business for that
transaction, and the tax authorities can reclassify the profits arising from the transaction. So, statement 2
is correct.
● The Parthasarathi Shome panel was set up in 2012 for constituting the guidelines for the general
anti-avoidance rules. It aimed to bring tax clarity and address the concerns of foreign investors. So,
● Reasons for bringing GAAR
○ Though legally tax avoidance is not a crime, it was causing huge revenue losses to the
government due to aggressive tax planning by the business houses who often use the loopholes
of the law to avoid taxes.
○ Anti-avoidance rules have been brought in many countries to check revenue losses to the
government.
○ In India, the discussion of GAAR came after the Vodafone tax dispute. Vodafone purchased
Hutch India at 55000 crores. The parent company of Hutch, Hutchinson Hong Kong, was liable to
pay capital gains tax to the Indian government.
● Benefits of GAAR
○ By highlighting tax avoidance instances would help increase government revenues.
○ An increase in tax revenues would help to decrease the fiscal deficit of the country.
○ It will help improve the business environment by providing a competitive advantage to those
businesses that have been doing honest transactions and are not resorting to tax evasion.
○ This would help encourage increased international investments as it will promote free and fair
trade practices.
● Issues with GAAR
○ A common criticism of GAAR is that it provides discretion and authority to the tax
administration which can be misused.
○ There are fears that GAAR will discourage foreign investment in India.
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○ It was considered controversial and there was a demand that the government put in proper
checks and balances
○ Unreliable and inadequate data is also a major constraint.
Q.18) A Multinational Company Nike headquartered in the USA desires to list its equity in the Indian stock exchange.
The financials of the company are cleared by reputed auditors. Which of the following instruments can be utilized by
such a company to get listed in the Indian stock exchange?
a) Foreign Direct Investment

b) Masala Bonds
c) Indian Depository Receipt
d) Foreign Portfolio Investment
Answer: (c)
Explanation:
● An Indian Depository Receipt (IDR) is in Indian rupees and is created by a domestic depository
(custodian of securities registered with SEBI (Securities and Exchange Board of India). It is issued against
the underlying equity of the company to enable foreign companies to raise funds from the Indian
securities Markets. So, option (c) is correct.
● Who is eligible to issue Indian Depository Receipts?
○ The foreign issuing company shall have pre-issue paid-up capital and free reserves of at least
US$ 50 million and have a minimum average market capitalisation (during the last three years)
in its parent country of at least US$ 100 million.
○ It should have a continuous trading record or history on a stock exchange in its parent
country for at least 3 immediately preceding years.
● Features of Indian Depository Receipts
○ An IDR is issued by a foreign firm that cannot go through the Indian listing process.
○ An IDR is beneficial for a foreign firm that wishes to share the risk and rewards of the offering
with Indian shareholders.
○ IDRs are simply more easy and more cost-effective than buying stocks on international
exchanges.
○ IDRs are derivative instruments in this sense because their value is derived from the
underlying shares.
○ IDRs are denominated in Rupees. It reflects a stake in a certain number of the Issuing
Company’s underlying equity shares. Deposited Shares are the name for these shares.
○ These IDRs would be freely transferable and placed on Indian stock markets.
● Foreign direct investment (FDI) is a category of cross-border investment in which an investor
resident in one economy establishes a lasting interest in and a significant degree of influence over
an enterprise resident in another economy. So, option (a) is not correct.
● Masala Bonds are rupee-denominated bonds issued outside India by Indian entities. They are debt
instruments which help to raise money in local currency from foreign investors. Both the government and
private entities can issue these bonds. Investors outside India who would like to invest in assets in India
can subscribe to these bonds. So, option (b) is not correct.
● Investment in financial assets of a foreign nation, such as stocks or bonds listed on an exchange, is
known as foreign portfolio investment (FPI). Since portfolio investments can be easily sold off and are
therefore perceived as a short-term effort to make money instead of a long-term investment in the
economy, this sort of investment is sometimes viewed less positively than direct investment. So, option
(d) is not correct.
Q.19) With respect to the Integrated Ombudsman Scheme, consider the following statements:
1. The Scheme was framed by the Reserve Bank under the RBI Act 1934.
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2. The integrated ombudsman shall be either a retired or a serving officer, not below the rank of deputy general
manager.
3. Non-Scheduled Primary Co-operative Banks do not come under the ambit of this scheme.
a) 1 and 2 only
b) 2 only
c) 2 and 3 only
d) 3 only
Answer: (b)
Explanation:
● Ombudsman is a government official who deals with complaints made by ordinary people against public
organizations. This concept of Ombudsman arrived from Sweden. It means an officer appointed by the
Legislature to handle complaints against a service or administrative authority.
● The Scheme was framed by the Reserve Bank in exercising the powers conferred on it under Section
35A of the Banking Regulation Act, 1949. So, statement 1 is not correct.
● The Scheme integrates the existing three Ombudsman schemes of RBI namely,
○ the Banking Ombudsman Scheme, 2006;
○ the Ombudsman Scheme for Non-Banking Financial Companies, 2018; and
○ the Ombudsman Scheme for Digital Transactions, 2019.
● According to RBI, the integrated ombudsman shall be either a retired or a serving officer, not below
the rank of deputy general manager or equivalent in any financial sector regulatory body, credit
information companies, a non-banking financial company (NBFC) or bank. So, statement 2 is correct.
● The Scheme also includes under its ambit Non-Scheduled Primary Co-operative Banks with a deposit
size of Rs 50 crore and above. So, statement 3 is not correct.
● Features of the scheme:
○ The Scheme defines ‘deficiency in service’ as the ground for filing a complaint, with a specified
list of exclusions.
○ Therefore, the complaints would no longer be rejected simply on account of “not covered
under the grounds listed in the scheme”.
○ The scheme is jurisdiction neutral and a centralised receipt and processing centre has been
set-up in Chandigarh for initial handling of complaints in any language.
○ RBI had created a provision for the use of Artificial Intelligence tools so that banks and
investigating agencies could coordinate in a better way in the fastest time possible.
○ The bank customers will be able to file complaints, submit documents, track status, and give
feedback through a single email address.
○ There will also be a multilingual toll-free number that will provide all relevant information on
grievance redress.
Q.20) With respect to the Millets, consider the following statements:

