Structure of the Indian Economy & Demographics (Part-II)

Total Questions: 62

41. Despite being a high saving economy, capital formation may not result in significant increase in output due to : [2018-1]

Correct Answer: (d) high capital-output ratio
Solution:Capital Output Ratio (ICOR) measures the percentage increase in capital formation required obtaining a percentage increase in GDP. Entrepreneurs, by investing their own savings and informally mobilizing the savings of their friends and relatives contribute to the process of capital formation. These informal funding supplements the funds made available by the formal means of raising resources from banks, financial institutions and capital markets. So, "D" is the fitting option-if capital to output ratio is high then capital formation may not result in significant increase in the output.

42. Which of the following is not included in the assets of a commercial bank in India? [2019-1]

Correct Answer: (b) Deposits
Solution:Observe the table 3.1: Deposits are plotted on the liability side of a commercial bank's balance sheet.
Commercial Banks are financial institutions that accept deposits from the public, provide loans, and offer various financial services to generate profit. Unlike cooperative or development banks that have specific social or developmental objectives, commercial banks operate on a commercial basis, meaning their primary goal is to earn profits while maintaining financial stability and public trust.
They are governed by the Banking Regulation Act, 1949, and regulated by the Reserve Bank of India (RBI), which supervises their operations, ensures compliance with prudential norms, and safeguards the interests of depositors. In essence, commercial banks are intermediaries that bridge the gap between savers and borrowers mobilizing idle savings into productive use.

43. In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis? [2019-1]

1. The foreign currency earnings of India's IT sector.

2. Increasing the government expenditure.

3. Remittances from Indians abroad.

Select the correct answer using the code given below.

Correct Answer: (b) 1 & 3 only
Solution:Currency crisis usually denotes that Indian Rupee is weakening and dollar is strengthening at a rapid level. In ordinary circumstances, rupee dollar exchange rate is determined by the market forces of supply and demand. Therefore we have to encourage the inflow of dollars to reduce the risk of currency crisis. #1 and #3 can help in this regard, #2 is irrelevant. Infact #2 can backfire if raising Government Expenditure results in excessive printing of Rupee currency. Thus, by elimination answer is b: 1 and 3.

44. The Chairman of public sector banks are selected by the [2019-1]

Correct Answer: (a) Banks Board Bureau
Solution:Bank Board Bureau (BBB) was setup in 2016, BBB selects top officials (MD, CEO, Chairman and full-time Directors) for PSBS, LIC and other public sector financial institutions.
PSBs operate under government ownership and regulatory supervision of the Reserve Bank of India (RBI). As of 2025, India has 12 major PSBs, including State Bank of India (SBI), Bank of Baroda (BoB), Punjab National Bank (PNB), Canara Bank, and Union Bank of India. These banks provide a wide range of services including retail banking, corporate lending, trade finance, and digital banking. Their presence extends across urban and rural India, contributing to inclusive growth.

45. Consider the following statements: [2019-1]

1. Petroleum and Natural Gas Regulatory Board (PNGRB) is the first regulatory body set up by the Government of India.

2. One of the tasks of PNGRB is to ensure competitive markets for gas.

3. Appeals against the decisions of PNGRB go before the Appellate Tribunals of Electricity.

Which of the statements given above is/are correct?

Correct Answer: (b) 2 & 3 only
Solution:PNGRB was constituted under The Petroleum and Natural Gas Regulatory Board Act, 2006. SEBI was formed in 1988 by an executive order, given statutory status in 1992.

Besides, IRDAI and many other regulatory bodies were setup before 2006. So, PNGRB is certainly not the first body to be setup by Govt of India. #1 is wrong, by elimination we are left with answer b.

46. Consider the following statements: [2019-1]

The Reserve Bank of India's recent directives relating to 'Storage of Payment System Data', popularly known as data diktat command the payment system providers that:

1. They shall ensure that entire data relating to payment systems operated by them are stored in a system only in India.

2. They shall ensure that the systems are owned and operated by public sector enterprises.

3. They shall submit the consolidated system audit report to the comptroller and Auditor General of India by the end of the calendar year.

Which of the statements given above is/are correct

Correct Answer: (a) 1 only
Solution:As per RBI's directive, payment system providers are required to store the data in India only. Other features are not required by RBI.

