Economics upsc pyq 2023

22.

Consider the following statements:

Statement-I:

According to the United Nation’s ‘World Water Development Report, 2022’, India extracts more than a quarter of the world’s groundwater withdrawal each year.

Statement-II:

India needs to extract more than a quarter of the world’s groundwater each year to satisfy the drinking water and sanitation needs of almost 18% of the world’s population living in its territory.

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I

(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I

(d) Statement-I is incorrect but Statement-II is correct

Correct Answer:

Explanation:

Statement-I – Correct

The UN World Water Development Report, 2022 states that India is the largest extractor of groundwater, accounting for more than 25% of global groundwater withdrawal annually.

Statement-II – Incorrect

India’s very high groundwater extraction is primarily driven by irrigation for agriculture, not mainly by drinking water and sanitation needs.

Drinking water and sanitation account for a small proportion of total groundwater use compared to agriculture.

Therefore, Statement-II misattributes the reason for high groundwater extraction and does not explain Statement-I.

Memory Trick:

“India pumps groundwater mainly for fields, not for taps.”

21.

With reference to green hydrogen, consider the following statements:

1.It can be used directly as a fuel for internal combustion.

2.It can be blended with natural gas and used as fuel for heat or power generation.

3.It can be used in the hydrogen fuel cell to run vehicles.

How many of the above statements are correct?

(a) Only one

(b) Only two

(d) None

Correct Answer:

Explanation:

Statement 1 – Correct

Green hydrogen can be directly used as a fuel in internal combustion engines with suitable engine modifications (hydrogen ICEs).

Statement 2 – Correct

Green hydrogen can be blended with natural gas and used for heat and power generation (e.g., gas turbines, boilers).

Hydrogen blending in city gas distribution is an established application.

Statement 3 – Correct

Green hydrogen is used in hydrogen fuel cells to generate electricity for running vehicles (Fuel Cell Electric Vehicles).

✅ Therefore, all three statements are correct.

Memory Trick:

“Hydrogen runs ICE engines, mixes with natural gas, and powers fuel cells.”

Expected Questions

What is Green Hydrogen?

Green hydrogen is hydrogen produced by electrolysis of water using renewable energy (such as solar or wind), without emitting carbon dioxide (CO₂).

👉 Key idea:

Energy source = Renewable

Process = Electrolysis

Emissions = Near zero

Hence, it is called “green”.

Why is green hydrogen important?

Helps in decarbonising hard-to-abate sectors:

Steel

Fertiliser

Refining

Heavy transport

Supports energy security

Aligns with climate targets (net-zero)

Types of Hydrogen (IMPORTANT FOR UPSC)

UPSC frequently tests colour-based classification.

Remember: Colour = method + carbon impact

1️⃣ Green Hydrogen ✅ (Most important)

Produced by: Electrolysis using renewable energy

Carbon emissions: Zero / negligible

Status: Cleanest form

🧠 Exam clue: Climate-friendly, net-zero compatible.

2️⃣ Grey Hydrogen

Produced by: Steam Methane Reforming (SMR) of natural gas

Carbon emissions: High (CO₂ released)

Status: Most commonly used today

🧠 Trap: Hydrogen itself is clean, but production is dirty.

3️⃣ Blue Hydrogen

Produced by: Natural gas (same as grey)

Difference: CO₂ is captured and stored (CCS)

Carbon emissions: Lower than grey, not zero

🧠 Exam angle: Transitional fuel, depends on CCS efficiency.

4️⃣ Brown / Black Hydrogen

Produced by: Coal gasification

Carbon emissions: Very high

Difference:

Brown → Lignite

Black → Hard coal

Lignite (brown coal) is the lowest rank of coal, with low carbon content, high moisture, and low energy (BTU), making it crumbly and brown, primarily used for local electricity generation.

Hard coal (bituminous/anthracite) is a higher rank, denser, black, with much higher carbon and energy, lower moisture, burning hotter and cleaner, used for electricity, steel, and industry.

The main differences are grade (lignite is lowest, hard coal is highest), carbon/moisture content, and energy output, with hard coal being superior for heat and efficiency.

🧠 Worst for climate.

5️⃣ Pink / Purple Hydrogen

Produced by: Electrolysis using nuclear energy

Carbon emissions: Low

Issue: Nuclear waste, safety concerns

🧠 Not renewable, but low-carbon.

6️⃣ Turquoise Hydrogen (Emerging)

Produced by: Methane pyrolysis

By-product: Solid carbon (instead of CO₂)

Status: Experimental

🧠 UPSC may ask as “future technology”.

Simple Comparative Summary (No table, concept-based)

Green → Renewable + electrolysis → cleanest

Grey → Natural gas → high CO₂

Blue → Natural gas + CCS → lower CO₂

Brown/Black → Coal → worst

Pink → Nuclear → low-carbon, not renewable

UPSC-ready one-line answer

Green hydrogen is hydrogen produced using renewable energy through electrolysis of water with negligible carbon emissions, unlike grey, blue, or coal-based hydrogen.

Memory Trick

“Green = Renewable seen.”

(If energy is renewable, hydrogen is green.)

20.

Consider the following statements:

1.The ‘Stability and Growth Pact’ of the European Union is a treaty that limits the levels of the budgetary deficit of the countries of the European Union

2.makes the countries of the European Union to share their infrastructure facilities

3.enables the countries of the European Union to share their technologies

How many of the above statements are correct?

(a) Only one

(b) Only two

(d) None

Correct Answer:

(a) Only one

Explanation:

Statement 1 – Correct

The Stability and Growth Pact (SGP) lays down fiscal rules for EU member states.