1. Drought Tolerance
2. High glycemic index
3. Require minimal fertilizers
4. Source of protein, fiber, vitamins, and minerals
Which of the statements given above are the significance of Millets?
a) 1, 2 and 4 only
b) 2 and 3 only
c) 1, 3 and 4 only
d) 1 and 4 only
Answer: (c)
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Explanation:
● Millet is an important crop in Indian agriculture, with a rich history of cultivation dating back thousands of
years. Millet is a collective term that includes several small-seeded grasses such as sorghum, pearl
millet, finger millet, foxtail millet, and little millet. It is an important crop in Indian agriculture and society,
providing food security, nutrition, cultural significance, livelihoods, and environmental sustainability.
● Drought Tolerance: Millet’s are naturally adapted to dry and arid conditions, making them a suitable
crop for regions with limited rainfall. They require minimal water and are capable of growing in poor soil
conditions, making them a reliable crop even during times of drought. So, statement 1 is correct.
● Millets have low glycemic index, and have high antioxidant activity, which makes them a healthy
alternative to rice or wheat. A low-glycemic index (low-GI) diet is an eating plan based on how foods
affect blood sugar level, also called blood glucose level. The glycemic index ranks food on a scale from 0
to 100. The low end of the scale has foods that have little effect on blood sugar levels. So, statement
2 is not correct.
● Millets have a shallow root system and require minimal fertilizers, making them an environmentally
friendly crop. So, statement 3 is correct.
● Millets are an excellent source of essential nutrients such as protein, fiber, vitamins, and minerals. So,
● To promote the cultivation of millets in India, the government has launched several initiatives such as the
Millets Mission, which aims to increase the production and consumption of millets.
● Additionally, good farming systems for millets include inter-cropping with legumes, crop rotation,
and the use of organic farming practices. These systems help in maintaining soil health, increasing yield,
and reducing pest and disease infestations.