The Reserve Bank of India in its directive on 'Storage of Payment System Data' has made it clear that entire payment data shall be stored in systems located only in India.

  • All system providers need to ensure that within a period of six months, the entire data relating to payment systems operated by them is stored in a system only in India.
  • Data stored in India should include end-to-end transaction details and info about payment transactions. The data could be pertaining to:
  • Customer data like name, mobile number, Aadhaar number, PAN.
  • Payment-sensitive data like customer and beneficiary account details.
  • Payment credentials like OTP, PIN.
  • Transaction data such as originating and destination system information amount.
  • All data related to payments must be stored only in India and data processed (in case the processing is done abroad) will have to be brought back to the country within 24 hours.
  • There is no bar on the processing of payment transactions outside India if so desired by the Payment System Operators (PSO).
  • Data stored in India can be accessed or fetched whenever required for handling customer disputes as well as for any other related processing activity, such as chargeback.
  • The data may be shared with the overseas regulator, if so required, depending upon the nature/origin of a transaction with prior approval of the RBI.

  • For cross border transaction data, (consisting of a foreign component and a domestic component) a copy of the domestic component may also be stored abroad.

47. What is the importance of the term "Interest Coverage Ratio" of a firm in India? [2020-1]

1. It helps in understanding the present risk of a firm that a bank is going to give a loan to.

2. It helps in evaluating the emerging risk of a firm that a bank is going to give a 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:

Correct Answer: (a) 1 & 2 only
Solution:"A higher Interest coverage ratio ensures safety of interest on debts." Third statement is wrong. Statement 1 is correct, By looking at the interest coverage ratio we can identify the present risk of a firm (That it is not generating good revenue). There is only "A" option where statement#1 is present.

48. With reference to the Indian economy, consider the following statements: [2020-1]

1. 'Commercial Paper' is a short-term unsecured promissory note.

2. 'Certificate of Deposit' is a long-term instrument issued by the Reserve Bank of India to a corporation.

3. 'Call Money' is a short-term finance used for interbank transactions.

4. 'Zero-Coupon Bonds' are the interest bearing short-term bonds issued by the Scheduled Commercial Banks to corporations.

Which of the statements given above is/are correct

Correct Answer: (c) 1 & 3 only
Solution:Certificate of deposit is a short term debt instrument. #2 is wrong since it says 'long term instrument". This eliminates a and d. #3: Call money is a short term finance for interbank transactions that is correct. So, Answer is (c).

About Certificate of Deposit

  • It is a fixed-income financial tool that is governed by the Reserve Bank of India (RBI) and is issued in a dematerialized form.
  • It is a type of agreement made between the depositors and the banks, wherein the bank pays an interest on your investment.
  • It is a short-term investment that comes with fixed investment amounts and maturity tenure ranging between 1-3 years.

About Zero-Coupon Bonds

  • These are a debt instrument that does not pay periodic interest but is issued at a discount rate to its face value.
  • These are also known as discount bonds, are issued at a discount on the bond's face value and do not pay periodic interest to bondholders.
  • They offer payment at face value at maturity so zero-coupon bonds tend to fluctuate in price on the secondary market much more than coupon bonds..

49. In the context of the Indian economy, non-financial debt includes which of the following? [2020-1]

1. Housing loans owed by households

2. Amounts outstanding on credit cards

3. Treasury bills

Select the correct answer using the code given below:

Correct Answer: (d) 1, 2 & 3
Solution:"Non-Financial debt" excludes the debt of Financial Institutions i.e. those institutions that borrow solely to re-lend and the money. [In other words if, NABARD, ILFS etc had borrowed money to re-lend it, then it'd be financial debt. And all other type of debt will be "non-Financial debt"] So, In above options, all three loans are taken by persons or entities who'll not 're-lend' it, but They will use the funds for their own purpose. Therefore, Answer should be "(d)".

50. The money multiplier in an economy increases with which one of the following? [2021-1]

Correct Answer: (c) Increase in the banking habit of the people
Solution:This is a repeat question. Same thing UPSC had asked in the 2019 (Set-A Q90) Money multiplier is inversely related with cash reserve ratio so A is wrong.

Increase in the SLR will decrease the loanable funds with bank and so it will not help improving money multiplier. If population is increased but they do not open bank accounts then money multiplier will not improve So D is not right.