It limits:

Budgetary deficit (normally ≤ 3% of GDP)

Public debt (normally ≤ 60% of GDP)

Statement 2 – Incorrect

The SGP has no provision related to sharing of infrastructure facilities among EU countries.

Infrastructure cooperation falls under other EU policies, not the SGP.

Statement 3 – Incorrect

The SGP does not deal with technology sharing.

Its focus is macroeconomic and fiscal discipline, not technological cooperation.

✅ Hence, only one statement is correct.

Memory Trick:

“SGP = Stability of budgets, not sharing of bridges or technology.”

19.

Consider the following statements:

Statement-I:

Interest income from the deposits in Infrastructure Investment Trusts (InvITs) distributed to their investors is exempted from tax, but the dividend is taxable.

Statement-II:

InvITs are recognized as borrowers under the ‘Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’.

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I

(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I

(d) Statement-I is incorrect but Statement-II is correct

Correct Answer:

(d) Statement-I is incorrect but Statement-II is correct

Explanation:

Statement-I – Incorrect

Interest income distributed by InvITs to unit holders is taxable in the hands of investors (as per their applicable slab).

Dividend income from InvITs may be exempt in the hands of unit holders subject to conditions (for example, where the Special Purpose Vehicle has not opted for the concessional corporate tax regime).

Hence, the statement reverses the correct tax treatment.

Statement-II – Correct

InvITs have been recognized as “borrowers” under the SARFAESI Act, 2002, enabling lenders to enforce security interests in case of default.

What does this statement mean?

It means that Infrastructure Investment Trusts (InvITs) are legally treated as borrowers under the SARFAESI Act, 2002, just like companies or individuals who take loans from banks or financial institutions.

Why is this recognition important?

InvITs raise debt from banks and financial institutions to acquire or refinance infrastructure assets.

For lenders to feel secure, they need legal enforcement rights if the borrower defaults.

By recognizing InvITs as borrowers under SARFAESI, lenders can:

Enforce security interests

Take possession of secured assets

Recover dues without court intervention

👉 This reduces credit risk and lowers borrowing costs for InvITs.

How does SARFAESI apply here?

Under the SARFAESI Act, 2002:

If a borrower defaults on a secured loan,

The lender can:

Seize the secured asset

Sell or lease it to recover dues

By bringing InvITs within the definition of borrower:

Loans to InvITs become SARFAESI-enforceable.

Infrastructure assets held through InvIT structures become bankable collateral.

UPSC-relevant cause–effect chain

Infrastructure needs long-term debt

Debt needs strong recovery mechanism

SARFAESI provides non-judicial recovery

Hence, InvITs are recognised as borrowers under SARFAESI

What Statement-II does NOT mean (important trap)

❌ It does NOT mean InvITs are banks or lenders

❌ It does NOT relate to taxation of dividends or interest

❌ It does NOT explain why interest/dividend is taxed or exempt

That is why Statement-II cannot explain Statement-I in the earlier question.

One-line UPSC takeaway

InvITs are treated as borrowers under SARFAESI to enable lenders to enforce security interests and improve infrastructure financing.

Memory Trick

“InvIT takes loans → SARFAESI protects lenders.”

Memory Trick:

“InvIT: Interest is taxed, dividends may be spared; InvIT = borrower under SARFAESI.”

Expected Questions

What are InvITs?

Infrastructure Investment Trusts (InvITs) are investment vehicles created to attract long-term capital for infrastructure projects.

They are similar in concept to Mutual Funds, but instead of investing in shares or bonds, they invest in infrastructure assets.

Key Features (UPSC-oriented)

Full form: Infrastructure Investment Trusts (InvITs)

Introduced in India: 2014

Regulator: Securities and Exchange Board of India (SEBI)

Legal structure: Trust (registered under SEBI InvIT Regulations)

What do InvITs invest in?

Roads and highways

Power transmission lines

Renewable energy assets

Pipelines, ports, telecom infrastructure

These are usually revenue-generating, completed infrastructure projects.

Why invest in completed, revenue-generating infrastructure projects?

At first glance, it looks illogical:

“If the project is already earning money, why does it need investment?”

The answer lies in who needs the money and for what purpose.

1️⃣ The project earns revenue, but capital is locked

Roads, power lines, pipelines, ports, etc.:

Generate stable cash flows

But are capital-intensive

Once built, money is locked for 20–30 years.

👉 The owner (government or company) earns revenue slowly over time, not upfront.

2️⃣ The original owner needs fresh capital, not the project

Typical owners:

Government

Public Sector Enterprises

Infrastructure developers

Their problem:

Capital is stuck in old projects

But they need money to:

Build new infrastructure

Reduce debt burden

Improve fiscal position

👉 Selling or monetising completed projects unlocks capital.

3️⃣ Why investors like completed projects

From an investor’s perspective:

❌ No construction risk

❌ No land acquisition risk

❌ No regulatory approval risk

Instead:

✅ Predictable revenue

✅ Long-term contracts

✅ Stable cash flows

👉 Perfect for:

Pension funds

Insurance companies

Sovereign wealth funds

4️⃣ Role of InvITs (linking concept)

InvITs allow:

Transfer of completed revenue-earning assets

From government / developer → investors

In return:

Investors get steady income

Owner gets lump-sum capital

5️⃣ Why not invest in under-construction projects instead?

Because:

High uncertainty

Cost overruns

Delays

Litigation risks

UPSC keyword:

Risk transfer

Completed projects transfer low-risk assets to investors.

6️⃣ Big picture (examiner’s angle)

This is part of:

Infrastructure monetisation

Asset recycling

Fiscal consolidation

Private capital mobilisation

UPSC-ready one-line answer

Even though infrastructure projects generate revenue, investment is required to unlock locked capital, reduce debt, and fund new infrastructure through asset monetisation.