20
Q.21) With respect to the Pradhan Mantri Anusuchit Jaati Abhyuday Yojna (PM-AJAY), consider the following
statements:
1. Scheduled Castes persons living below the poverty lines are eligible for getting benefits.
2. Subsidy of Rs 10000/- per beneficiary or 50% of loan amount will be given to the beneficiaries.
3. The scheme is under the ambit of the Ministry of Rural Development.
a) 1 only
b) 2 and 3 only
c) 1 and 2 only
d) 1, 2 and 3
Answer: (c)
Explanation:
● The Pradhan Mantri Anusuchit Jaati Abhyuday Yojna (PM-AJAY), is implemented by merging of 3
schemes:
○ Special Central Assistance to Scheduled Castes Sub Plan (SCA to SCSP)
○ Pradhan Mantri Adarsh Gram Yojana (PMAGY)
○ Babu Jagjivan Ram Chhatrawas Yojana (BJRCY)
● Objectives of the PM-AJAY Scheme:
○ Reduce poverty of the SC communities by generation of additional employment
opportunities through skill development, income generating schemes and other initiatives.
○ To improve socio-economic developmental indicators by ensuring adequate infrastructure
and requisite services in the SC dominated villages.
○ To increase literacy and encourage enrolment of SCs in schools and higher educational
institutions by providing adequate residential facilities in quality institutions, as well as residential
schools where required; in the aspirational districts/SC majority blocks and elsewhere in India.
● Eligibility Criteria
○ The Scheduled Castes persons living below the poverty lines are eligible for getting benefits
under the various Income Generating Schemes and Skill Development Programmes. So,
○ In case of Infrastructure Development, the villages having 50% or more SC population are
eligible for grants under the Scheme.
○ As regards definition of poverty line and selection of SC families living below poverty line is
concerned, the guidelines issued by the erstwhile Planning Commission and the procedure laid
down by the Ministry of Rural Development for selecting the beneficiaries through the Panchayati
Raj institutions may be adopted.
● Scheme Components:
○ Income Generating Schemes
■ Boost Entrepreneurship among SCs
■ Subsidy of Rs 10000/- per beneficiary or 50% of loan. So, statement 2 is correct.
○ Skill Development Programmes
■ Enhance Capacity Building through training
■ Skill Training in line with National Framework
○ Infrastructure Development
■ Development Programmes in SC majority villages
■ Fills critical gaps in overall development
● The scheme is implemented by the Department of Social Justice & Empowerment, MInistry of Social
Justice & Empowerment, Government of India. So, statement 3 is not correct.
Q.22) With respect to the Monetary policy framework, consider the following statements:
21
1. RBI will send a report to the government explaining why and what steps it will take to correct the problem
2. RBI will have to provide an estimate of how long it will take to return to the target level.
Which of the statements given above is/are a consequence if the RBI fails to meet the objective of attaining the
desired inflation level in the economy?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2
Answer: (c)
Explanation:
● Section 45ZB of the revised RBI Act of 1934 authorises the Central Government to establish a
six-member monetary policy committee (MPC). As a result, the Central Government established the
MPC in September 2016.
● According to the agreement, the RBI will set policy interest rates with the goal of bringing inflation
below 6% by January 2016, and within 4% with a +/- 2% band for 2016-17 and all subsequent years.
● The Governor of RBI (in his absence the Deputy Governor) is in charge of the monetary policy and
will determine policy rates for inflation targeting.
● Every 6 months RBI publishes a report stating
○ Sources of inflation
○ Forecast of inflation for the next 6 to 18 months
● If consumer inflation is more than 6% or less than 2% for three consecutive quarters beginning in
the 2015/16 fiscal year, the central bank will be considered to have missed its objective.
● If the central bank fails to meet its inflation target then:
○ it will send a report to the government explaining why and what steps it will take to correct
the problem. So, statement 1 is correct.
○ It will also have to provide an estimate of how long it will take to return to the target level. So,
● Any dispute regarding implementation and interpretation will be resolved by a meeting between the
Governor and central government.
● Benefits of Inflation Targeting?
○ Autonomy with Accountability: The RBI has been given autonomy in managing the rate of
inflation within the prescribed targets set by the government.
○ Greater clarity & Predictability: Inflation targeting specifies the rate of inflation that should be
targeted in a given economy. With such publicly legislated aims, there is better clarity and
predictability in terms of the inflation rate and monetary policy formulation.
○ Promotes Growth: A high rate of inflation diminishes the buying power of the currency and
eventually lowers the overall rate of GDP growth. Furthermore, a high rate of inflation is
accompanied by larger levels of Fiscal and Current Account Deficits, putting the country’s
macroeconomic stability at risk.
○ International Best Practise: Inflation targeting has shown to be quite successful in certain
advanced economies, such as the United Kingdom and New Zealand.
Q.23) With respect to the Sovereign Green Bonds, consider the following statements:
1. It will catalyze domestic market development and boost sustainable infrastructure projects.
2. Green bond issuers are required to provide details about the project and any anticipated effects on the
environment and the climate.
a) 1 only
22
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2
Answer: (c)
Explanation:
● Green bonds are debt securities specifically destined for the funding or refunding of green projects,
i.e. projects that are sustainable and socially responsible in areas as diverse as renewable energy, energy
efficiency, clean transportation or responsible waste management.
● Sovereign green issuance sends a powerful signal of intent around climate action and sustainable
development to governments and regulators. It will catalyze domestic market development and
provide impetus to institutional investors. So, statement 1 is correct.
● Green bond issuers are also required to provide details about the project they seek to fund, as well as
any anticipated effects on the environment and the climate. So, statement 2 is correct.
● The government said the green bonds’ proceeds would be used for green projects that:
○ Encourage energy efficiency
○ Reduce carbon emissions and greenhouse gasses
○ Promote climate resilience and adaptation
○ Improve natural ecosystems and biodiversity, especially by the principles of sustainable
development goals.
● Benefits of sovereign green bonds:
○ Governments and authorities are sent a strong signal of intent about climate change and
sustainable development by sovereign green issuance.
○ It will spur the growth of the local market and provide institutional investors with a boost.
○ It will facilitate the expansion of a local market by offering benchmark pricing, liquidity, and a
demonstration effect for local issuers.
○ Sovereign issuance can help jump-start these significant capital inflows, with the IEA’s World
Energy Outlook 2021 projecting that 70% of the additional USD 4 trillion spending to reach net
zero is necessary for emerging/developing nations.
Q.24) With respect to the Treasury Bills, consider the following statements:
1. A treasury bill is a promissory note issued by the RBI on behalf of the central government
2. Treasury Bills are long term debt instruments.
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2
Answer: (a)
Explanation:
● Treasury bills or T-bills are short term debt instruments issued in three maturity periods of 91 days,
182 days, and 364 days.
● Treasury bills are zero-coupon securities as they do not carry any interest. Rather, these are issued at
a discounted value and redeemed at the face value at the time of maturity.
● A treasury bill is a promissory note issued by the RBI on behalf of the central government. So,
● Treasury bills are short term debt instruments. So, statement 2 is not correct.
● Features of treasury Bills:
23
○ Treasury bills are highly liquid instruments.

