Economics UPSC pyq 2019

22.

In the context of any country, which one of the following would be considered as part of its social capital?

(a) The proportion of literates in the population

(b) The stock of its buildings, other infrastructure and machines

(d) The level of mutual trust and harmony in the society

Correct Answer:

(d) The level of mutual trust and harmony in the society

Explanation:

Social capital refers to the networks, norms, trust, and social relationships that enable people in a society to work together effectively.

It is not about physical assets or population size.

It is about social cohesion and trust.

Now examine each option:

(a) The proportion of literates → This is part of human capital, not social capital.

(b) Stock of buildings and machines → This is physical capital.

(d) Level of mutual trust and harmony → Correct.

Trust, cooperation, and shared norms reduce transaction costs and improve economic and social outcomes.

Thus, social capital is about the strength of social relationships and collective functioning.

Memory Trick:

Human capital = skills.

Physical capital = machines.

Social capital = trust.

If the option mentions trust or harmony → think social capital.

21.

Consider the following statements:

1.According to the Indian Patents Act, a biological process to create a seed can be patented in India.

2.In India, there is no Intellectual Property Appellate Board.

3.Plant varieties are not eligible for patent in India.

Which of the statements given above is/are correct?

(a) 1 and 3 only

(b) 2 and 3 only

(d) 1, 2 and 3

Correct Answer:

Explanation:

Statement 1 – Incorrect

Under the Patents Act, 1970 (as amended), Section 3(j) clearly excludes:

• Plants and animals in whole or any part thereof (other than microorganisms)

• Essentially biological processes for production or propagation of plants and animals

Therefore, a biological process to create a seed (if it is essentially biological) cannot be patented in India.

Statement 2 – Incorrect

India had an Intellectual Property Appellate Board (IPAB) established in 2003.

However, it was abolished in 2021 through the Tribunals Reforms Act, 2021.

Before abolition, it existed. Since most UPSC questions refer to the legal framework as historically structured, the blanket statement “there is no IPAB” is incorrect in context.

Statement 3 – Correct

Plant varieties are not eligible for patent protection under the Patents Act.

Instead, they are protected under a separate law:

The Protection of Plant Varieties and Farmers’ Rights Act, 2001 (PPVFR Act).

Thus, plant varieties cannot be patented.

Memory Trick:

Plants → PPVFR, not Patent.

If the question says biological plant process patentable → incorrect.

20.

Atal Innovation Mission is set up under the

(a) Department of Science and Technology

(b) Ministry of Labour and Employment

(d) Ministry of Skill Development and Entrepreneurship

Correct Answer:

Explanation:

Atal Innovation Mission (AIM) was launched by the Government of India in 2016.

It is set up under NITI Aayog.

The objective of AIM is to promote:

• Innovation

• Entrepreneurship

• Startup ecosystem

• Innovation culture among students

Key initiatives include:

• Atal Tinkering Labs (ATLs) in schools

• Atal Incubation Centres (AICs)

• Atal Community Innovation Centres

Memory Trick:

AIM (2016) = Innovation Mission by NITI Aayog

Consider the following statements:

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?

(a) 1 only

(b) 1 and 2 only

(d) 1, 2 and 3

Correct Answer:

(a) 1 only

Explanation:

Statement 1 – Correct

In April 2018, the Reserve Bank of India (RBI) issued a circular on “Storage of Payment System Data.”

It mandated that all system providers must ensure that the entire data relating to payment systems operated by them are stored only in India.

This is commonly referred to as data localisation.

Thus, Statement 1 is correct.

Statement 2 – Incorrect

The RBI directive did not require payment systems to be owned or operated by public sector enterprises.

Private entities (e.g., Visa, Mastercard, NPCI, etc.) can operate payment systems, subject to RBI regulation.

Thus, Statement 2 is incorrect.

Statement 3 – Incorrect

The directive required system providers to submit a compliance report certified by a system auditor to the RBI.

It did not require submission of audit reports to the Comptroller and Auditor General (CAG) of India.

Thus, Statement 3 is incorrect.

Memory Trick:

RBI Data Rule = “Store in India, Report to RBI.”

18.

Consider the following statements:

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 Tribunal for Electricity.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(d) 1, 2 and 3

Correct Answer:

(b) 2 and 3 only

Explanation:

Statement 1 – Incorrect

PNGRB was established under the Petroleum and Natural Gas Regulatory Board Act, 2006.

However, it is not the first regulatory body set up by the Government of India.

Earlier regulators include:

• Securities and Exchange Board of India (SEBI) – 1992

• Telecom Regulatory Authority of India (TRAI) – 1997

• Central Electricity Regulatory Commission (CERC) – 1998

Therefore, Statement 1 is incorrect.

Statement 2 – Correct

One of the key objectives of PNGRB is to protect consumer interest and promote competitive markets in the petroleum and natural gas sector.

Ensuring fair trade and competition in gas markets is part of its statutory mandate.

Thus, Statement 2 is correct.