Memory Trick

“Revenue flows slowly; investment unlocks money instantly.”

How do investors earn from InvITs?

Investors earn through:

Interest income

Dividend income

Repayment of principal

At least 90% of net distributable cash flows must be distributed to unit holders.

How do investors earn from InvITs?

Investors earn three different types of cash flows because of the multi-layer structure of InvITs.

1️⃣ Interest Income – Most common

How it arises

InvITs usually do not directly operate the infrastructure asset.

The asset is held by a Special Purpose Vehicle (SPV).

The InvIT lends money to the SPV.

👉 The SPV pays interest on this loan to the InvIT.

👉 The InvIT passes this interest to unit holders.

Key point

This interest income is taxable in the hands of investors.

2️⃣ Dividend Income – Conditional

How it arises

The InvIT may also hold equity shares in the SPV.

When the SPV makes profit, it can declare a dividend.

That dividend flows:

From SPV → InvIT → Investors

Tax treatment (conceptual)

Dividend may be exempt for investors depending on the tax regime chosen by the SPV.

Hence, dividend income is not guaranteed every year.

3️⃣ Repayment of Principal – Return of capital

How it arises

When the SPV repays the loan principal to the InvIT,

The InvIT distributes this amount to investors.

Important clarification

This is NOT income.

It is simply return of the investor’s own capital.

Hence, not taxed as income (though capital gains rules may apply in certain cases).

What is a Special Purpose Vehicle (SPV)?

A Special Purpose Vehicle (SPV) is a separate legal entity created for a specific, narrow objective, usually to own, operate, or finance a single project or asset.

👉 In infrastructure, an SPV typically:

Owns one road / power line / port / pipeline

Collects revenue from that asset

Services debt related to that specific project only

Why are SPVs created?

Risk isolation: Project risks do not spill over to the parent.

Ring-fencing cash flows: Lenders can assess and recover from one project.

Easier financing: Predictable revenues → better credit assessment.

Contract clarity: Concessions, toll rights, PPAs are signed with the SPV.

Is an SPV a company?

👉 Often yes, but conceptually no.

An SPV is a purpose-based concept.

A company is a legal form.

Most SPVs are incorporated as:

Private Limited Companies, or

Limited Liability Companies

But not every company is an SPV.

SPV vs Company (Conceptual Difference)

1️⃣ Purpose

SPV

Created for one specific project or transaction

Objective is narrow and predefined

Company

Can pursue multiple businesses and objectives

Objective is broad and evolving

2️⃣ Scope of Operations

SPV

Operates only one asset or project

No diversification

Company

Can operate multiple projects, sectors, geographies

3️⃣ Risk Structure

SPV

Risk is ring-fenced

Failure affects only that SPV

Company

Risks are shared across the entire firm

Failure affects all operations

4️⃣ Lifespan

SPV

Often temporary

Exists till project life / loan repayment / concession period

Company

Perpetual succession

Not linked to a single project’s life

5️⃣ Use in Infrastructure & InvITs (UPSC favourite)

Infrastructure assets are held by SPVs

InvITs invest in SPVs, not directly in assets

SPVs:

Pay interest

Pay dividends

Repay principal

This structure enables:

Stable cash flow distribution

SARFAESI enforceability

Infrastructure monetisation

UPSC-ready one-line answer

An SPV is a legally separate entity created for a specific project to ring-fence risk and cash flows, whereas a company is a general-purpose business entity with diversified objectives.

Why does the government promote InvITs?

Monetise existing infrastructure assets

Reduce fiscal burden on the government

Provide stable returns to investors

Improve infrastructure financing

Simple distinction (for clarity)

InvITs → Infrastructure assets

REITs → Real estate assets

Memory Trick

“InvIT = Infrastructure ka Mutual Fund.”

18.

Statement I:

In the post-pandemic recent past, many Central Banks across the world carried out interest rate hikes.

Statement II:

Central Banks generally assume that they have the ability to counteract rising consumer prices through monetary policy tools.

Which of the above statements is/are correct?

(a) Both Statement I and Statement II are correct and Statement II is the correct explanation of Statement I

(b) Both Statement I and Statement II are correct but Statement II is not the correct explanation of Statement I

(d) Statement I is incorrect but Statement II is correct

✅ Correct Answer

👉 Option (a) ✔️

🧠 Explanation

Statement I is correct ✅

After COVID-19, inflation rose globally due to supply chain disruptions, excess liquidity, and demand recovery.

Central Banks like the US Fed, ECB, RBI, etc., responded by raising interest rates to control inflation. 📉

Statement II is also correct ✅

Central Banks believe that monetary policy tools such as:

Policy rate hikes

Liquidity tightening

Open Market Operations (OMO)

can help reduce demand and control inflation.

Link between I and II 🔗

Interest rate hikes mentioned in Statement I were done because Central Banks believe monetary policy can counter rising prices.

Hence, Statement II correctly explains Statement I.

🧩 Memory Trick

“Inflation upar → Rate upar”

Central Bank ka basic mantra 📈➡️📉

17.

Consider the following statements:

Statement-I:

Recently, the United States of America (USA) and the European Union (EU) have launched the ‘Trade and Technology Council’.

Statement-II:

The USA and the EU claim that through this they are trying to bring technological progress and physical productivity under their control.

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I

(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I

(d) Statement-I is incorrect but Statement-II is correct

Correct Answer:

Explanation:

Statement-I – Correct

The United States–European Union Trade and Technology Council (TTC) was launched to strengthen coordination on trade, technology, supply chains, standards, and emerging technologies.