○ Return earned on treasury bills is the difference between the issue price and the face value.
It is also known as the interest on the investment.
○ Treasury bills (T-bills) offer short-term investment opportunities with almost no market risk.
The maturity period of T-Bills is generally up to one year.
○ There are no treasury bills issued by the State Governments.
○ Treasury bills are sovereign and no transaction is charged unlike any other forms of
investment. They are also issued under the Market Stabilization Scheme (MSS).
○ Treasury bills are available for a minimum amount of Rs. 25,000 and in multiples of Rs.
25,000.
○ Treasury bills are usually held by financial institutions including banks. They have a very
important role in the financial market beyond investment instruments. Banks give treasury
bills to the RBI to get money under repo. Similarly, they can keep it as part of SLR.
Q.25) With reference to Deposit Insurance and Credit Guarantee Corporation (DICGC), consider the following
statements:
1. It is a wholly-owned arm of the Reserve Bank of India (RBI), which offers deposit insurance.
2. The insured Banks pay a premium to the Corporation which is passed on to depositors.
3. It does not insure the fixed deposits.
a) 1 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3
Answer: (a)
Deposit Insurance and Credit Guarantee Corporation

● It was established in 1978 after the merger of Deposit Insurance Corporation (DIC) and Credit Guarantee
Corporation of India Ltd. (CGCI) after passing of the Deposit Insurance and Credit Guarantee Corporation
Act, 1961 by the Parliament.
● It is a wholly-owned arm of the Reserve Bank of India (RBI), which offers deposit insurance. So,
● It insures deposit accounts, such as savings, current, recurring, and fixed deposits up to a limit of Rs
5 lakh per account holder of a bank. So, statement 3 is not correct.
● If a customer’s deposit amount crosses Rs 5 lakh in a single bank, only up to Rs 5 lakh, including the
principal and interest, will be paid by the DICGC if the bank turns bankrupt.
● The Bill mandates the Corporation to pay the insured amount to the depositors within 90 days of the
date such liability arises. Within the first 45 days, the insured bank must furnish the details of all outstanding
deposits to the Corporation. Within 30 days of the receipt of details, the Corporation will verify the
authenticity of the claims and check with each depositor if they are willing to receive the insured deposit
amount. Within 15 days of the verification, the Corporation must make the payment to such
depositors.
● DICGC charges 10 paise per ₹100 of deposits held by a bank. The premium paid by the insured banks
to the Corporation is paid by the banks and is not to be passed on to depositors. So, statement 2 is
not correct.
● Corporation may charge a penal interest for delay in repayment.
● Coverage: Deposits in public and private sector banks, local area banks, small finance banks, regional rural
banks, cooperative banks, Indian branches of foreign banks and payments banks are all insured by the
DICGC.
● Funds: The Corporation maintains the following funds :
○ Deposit Insurance Fund
24
○ Credit Guarantee Fund