Statement 3 – Correct

Appeals against PNGRB decisions lie before the Appellate Tribunal for Electricity (APTEL), as provided under the PNGRB Act, 2006.

Therefore, Statement 3 is correct.

Memory Trick:

PNGRB = Gas regulator, not first regulator.

Gas market competition → Yes.

Appeal goes to electricity tribunal (APTEL) → Yes.

17.

Among the following which one is the largest exporter of rice in the world in the last five years?

(a) China

(b) India

(d) Vietnam

Correct Answer:

(b) India

Explanation:

Over the last five years:

India has consistently been the largest exporter of rice in the world.

It accounts for a significant share of global rice exports.

India exports both:

Basmati rice

Non-basmati rice

Now evaluate options:

(a) China ❌

China is one of the largest producers and consumers of rice but not the largest exporter.

(b) India ✅

India has led global rice exports consistently.

Exports rice but in much smaller quantities.

(d) Vietnam ❌

Major exporter but ranks below India.

Core Concept:

India = Top rice exporter globally in recent years.

Memory Trick:

India grows and ships rice globally.

16.

Consider the following statements:

1.Coal sector was nationalized by the Government of India under Indira Gandhi.

2.Now, coal blocks are allocated on lottery basis.

3.Till recently, India imported coal to meet the shortages of domestic supply, but now India is self-sufficient in coal production.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 and 3 only

(d) 1, 2 and 3

Correct Answer:

(a) 1 only

Explanation:

Statement 1 – Correct ✅

Coal mines were nationalised in two phases:

Coking coal mines (1972)

Non-coking coal mines (1973)

This happened during the tenure of Prime Minister Indira Gandhi.

Coal Mines (Nationalisation) Act, 1973 formalised it.

Hence, statement 1 is correct.

Statement 2 – Incorrect ❌

Earlier coal block allocations were through administrative allocation.

After Supreme Court cancelled allocations in 2014, the Coal Mines (Special Provisions) Act, 2015 introduced allocation through:

Auction

Competitive bidding

It is not done on lottery basis.

Statement 3 – Incorrect ❌

India continues to import coal, especially:

Coking coal for steel

High-grade coal

India is not fully self-sufficient in coal production.

Hence, statement 3 is incorrect.

Final Conclusion:

Only statement 1 is correct.

Memory Trick:

Coal nationalised in 1970s,Now auction, not lottery,Still importing coal.

15.

With reference to land reforms in independent India, which one of the following statements is correct?

(a) The ceiling laws were aimed at family holdings and not individual holdings.

(b) The major aim of land reforms was providing agricultural land to all the landless.

(d) Land reforms permitted no exemptions to the ceiling limits.

Correct Answer:

(b) The major aim of land reforms was providing agricultural land to all the landless.

Explanation:

The unit of ceiling differed from State to State.

In some States → based on land holder (individual)

In others → based on family

Only after the 1971 policy changes was there a shift towards:

Family as the unit

Fewer exemptions

Therefore:

Statement (a) is incorrect ❌

Because ceiling laws were not uniformly aimed at family holdings from the beginning. It varied by State.

Statement (b) – Correct ✅

One of the central objectives of land reforms was:

Redistribution of surplus land

Providing land to the landless

Reducing inequality

Hence, this captures the major aim correctly.

Statement (c) – Incorrect ❌

Land reforms were about equity and redistribution, not about shifting cropping pattern toward cash crops.

Statement (d) – Incorrect ❌

There were exemptions to ceiling limits.

1971 policy aimed at “fewer exemptions,” not zero exemptions.

Thus, exemptions existed.

Memory Trick:

Land reforms → Land to landless, Ceiling rules varied by State.

14.

Among the agricultural commodities imported by India, which one of the following accounts for the highest imports in terms of value in the last five years?

(a) Spices

(b) Fresh fruits

(d) Vegetable oils

Correct Answer:

(d) Vegetable oils

Explanation:

India is:

One of the largest consumers of edible oils in the world.

Highly dependent on imports for edible oil requirements.

Now evaluate options:

(a) Spices ❌

India is a major exporter of spices.

Imports are relatively small in value.

(b) Fresh fruits ❌

Some fruits are imported (like apples),

but total value is far lower compared to edible oils.

India imports pulses occasionally due to production gaps.

But import value fluctuates and is lower than vegetable oils.

(d) Vegetable oils ✅

India imports large quantities of:

Palm oil

Soybean oil

Sunflower oil

Import dependence is around 55–60% of domestic consumption.

Vegetable oils consistently account for the highest value among agricultural imports.

Core Concept:

India = Self-sufficient in cereals

Export-oriented in spices

Import-dependent in edible oils

Memory Trick:

India exports spices,but imports oil for cooking.

13.

With reference to India’s Five-Year Plans, which of the following statements is/are correct?

1.From the Second Five-Year Plan, there was a determined thrust towards substitution of basic and capital goods industries.

2.The Fourth Five-Year Plan adopted the objective of correcting the earlier trend of increased concentration of wealth and economic power.