Statement-II – Incorrect

The stated objective of the TTC is cooperation, coordination, and setting common standards, not “bringing technological progress and physical productivity under their control.”

The wording in Statement-II misrepresents the intent and mandate of the TTC.

Hence, Statement-I is correct, but Statement-II is incorrect.

Memory Trick:

“TTC = Tech coordination, not tech control.”

16.

With reference to India’s projects on connectivity, consider the following statements:

1.East-West Corridor under Golden Quadrilateral Project connects Dibrugarh and Surat.

2.Trilateral Highway connects Moreh in Manipur and Chiang Mai in Thailand via Myanmar.

3.Bangladesh-China-India-Myanmar Economic Corridor connects Varanasi in Uttar Pradesh with Kunming in China.

How many of the above statements are correct?

(a) Only one

(b) Only two

(d) None

Correct Answer:

(d) None

Explanation:

Statement 1 – Incorrect

The East–West Corridor connects Silchar (Assam) and Porbandar (Gujarat), not Dibrugarh and Surat.

Statement 2 – Incorrect

The India–Myanmar–Thailand Trilateral Highway officially connects Moreh (Manipur) to Mae Sot (Thailand) via Myanmar.

Chiang Mai is not the designated terminal point.

Statement 3 – Incorrect

The Bangladesh–China–India–Myanmar (BCIM) Economic Corridor connects Kolkata to Kunming, not Varanasi.

✅ Therefore, none of the statements are correct.

Memory Trick:

“EW: Silchar–Porbandar | Trilateral: Moreh–Mae Sot | BCIM: Kolkata–Kunming.”

15.

Consider the following statements:

Statement-I:

India accounts for 3.2% of global export of goods.

Statement-II:

Many local companies and some foreign companies operating in India have taken advantage of India’s ‘Production-Linked Incentive’ scheme.

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I

(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I

(d) Statement-I is incorrect but Statement-II is correct

Correct Answer:

(d) Statement-I is incorrect but Statement-II is correct

Explanation:

Statement-I – Incorrect

India’s share in global merchandise (goods) exports is around 1.8%–2%, not 3.2%.

A figure close to 3%+ applies when goods and services exports combined are considered, not goods alone.

Hence, the statement overstates India’s share specifically for goods exports.

Statement-II – Correct

Under the Production-Linked Incentive (PLI) scheme, many domestic companies and foreign firms operating in India have availed incentives.

This is a well-documented outcome across sectors like electronics, pharmaceuticals, automobiles, etc.

Since Statement-I is factually incorrect and Statement-II is correct, option (d) is the correct choice.

Memory Trick:

“Goods alone ≠ 3% ”

Expected Questions

Production Linked Incentive (PLI) scheme:

Strategic Scale and Sectoral Focus: The PLI scheme is a central sector scheme launched in 2020 with a massive total outlay of ₹1.97 lakh crore (approx. $26 billion).

Initially targeting 3 industries, it now covers 14 key sectors, including mobile manufacturing, pharmaceuticals, automobiles, specialty steel, and high-efficiency solar PV modules.

It is designed as a "whole-of-government" initiative, with each sector managed by its respective ministry but monitored centrally by an Empowered Group of Secretaries (EGoS).

Performance-Linked Incentive Mechanism: Unlike traditional subsidies based on input or investment, the PLI scheme rewards incremental sales from products manufactured in domestic units.

It generally provides financial incentives of 4% to 6% on the value of incremental sales over a base year for a period of five years. In certain strategic sectors like drones and Advanced Chemistry Cell (ACC) batteries, incentives are also tied to local value addition.

Realized Impact and Implementation Gaps (2026 Status): By late 2025, the scheme had realized actual investments of approximately ₹2.02 lakh crore, resulting in incremental production/sales of over ₹18.7 lakh crore and creating 12.6 lakh jobs.

Flagship Success: The electronics sector has been the standout, with mobile phone production surging from ₹18,000 crore (2014-15) to ₹5.45 lakh crore in 2024-25.

Challenges: For UPSC critical analysis, it is vital to note that as of late 2025, overall incentive disbursement remains low (roughly ₹23,946 crore out of the ₹1.97 lakh crore outlay) due to unmet targets in slower-moving sectors like ACC batteries and IT hardware.

This has prompted discussions on PLI 2.0, which aims to shift focus from mere assembly to deeper domestic value addition and component localization.

14.

Consider the following Statements:

Statement-I

Switzerland is one of the leading exporters of gold in terms of value.

Statement-II

Switzerland has the second largest gold reserves in the world.

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I

(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I

(d) Statement-I is incorrect but Statement-II is correct

Correct Answer:

Explanation:

Statement-I – Correct

Switzerland is one of the world’s leading exporters of gold by value.

This is because Switzerland is a global hub for gold refining and re-export, not because it produces gold domestically.

Statement-II – Incorrect

Switzerland does not have the second largest gold reserves.

The United States has the largest gold reserves, followed by Germany.

Switzerland’s official gold reserves are significantly lower than these countries.

Therefore, Statement-II is factually incorrect and cannot explain Statement-I.

Memory Trick:

“Switzerland refines and exports gold, but does not store the world’s gold.”

13.

Consider the following infrastructure sectors:

1.Affordable housing

2.Mass rapid transport

3.Health care

4.Renewable energy

On how many of the above does UNOPS Sustainable Investments in Infrastructure and Innovation (S3i) initiative focus for its investments?

(a) Only one

(b) Only two

(d) All four

Correct Answer:

Explanation:

The UNOPS Sustainable Investments in Infrastructure and Innovation (S3i) initiative focuses on socially impactful and sustainable infrastructure sectors, specifically:

Affordable housing – Correct

A core focus area to address housing shortages and inclusive urban development.