○ General Fund
● The first two are funded respectively by the insurance premia and guarantee fees received and are
utilized for settlement of the respective claims.
● The General Fund is utilized for meeting the establishment and administrative expenses of the
Corporation.
Q.26) With reference to Financial Services Institutions Bureau (FSIB), consider the following statements:
1. The Governor of RBI is the Chairman of FSIB.
2. It will select the chiefs of public sector banks and insurance companies.
3. It is a government body set up under the Department of Revenue.
a) 1 and 2 only
b) 2 only
c) 2 and 3 only
d) 1, 2 and 3
Answer: (b)
Financial Services Institutions Bureau (FSIB)

● It’s a government body set up under the Department of Financial Services. So, statement 3 is not
correct.
● It replaced the Bank Board’s Bureau (BBB) which was declared an incompetent authority.
● Structure:
○ FSIB would be headed by a chairman, a central government nominee. So, statement 1 is not
correct.
○ The board would comprise the Secretaries of the DFS, the chairman of IRDAI, and a deputy
governor of the RBI.
○ Additionally, it will have three part-time members who are experts in banking and three more from
the insurance sector.
The Primary role of FSIB:
● The Financial Services Institutions Bureau will select the chiefs of public sector banks and insurance
companies. So, statement 2 is correct.
● To identify manpower capabilities and ensure proper selection of talent for senior positions at financial
institutions owned by the government.
● It is entrusted with making recommendations for the appointment of full-time directors and
non-executive chairman of state-run financial services institutions.
● The final decision on the FSIB recommendation would be taken by the Appointments Committee of
the Cabinet headed by the Prime Minister.
Q.27) The Consumer Price Index for Industrial Workers which is compiled every month on the basis of retail prices is
published by which of the following institutions?
a) Office of Economic Adviser, Ministry of Commerce and Industry

b) National Statistical Office (NSO)
c) Labour Bureau
d) Monetary Policy Committee (MPC)
Answer: (c)
Consumer Price Index for Industrial Workers (CPI-IW)

25
● The Labour Bureau, an attached office of the Ministry of Labour & Employment, has been compiling
the Consumer Price Index for Industrial Workers every month on the basis of retail prices collected from
317 markets spread over 88 industrially important centres in the country. So, option (c) is correct.
● The index is compiled for 88 centres and is released on the last working day of the succeeding month.
● Base year – 2016
Consumer Price Index
● It measures price changes from the perspective of a retail buyer. It is released by the National
Statistical Office (NSO).
● The CPI calculates the difference in the price of commodities and services such as food, medical care,
education, electronics etc, which Indian consumers buy for use.
● The CPI has several sub-groups including food and beverages, fuel and light, housing and clothing,
bedding and footwear.
● Four types of CPI are as follows:
○ CPI for Industrial Workers (IW).
○ CPI for Agricultural Labourer (AL).
○ CPI for Rural Labourer (RL).
○ CPI (Rural/Urban/Combined).
● Of these, the first three are compiled by the Labour Bureau in the Ministry of Labour and
Employment. Fourth is compiled by the NSO in the Ministry of Statistics and Programme Implementation.
Q.28) Which of the following is a key component of precision farming?
a) Use of High-yielding varieties of seeds