Health care – Correct

Includes hospitals, health facilities, and health-related infrastructure.

Renewable energy – Correct

Focuses on clean, sustainable energy infrastructure.

Mass rapid transport – Incorrect

Large-scale urban transport systems like metro or mass rapid transit are not a primary focus sector under S3i.

✅ Therefore, three sectors (1, 3, and 4) are covered.

Memory Trick:

“S3i invests in Shelter, Solar, and Hospitals — not metros.”

Expected Questions

The United Nations Office for Project Services (UNOPS) is an operational arm of the United Nations dedicated to implementing projects for the UN system, international financial institutions, and governments.

As of January 2026, the organization is transitioning into its new Strategic Plan (2026–2029), which focuses on scaling up practical solutions for climate action, sustainable infrastructure, and inclusive development.

Core Functions

UNOPS operates on a unique self-financing, demand-driven model, providing three primary services:

Infrastructure: Building schools, hospitals, roads, and bridges, with a 2026 focus on climate-resilient and nature-based designs.

Procurement: Sourcing goods and services (e.g., medical supplies, vehicles) efficiently and sustainably.

Project Management: Managing large-scale humanitarian, development, and peacebuilding programs.

Key Strategic Goals (2026–2029): The new plan aims to reduce corporate emissions by 45% by 2030 and focuses on eight "missions," including energy transition, digital transformation, and health equity.

Active Regions: In early 2026, UNOPS is heavily involved in humanitarian and recovery efforts in Gaza, Ukraine, Yemen, and Afghanistan, as well as climate resilience projects in Small Island Developing States.

Headquarters: UN City, Copenhagen, Denmark.

Greenland is an autonomous territory within the Kingdom of Denmark.

While geographically part of North America, it is geopolitically and culturally linked to Europe.

12.

Consider the following:

Demographic performance

Forest and ecology

Governance reforms

Stable government

Tax and fiscal efforts

For the horizontal tax devolution, the Fifteenth Finance Commission used how many of the above as criteria other than population, area and income distance?

(a) Only two

(b) Only three

(d) All five

Correct Answer:

(b) Only three

Explanation:

The Fifteenth Finance Commission (15th FC) used the following criteria for horizontal devolution, apart from population, area, and income distance:

Demographic performance – Correct

Included to reward states for lower population growth.

Forest and ecology – Correct

Included to compensate states for maintaining forest cover.

Tax and fiscal efforts – Correct

Included to incentivise better tax effort by states.

Governance reforms – Incorrect

This was not used as a criterion for horizontal tax devolution.

Stable government – Incorrect

This is not a Finance Commission criterion.

✅ Hence, only three of the listed items were used as criteria.

Memory Trick:

“15th FC rewards Demo, Forest, and Tax — not politics or stability.”

Expected Questions

16th Finance Commission is chaired by Dr. Arvind Panagariya, a renowned economist and the first Vice-Chairman of NITI Aayog.

The Commission's recommendation period covers five fiscal years, from April 1, 2026, to March 31, 2031.

11.

Consider the investments in the following assets:

1.Brand recognition

2.Inventory

3.Intellectual property

4.Mailing list of clients

How many of the above are considered intangible investments?

(a) Only one

(b) Only two

(d) All four

Correct Answer:

Explanation:

Brand recognition – Intangible

It has no physical form and represents market perception and goodwill.

Inventory – Not intangible

Inventory consists of physical goods held for sale or production; hence it is a tangible asset.

Intellectual property – Intangible

Includes patents, copyrights, trademarks, etc., which lack physical substance.

Mailing list of clients – Intangible

It represents customer-related information and commercial value without physical form.

✅ Therefore, three assets (1, 3, and 4) are intangible investments.

Memory Trick:

“Ideas, image, and information are intangible — items in store are not.”

10.

Consider the following statements:

1.The Government of India provides Minimum Support Price for niger (Guizotia abyssinicia) seeds.

2.Niger is cultivated as a Kharif crop.

3.Some tribal people in India use niger seed oil for cooking.

How many of the above statements are correct?

(a) Only one

(b) Only two

(d) None

Correct Answer:

Explanation:

After rechecking based strictly on the image provided:

Statement 1 – Correct

The image clearly states that niger (ramtil) is one of the 14 Kharif crops for which the Centre releases Minimum Support Price (MSP) every year.

Hence, the earlier assumption that MSP is not provided is incorrect and stands corrected.

Statement 2 – Correct

The image explicitly mentions niger as a Kharif crop.

Therefore, this statement is correct.

Statement 3 – Correct

The image clearly mentions that tribal populations use niger seed oil for cooking, along with other uses.

Hence, this statement is correct.

Memory Trick:

“Niger (kala til) = Kharif crop + MSP + Tribal cooking oil.”

Which one of the following best describes the concept of ‘Small Farmer Large Field’?

(a) Resettlement of a large number of people, uprooted from their land, in a large cultivable land which they cultivate collectively and share the produce

(b) Many marginal farmers in an area organize themselves into groups and synchronize and harmonize selected agricultural operations

(c) Many marginal farmers in an area together make a contract with a corporate body and surrender their land to the corporate body for a fixed term for which the corporate body makes a payment of agreed amount to the farmers

(d) A company extends loans, technical knowledge and material inputs to a number of small farmers in an area so that they produce the agricultural commodity required by the company for its manufacturing process and commercial purposes

Correct Answer:

(b) Many marginal farmers in an area organize themselves into groups and synchronize and harmonize selected agricultural operations

Explanation:

‘Small Farmer Large Field’ is a concept aimed at achieving economies of scale without transferring land ownership.