b) Use of Information and Communication Technologies (ICTs) in farming
c) Use of green manures
d) Use of traditional cultivation techniques
Answer: (b)
Precision Agriculture
● Precision agriculture (PA) is an approach where inputs are utilised in precise amounts to get increased
average yields, compared to traditional cultivation techniques such as agroforestry, intercropping, crop
rotation, etc.
● Sustainable PA is this century’s most valuable innovation in farm management that is based on using
Information and Communication Technologies (ICTs). So, option (b) is correct.
● It is based on sustainable agriculture and healthy food production and it consists of profitability and
increasing production, economic efficiency and the reduction of side effects on the environment.
● It is a technology-enabled approach to farming management. Satellite farming, or site-specific crop
management (SSCM), is described as "observing, measuring, and analysing the needs of individual fields
and crops."
● Precision farming, in layman's terms, is farming that gathers and uses data of land area for monitoring
and optimising crop production.
Q.29) With reference to ‘Co-location issue’, consider the following statements:

1. Co-location is a data center facility where third parties can lease space for servers and other computer
hardware.
2. Co-location is not illegal in India.
3. It gives unfair access to some traders as the hardware specifications gave them a split-second advantage in
accessing the price feed.
a) 1 only
26
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3
Answer: (d)
● Co-location is a data centre facility where third parties can lease space for servers and other
computer hardware. So, statement 1 is correct.
● They provide infrastructure like power supply, bandwidth and cooling for setting up servers and storage of
data.
● Customers usually rent out space by rack, cabinet, cage or room.
About the NSE co-location case:
● Co-location per se is not illegal. Stock exchanges across the world allow the practice to flourish as a paid
service. The SEBI, in fact, had allowed exchanges to offer co-location in 2008 and offered
traders/brokers the ability to place their servers within NSE’s data centre for a fee. So, statement 2 is
correct.
● By being in close proximity to the stock exchange servers, traders/brokers would have faster access to
the price feed and the execution of trades, due to the low latency connectivity.
● In January 2015, a whistle-blower wrote a complaint to SEBI, alleging that some brokers who leased space
at the NSE co-location facility, were able to log into the NSE systems with better hardware specifications
while engaging in algorithmic trading.
● This allowed them unfair access from the period 2012-2014, as the hardware specifications gave them a
split-second advantage in accessing the price feed. So, statement 3 is correct.
● A minuscule difference in time can lead to huge gains for a trader.
Q.30) With reference to ‘T+1 settlement plan’, consider the following statements:
1. It means that trade-related settlements must be done within 48 hours of the completion of a transaction.
2. After the USA and China, India will become the third country to start the ‘trade-plus-one’ (T+1) settlement
cycle in top listed securities.
Which of the statements given above is/are not correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2
Answer: (c)
T+1 settlement plan