Under this model:

Small and marginal farmers retain ownership of their individual land holdings.

They collectively coordinate activities such as:

Sowing,

Irrigation,

Use of machinery,

Harvesting.

This creates the operational effect of a large farm, improving productivity and reducing costs.

Why other options are incorrect:

(a) Refers to collective farming/resettlement, not coordination without land pooling.

(d) Describes contract farming, which is a different model.

Memory Trick:

“Land stays small, operations become large.”

Consider the following markets:

1.Government Bond Market

2.Call Money Market

3.Treasury Bill Market

4.Stock Market

How many of the above are included in capital markets?

(a) Only one

(b) Only two

(d) All four

Correct Answer:

(b) Only two

Explanation:

Market 1: Government Bond Market — Included in Capital Market (Correct)

Government bonds are long-term instruments (maturity generally more than one year).

Capital markets deal with long-term funds.

Market 2: Call Money Market — Not included (Incorrect)

Call money market deals with overnight to very short-term funds.

It is part of the Money Market, not capital market.

Market 3: Treasury Bill Market — Not included (Incorrect)

Treasury Bills have short-term maturity (up to 1 year).

Hence, they belong to the Money Market.

Market 4: Stock Market — Included in Capital Market (Correct)

Stock market deals with equity shares, which are long-term instruments.

Hence, it is a core component of the Capital Market.

👉 Correct markets: 1 and 4 only → Two markets

Memory Trick:

“Capital = Long-term (Bonds + Shares); Money = Short-term (Call + T-Bills).”

Which one of the following activities of the Reserve Bank of India is considered to be part of ‘sterilization’?

(a) Conducting ‘Open Market Operations’

(b) Oversight of settlement and payment systems

(d) Regulating the functions of Non-banking Financial Institutions

Correct Answer:

(a) Conducting ‘Open Market Operations’

Explanation:

Sterilization refers to actions taken by the Reserve Bank of India (RBI) to neutralize the impact of excess liquidity in the economy, often arising from foreign exchange inflows.

Open Market Operations (OMO) involve the sale or purchase of government securities by RBI:

Sale of securities → absorbs excess liquidity (sterilization).

Purchase of securities → injects liquidity.

Hence, OMO is a direct tool of sterilization.

The other options relate to regulatory or administrative functions and do not manage liquidity directly:

Settlement/payment oversight → system stability.

Debt and cash management → fiscal operations.

NBFC regulation → supervisory function.

Memory Trick:

Sterilize liquidity → Sell bonds

Consider the following pairs:

Port — Well known as

Kamarajar Port : First major port in India registered as a company

Mundra Port : Largest privately owned port in India

Visakhapatnam : Largest container port in India

How many of the above pairs are correctly matched?

(a) Only one pair

(b) Only two pairs

(d) None of the pairs

Correct Answer:

(b) Only two pairs

Explanation:

Pair 1: Kamarajar Port — Correct

Kamarajar Port (earlier Ennore Port) was the first major port in India to be corporatised and registered as a company under the Companies Act.

Pair 2: Mundra Port — Correct

Mundra Port (Gujarat) is the largest privately owned port in India, operated by the Adani Group.

Pair 3: Visakhapatnam — Incorrect

Visakhapatnam Port is not the largest container port in India.

The largest container port in India is Jawaharlal Nehru Port (JNPT / Nhava Sheva) in Maharashtra.

Visakhapatnam is a major port, but not the largest in container handling.

Memory Trick:

“Kamarajar = first company-port, Mundra = biggest private, JNPT = container king.”

Expected Questions

Meaning of “Major Port” in India (UPSC-oriented)

A Major Port in India is:

A port declared as a Major Port by the Central Government and governed by central legislation, handling large volumes of international and domestic cargo.

Are there two types of ports in India?

✅ Yes. India has two categories of ports:

1️⃣ Major Ports

Who controls them:

Central Government

Legal framework:

Earlier: Major Port Trusts Act, 1963

Now: Major Port Authorities Act, 2021

Key features:

Handle large cargo volumes

Strategic importance for international trade

Greater infrastructure and connectivity

Some are corporatised (e.g., Kamarajar Port)

Examples:

Jawaharlal Nehru Port (JNPT)

Chennai Port

Visakhapatnam Port

Kamarajar (Ennore) Port

2️⃣ Non-Major Ports (Earlier called “Minor Ports”)

Who controls them:

State Governments

Legal framework:

Governed by State maritime laws

Key features:

Smaller cargo handling compared to major ports

Focus on regional trade, coastal shipping

Majority of Indian ports fall in this category

Examples:

Mundra Port (Gujarat)

Pipavav Port

Krishnapatnam Port

👉 Important UPSC note:

The term “Minor Port” is officially replaced by “Non-Major Port”, but UPSC may still use either term.

Core Difference (Exam-ready)

Major Port → Central Government control

Non-Major Port → State Government control

UPSC One-line Summary

Major ports are centrally governed ports of national importance, while non-major ports are state-governed ports handling regional trade.

Memory Trick:

“Major = Centre, Non-major = State.”

Consider the following statements:

Statement-I:

India, despite having uranium deposits, depends on coal for most of its electricity production.

Statement-II:

Uranium, enriched to the extent of at least 60%, is required for the production of electricity.

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I

(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I

(d) Statement-I is incorrect but Statement-II is correct

Correct Answer:

Explanation:

Statement-I: Correct

India generates the major share of its electricity from coal, despite having uranium deposits.

Nuclear power contributes only a small fraction to India’s electricity mix.