● It means that trade-related settlements must be done within a day, or 24 hours, of the completion of a
transaction. So, statement 1 is not correct.
● For example, under T+1, if a customer bought shares on Wednesday, they would be credited to the
customer’s demat account on Thursday.
● As many as 256 large-cap and top mid-cap stocks, including Nifty and Sensex stocks, will come under
the T+1 settlement.
● After China, India will become the second country in the world to start the ‘trade-plus-one’ (T+1)
settlement cycle in top listed securities. So, statement 2 is not correct.
● The United States, United Kingdom and Eurozone markets are yet to move to the T+1 system.
Benefits of T+1
● In the T+1 format, if an investor sells a share, she will get the money within a day, and the buyer will get
the shares in her demat account also within a day.
27
● This shorter trade settlement cycle augurs well for the Indian equity markets from a liquidity
perspective, and it shows how well we have grown on the digital journey to ensure seamless settlements
within 24 hours.
● This will also help investors in reducing the overall capital requirements with the margins getting
released on T+1 day, and in getting the funds in the bank account within 24 hours of the sale of shares.
● The shift will boost operational efficiency as the rolling of funds and stocks will be faster.
Q.31) With reference to the Indian economy, Cost Push inflation can be caused/increased by which of the following?
1. Expansionary policies
2. Rise in wages
3. Profit Push by firms
4. Higher purchasing power
Select the correct answer using the code given below.
a) 1, 2 and 3 only
b) 2 and 3 only
c) 1, 2 and 4 only
d) 1, 2, 3 and 4
Answer: (b)
Cost Push Inflation
● There exists a situation in an economy where inflation is fuelled up, not because of increase in Aggregate
Demand but mainly due to increase in the cost of producing goods and services.
● The cost can be increased mainly due to three factors:
○ Wage Push Inflation: When the employees push for an increase in wages which are not
justifiable either on the grounds of employee productivity or increase in the cost of living. In such
scenarios, an unwarranted wage increase leads to increase in the cost of production and
hence cost push inflation. So, statement 2 is correct.
○ Profit Push Inflation: The firms sometimes decide to increase their profit margins and start
charging higher prices for their product. This phenomenon pushes the price upward and
results in Profit Push Inflation. So, statement 3 is correct.
○ Raw Material Push Inflation: The raw material push inflation also known as supply shock
inflation is the main and the most important reason for cost push inflation.
■ If for any reason the economy undergoes a supply shock in the form of a rise in the price
of essential raw materials like crude oil, it will fuel inflation due to rise in the cost of
production.
● Demand-pull inflation is mainly caused due to:-
○ Depreciation of rupee.
○ Low unemployment rate.
○ Increased borrowing.
○ When the government spends more freely, prices go up. Expansionary policies lead to more
economic activity via low-interest rates, more money with the public etc. So, statement 1 is not
correct.
● Higher purchasing Power: When consumers feel confident, they spend more and take on more debt. This
leads to a steady increase in demand, which means higher prices. So, statement 4 is not correct.
● The rising interest rate: It decreases the money supply in the economy. This may result in a credit
crunch in the economy. It is costly to borrow money in the economy and it leads to decreased money
supply. So, it can not cause demand-pull inflation in the economy Hence 5 is not correct.
Q.32) Human capital formation as a concept is better explained in terms of a process, which enables
28
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.
a) 1 and 2
b) 2 only
c) 2 and 4
d) 1, 3 and 4
Answer: (c)
● According to the OECD, human capital is defined as: "the knowledge, skills, competencies and other
attributes embodied in individuals or groups of individuals acquired during their life and used to produce
goods, services or ideas in market circumstances". So, statement 2 is correct.
● Intangible wealth of a nation comprises the skilled population, human resource base, culture, arts etc.
So, statement 4 is correct
● Human capital formation is the outcome of investments in education, health, on-the- job training,
migration and information.
● If individuals accumulate more capital then it does not necessarily means that human capital
formation is taking place. A person may have high financial capital but may be illiterate or unskilled.
Further, such a person may also possess orthodox values. Thus, accumulation of more capital by
individuals does not necessarily mean an increase in human capital. So, statement 1 is not correct.
● Tangible capital involves largely infrastructural components such as inventory, a building, rolling
stock, manufacturing equipment or machinery, and office furniture. So, statement 3 is not correct.
Q.33) With reference to National Mission on Natural Farming (NMNF), consider the following statements:
1. Under NMNF, farmers will receive financial assistance for three years for the creation of on-farm output
production infrastructure.
2. National Institute of Agricultural Extension Management (MANAGE) and National Centre of Organic and
Natural Farming (NCONF) will provide training under the mission.
3. Bhartiya Prakritik Kheti Bio-inputs Resources Centres (BRCs) will be set up to provide easy access to
bio-resources.
a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3
Answer: (b)
National Mission on Natural Farming