Reasons include limited nuclear capacity, high capital costs, and fuel-cycle constraints.

Statement-II: Incorrect

Electricity production in nuclear power plants does NOT require uranium enriched to 60%.

Nuclear reactors use low enriched uranium, typically 3–5% U-235.

Enrichment levels of 60% or more are associated with weapons-grade or near weapons-grade uranium, not civilian electricity generation.

Memory Trick:

“Power plants need LOW enrichment(3 -5%); bombs need HIGH enrichment.”

Expected Questions

Below is a simple, concept-clear explanation of the three terms, exactly in the context of nuclear power in India, and in UPSC-friendly language.

1️⃣ What does High Capital Cost mean here?

Capital cost means the initial money required to build a power plant before it starts producing electricity.

In the case of nuclear power:

Very high upfront expenditure is required for:

Reactor construction,

Safety systems,

Radiation shielding,

Waste handling facilities,

Long construction time.

👉 Most of the cost comes BEFORE electricity generation starts.

Simple comparison:

Coal plant → Cheaper to build, faster to set up

Nuclear plant → Very expensive to build, takes many years

📌 Meaning in one line:

High capital cost means nuclear power plants require very large upfront investment compared to other power sources.

2️⃣ What does Fuel Cycle Constraint mean?

Fuel cycle refers to the entire process of using nuclear fuel, from start to end.

Nuclear fuel cycle includes:

Uranium mining

Fuel processing and enrichment

Reactor use

Spent fuel handling

Reprocessing or disposal

India’s constraint:

India has limited high-quality uranium reserves.

Dependence on:

Imports,

International agreements,

Technology restrictions.

Complex and sensitive processes involved.

📌 Meaning in one line:

Fuel cycle constraint means limitations in availability, processing, and management of nuclear fuel.

3️⃣ What does Nuclear Capacity mean?

Nuclear capacity refers to:

The total electricity-generating capability of nuclear power plants, usually measured in megawatts (MW).

In India:

Nuclear power capacity is much smaller compared to coal, solar, or hydro.

Even if nuclear plants run efficiently, their total contribution remains limited.

📌 Meaning in one line:

Low nuclear capacity means fewer nuclear plants and lower total electricity generation from nuclear energy.

🔹 Combined Understanding (Very Important for UPSC)

India depends mainly on coal because:

Nuclear power has high capital cost (expensive to build),

Fuel cycle constraints (limited uranium and complex fuel management),

Low installed nuclear capacity (few plants).

✅ UPSC-Ready Summary

High capital cost refers to heavy upfront investment, fuel cycle constraint refers to limitations in nuclear fuel availability and processing, and nuclear capacity refers to the limited total electricity-generating ability of nuclear power plants.

Memory Trick:

“Nuclear = Costly to build, hard to fuel, limited in size.”

Meaning of “Enrichment” (in the nuclear context)

Enrichment means:

Increasing the proportion of the fissile uranium isotope (Uranium-235) in natural uranium.

Why enrichment is needed

Natural uranium contains:

~99.3% Uranium-238 (U-238) → not easily fissionable

~0.7% Uranium-235 (U-235) → fissionable (useful)

Most nuclear uses (power or weapons) require more U-235 than is naturally present.

Enrichment increases the percentage of U-235.

📌 So, enrichment does NOT create new uranium —

it only changes the proportion of U-235.

How much enrichment is required for different purposes

1️⃣ Nuclear power plants (electricity)

Require Low Enriched Uranium (LEU).

U-235 content: ~3% to 5%

(sometimes up to ~10% in certain reactors)

👉 Used for civilian electricity generation.

2️⃣ Nuclear bomb (weapons use)

Requires Highly Enriched Uranium (HEU).

U-235 content: ≥ 90%

(this is called weapons-grade uranium).

👉 Below this level, a reliable nuclear bomb is not possible.

Very important UPSC clarification

60% enrichment (mentioned in your earlier question):

❌ Not used for electricity

❌ Still not weapons-grade

⚠️ Considered highly sensitive and proliferation-risk level

That is why Statement-II in the question was incorrect.

UPSC-ready summary (precise)

Enrichment refers to increasing the proportion of Uranium-235 in uranium. Nuclear power reactors use low-enriched uranium (3–5%), while nuclear weapons require weapons-grade uranium enriched to about 90% or more.

Memory Trick:

“Power = Few percent, Bomb = Ninety percent.”

Consider the following statements with reference to India:

1. According to the 'Micro Small and Medium Enterprises Development (MSMED) Act, 2006, the 'medium enterprises' are those with investments in plant and machinery between Rs. 15 crore and Rs. 25 crore.

2. All bank loans to the Micro, Small and Medium Enterprises qualify under the Priority sector.

Which of the statements given above is/are correct?

(a) 1 Only

(b) 2 Only

(d) Neither 1 nor 2

Correct Answer:

(b) 2 Only

Explanation:

Statement 1: Incorrect ❌

As per latest data medium enterprise

Investment limit - 125 crore

Turnover limit - 500 crore

Statement 2: Correct ✅

All bank loans to MSMEs conforming to prescribed conditions qualify as Priority Sector Lending.

With reference to Central Bank digital currencies, consider the following statements :

1. It is possible to make payments in a digital currency without using US dollar or SWIFT system.

2. A digital currency can be distributed with a condition programmed into it such as a time-frame for spending it.

Which of the statements given above is/are correct?

(a) 1 Only

(b) 2 Only

(d) Neither 1 nor 2

Correct Answer:

Explanation:

Statement 1: Correct

Central Bank Digital Currencies (CBDCs) can enable direct cross-border or domestic payments without routing through:

the US dollar, or

the SWIFT (Society for Worldwide Interbank Financial Telecommunication) messaging system.