● The National Mission on Natural Farming (NMNF) has been formulated by upscaling the Bhartiya
Prakritik Krishi Paddhati (BPKP) to promote natural farming across the country.
● NMNF will cover a 7.5 lakh hectare area by developing 15,000 clusters. The farmers willing to implement
natural farming on their field will be registered as cluster members, each cluster shall comprise 50
farmers or more with 50-hectare land.
● Under NMNF, farmers will receive a financial assistance of ₹15,000 per hectare per year for three years
for the creation of on-farm input production infrastructure. So, statement 1 is not correct.
● However, the incentives would be provided to farmers only when they commit to natural farming and
have actually taken it up.
29
● If a farmer defaults or does not continue with natural farming, subsequent installments shall not be
disbursed.
● A Web portal has also been launched for the promotion of natural farming with information on the
implementation framework, resources, implementation progress, farmer’s registration, blog, and so on.
● The agriculture ministry is undertaking large-scale training of master trainers, ‘champion’ farmers and
practising farmers in the techniques of natural farming through the National Institute of Agricultural
Extension Management (MANAGE) and National Centre of Organic and Natural Farming (NCONF).
So, statement 2 is correct.
● Establishment of BRCs: The Centre intends to set up 15,000 Bhartiya Prakritik Kheti Bio-inputs
Resources Centres (BRCs) to provide easy access to bio-resources wherein cow dung and urine, neem
and bioculture play an important role. So, statement 3 is correct.
● These bio-input resource centres would be set up alongside the proposed 15,000 model clusters of
natural farming.
Q.34) The windfall tax, which is levied on global crude oil prices in an external unprecedented event is a
a) Tax imposed by the Central Government and its proceeds are shared with the States.
b) Tax which is levied in the form of surcharge
c) Tax in form of cesses under the central excise department
d) Tax imposed and collected by the State Government
Answer: (c)
Windfall Tax
● Windfall taxes are designed to tax the profits a company derives from an external, sometimes
unprecedented event— for instance, the energy price-rise as a result of the Russia-Ukraine conflict.
● These are profits that cannot be attributed to something the firm actively did, like an investment strategy
or an expansion of business.
● The windfall tax, which is levied in the form of cesses under the central excise department, is revised
every fortnight. So, option (c) is correct.
● A windfall is defined as an “unearned, unanticipated gain in income through no additional effort or
expense”.
● Governments typically levy a one-off tax retrospectively over and above the normal rates of tax on such
profits, called windfall tax.
● One area where such taxes have routinely been discussed is oil markets, where price fluctuation leads to
volatile or erratic profits for the industry.
Q.35) With reference to ‘Venture Capital Fund’, which of the following statements is/are correct?
1. It refers to the investments or capital that the entrepreneurs obtain from affluent investors.
2. It is a corpus fund of NITI Aayog.
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2
Answer: (a)
What is Venture Capital

● Entrepreneurs require capital to launch their businesses.
● Venture Capital refers to the investments or capital that these entrepreneurs obtain from affluent
investors, and Venture Capitalists refer to the investors. So, statement 1 is correct.
30
● These investments are typically described as extremely high-risk/high-reward.

How does a Venture Capital Fund work?
● Venture Capital Fund is made up of investments from wealthy individuals or companies who give their
money to a VC firm to manage their investment portfolios for them and to invest in high-risk start-ups
in exchange for equity. It is not a corpus fund of NITI AAYOG. So, statement 2 is not correct,
● The basic idea is to invest in a company’s balance sheet and infrastructure.
● Venture Capitalist nurtures the idea of an entrepreneur for a short period of time and exits with the help of
an investment banker.
● In a start-up company, VC will receive an equity partnership in exchange for investments in the start-up
company.
● VC’s receive liquidation preference, it means in the worst-case scenario where the company fails, VCs
are given the first claim to all the company’s assets and technology.
● It also offers voting rights over key decisions like Initial Public Offer (IPO) or even sale of the company.

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Prepp IAS Upcoming courses for

UPSC CSE Mains 2023

Most Probable Topics for UPSC CSE Prelims 2023 - Economy

a) It is an on-device wallet functionality for transactions of smaller values.

Unified Payment Interface (UPI):

Q.2) Consider the following statements:

○ It acknowledges the Government’s debt obligation.

Q.3) With reference to Stagflation, consider the following statements:

Which of the statements given below is/are correct?

Q.5) Consider the following statements:

● Investment Tenure for FDI vs FII vs FPI

Q.8) With reference to functions of RBI, consider the following statements:

Which of the statements given above is/are correct?

Reserve Bank of India:

Minimum Support Price:

Income Method (Factor Earning Method)

Foreign Trade Policy (FTP) 2023

Standing Deposit Facility (SDF),

Therefore, option (c) is the correct answer.

Therefore, option (a) is the correct answer.

a) Foreign Direct Investment

Q.20) With respect to the Millets, consider the following statements:

Therefore, option (c) is the correct answer.

Therefore, option (c) is the correct answer.

Therefore, option (c) is the correct answer.

Therefore, option (c) is the correct answer.

○ Treasury bills are highly liquid instruments.

Deposit Insurance and Credit Guarantee Corporation

○ Credit Guarantee Fund

Financial Services Institutions Bureau (FSIB)

a) Office of Economic Adviser, Ministry of Commerce and Industry

Consumer Price Index for Industrial Workers (CPI-IW)

Q.28) Which of the following is a key component of precision farming?

a) Use of High-yielding varieties of seeds

Q.29) With reference to ‘Co-location issue’, consider the following statements:

T+1 settlement plan

Cost Push Inflation

1. Individuals of a country to accumulate more capital.

National Mission on Natural Farming

What is Venture Capital

● These investments are typically described as extremely high-risk/high-reward.

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