Payments can be settled bilaterally or through alternative payment infrastructures, reducing dependence on dollar-based systems.

Statement 2: Correct

CBDCs can be designed as programmable money.

Conditions such as:

time-limit for spending,

purpose-specific use,

location-based use

can be embedded into the digital currency itself.

This feature is not possible with physical cash.

Memory Trick:

“CBDC = Dollar-free payments + Programmable money.”

Expected Questions

Meaning of Central Bank Digital Currency (CBDC) — for UPSC Examination

Central Bank Digital Currency (CBDC) is:

A digital form of a country’s sovereign currency, issued and regulated by the central bank, and equivalent in value to physical cash.

Explain it simply

CBDC is official digital money.

It is issued by the central bank (in India, RBI).

It is legal tender, just like notes and coins.

It is not a cryptocurrency like Bitcoin.

Key Features (UPSC-relevant)

Sovereign currency → backed by the State.

Direct liability of the central bank.

Exists in digital form only.

Can be used for:

Payments,

Transfers,

Settlements.

Can be programmable (conditions like time-limit or purpose).

Types of CBDC

Retail CBDC (CBDC-R)

Used by the general public.

Wholesale CBDC (CBDC-W)

Used by banks and financial institutions for interbank settlements.

CBDC vs Cryptocurrency (Core Distinction)

CBDC → Centralised, legal tender, stable

Cryptocurrency → Decentralised, private, volatile

UPSC-ready One-line Definition

A Central Bank Digital Currency is a digital form of legal tender issued by a central bank and backed by the sovereign authority of the State.

Memory Trick:

“CBDC = Cash, but Digital and Central.”

Meaning of Legal Tender (Simple + UPSC-oriented)

Legal tender means:

Money that must be accepted by law for settling debts and making payments within a country.

Explain it in very simple words

If a currency is legal tender:

No one can legally refuse it for payment of a debt.

It is officially recognised by the government/central bank.

In the Indian context

Indian Rupee (₹) notes and coins issued by the Reserve Bank of India (RBI) are legal tender.

This means:

You can use them to pay taxes,

Repay loans,

Buy goods and services (subject to law).

Key Points for UPSC

Legal tender gets its power from law, not from commodity backing.

It applies within the territory of the country.

CBDC (digital rupee) is also legal tender.

What legal tender does NOT mean

It does NOT mean:

Everyone must accept unlimited amounts (e.g., coins have limits),

The currency has intrinsic value like gold.

UPSC-ready One-line Definition

Legal tender is money that is legally recognised by the State and must be accepted in settlement of debts.

Memory Trick:

“Legal tender = Law says ‘must accept’.”

In the context of finance, the term ‘beta’ refers to

(a) the process of simultaneous buying and selling of an asset from difference platforms.

(b) an investment strategy of a portfolio manager to balance risk versus reward.

(d) a numeric value that measures the fluctuations of a stock to changes in the overall stock market.

Correct Answer:

(d) a numeric value that measures the fluctuations of a stock to changes in the overall stock market.

Explanation:

Beta (β) measures a stock’s systematic risk, i.e., its sensitivity to overall market movements.

It shows how much a stock’s price changes when the market changes.

Interpretation:

β = 1 → Stock moves in line with the market.

β > 1 → Stock is more volatile than the market.

β < 1 → Stock is less volatile than the market.

Therefore,

Beta is a numeric indicator of market-related volatility, not a strategy or trading process.

Consider the following statements:

1.The Self-Help Group (SHG) programme was originally initiated by the State Bank of India by providing microcredit to the financially deprived.

2.In an SHG, all members of a group take responsibility for a loan that an individual member takes.

3.The Regional Rural Banks and Scheduled Commercial banks support SHGs.

How many of the above statements are correct?

(a) Only one

(b) Only two

(d) None

Correct Answer:

(b) Only two

Explanation:

Statement 1: Incorrect

The SHG–Bank Linkage Programme was initiated by NABARD (National Bank for Agriculture and Rural Development) in 1992, not by the State Bank of India.

SBI later became a major participant, but it was not the initiator.

Statement 2: Correct

SHGs function on the principle of joint liability.

All members are collectively responsible for repayment of loans taken by any individual member.

Statement 3: Correct

Regional Rural Banks (RRBs) and Scheduled Commercial Banks (SCBs) actively:

Finance SHGs,

Provide credit linkage,

Support SHG-based financial inclusion.

Memory Trick:

“NABARD started, Group repays, Banks support.”

Expected Questions

Meaning of Self-Help Group (SHG) — Simple and Exam-oriented

A Self-Help Group (SHG) is:

A small, voluntary group of people—usually from similar socio-economic backgrounds—who come together to save money regularly and help each other with small loans.

Explain it simply

People form a small group (usually 10–20 members).

They save a small amount every month.

The pooled money is used to lend to members in need.

The group later gets loans from banks based on its savings and repayment record.

All members are jointly responsible for repayment.

Key Features (UPSC-relevant)

Voluntary and member-driven.

Based on mutual trust and joint liability.

Promotes financial inclusion.

Commonly linked with banks under the SHG–Bank Linkage Programme.

Often focuses on women’s empowerment in rural areas.

Simple Example

12 women in a village form a group.

Each saves ₹100 per month.

After some months, one member borrows from the group to start a small business.

Later, the group gets a bank loan, and everyone ensures repayment.

UPSC-ready One-line Definition

A Self-Help Group is a small voluntary group that pools savings and provides credit to its members on the basis of mutual trust and joint responsibility.

Memory Trick:

“Save together, borrow together, repay together.”

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