3.In the Fifth Five-Year Plan, for the first time, the financial sector was included as an integral part of the Plan.

Select the correct answer using the code given below.

(a) 1 and 2 only

(b) 2 only

(d) 1, 2 and 3

Correct Answer:

(a) 1 and 2 only

Explanation:

Statement 1 – Correct ✅

The Second Five-Year Plan (1956–61), based on the Mahalanobis model:

Focused on heavy industries

Heavy industry makes machines,Light industry makes products.

Promoted basic and capital goods industries

Encouraged import substitution.

Thus, there was a determined thrust towards substitution and development of capital goods industries.

Statement 2 – Correct ✅

The Fourth Five-Year Plan (1969–74):

Aimed at growth with stability and self-reliance

Sought to reduce concentration of wealth and economic power

Reflected concerns about inequality

Thus, statement 2 is correct.

Statement 3 – Incorrect ❌

The financial sector was not included for the first time in the Fifth Plan.

Planning for banking and financial development existed earlier, especially after bank nationalisation (1969).

Thus, it was not the first time in the Fifth Plan.

Core Concept:

Second Plan → Heavy industry thrust

Fourth Plan → Reduce inequality

Fifth Plan → Not first inclusion of financial sector

Memory Trick:

2nd → Steel & heavy, 4th → Equality

5th → Not first for finance

12.

Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of Indian stock market without registering themselves directly?

(a) Certificate of Deposits

(b) Commercial Paper

(d) Participatory Note

Correct Answer:

(d) Participatory Note

Explanation:

The question refers to an instrument that:

Is issued by registered Foreign Portfolio Investors (FPIs).

Allows overseas investors to invest in Indian stock market.

Without directly registering with SEBI (Securities and Exchange Board of India).

Now evaluate options:

(a) Certificate of Deposits ❌

Issued by banks.

It is a money market instrument.

Not related to indirect stock market participation.

(b) Commercial Paper ❌

Short-term unsecured promissory note issued by companies.

Used for working capital needs.

Not related to foreign portfolio investment access.

General debt instrument.

Not the specific instrument used by FPIs for indirect participation.

(d) Participatory Note (P-Note) ✅

Issued by registered FPIs to foreign investors.

Allows them to invest in Indian securities indirectly.

Investors do not need to register directly with SEBI.

Used earlier for anonymity and ease of entry.

Thus, correct answer is (d).

Core Concept:

P-Notes = Indirect entry into Indian markets.

Memory Trick:

Participate without registering → Participatory Note.

11.

In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis?

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.

(a) 1 only

(b) 1 and 3 only

(d) 1, 2 and 3

Correct Answer:

(b) 1 and 3 only

Explanation:

A currency crisis happens when:

A country faces shortage of foreign exchange

Capital outflows increase

Currency depreciates sharply

To reduce this risk, a country needs stable foreign exchange inflows.

Now evaluate statements:

Statement 1 – Correct ✅

Foreign currency earnings from IT services:

Increase service exports

Bring stable dollar inflows

Strengthen current account.

This reduces currency pressure.

Statement 2 – Incorrect ❌

Increasing government expenditure:

May increase fiscal deficit

Can increase imports

Can worsen current account deficit

It does not directly increase foreign exchange reserves.

In some cases, it may worsen currency risk.

Statement 3 – Correct ✅

Remittances from Indians abroad:

Provide steady foreign currency inflow

Improve current account balance

Strengthen external sector stability

India is one of the largest recipients of remittances globally.

Core Concept:

Stable Forex Inflows = Lower Currency Crisis Risk

Memory Trick:

Exports + Remittances protect Rupee.

Higher spending does not.

10.

Which of the following is not included in the assets of a commercial bank in India?

(a) Advances

(b) Deposits

(d) Money at call and short notice

Correct Answer:

(b) Deposits

Explanation:

In a bank’s balance sheet:

Assets = What the bank owns or lends

Liabilities = What the bank owes

Now evaluate options:

(a) Advances ✅ (Asset)

Loans given by the bank.

These generate interest income.

Hence, part of assets.

(b) Deposits ❌ (Liability)

Deposits are money kept by customers.

Bank has to repay this money on demand or maturity.

Therefore, deposits are liabilities, not assets.

Includes government securities, bonds, etc.

Bank earns income from these.

Hence, assets.

(d) Money at call and short notice ✅ (Asset)

Short-term lending by banks to other banks.

Interest earning.

Therefore, asset.

Core Concept:

Bank Balance Sheet:

Assets → Loans, Investments, Call Money

Liabilities → Deposits, Borrowings

Memory Trick:

Bank gives loan → Asset, Bank takes deposit → Liability

So Deposits are not assets.

Consider the following statements:

1.Most of India’s external debt is owed by governmental entities.

2.All of India’s external debt is denominated in US dollars.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(d) Neither 1 nor 2

Correct Answer:

(d) Neither 1 nor 2

Explanation:

Statement 1 – Incorrect ❌

A large portion of India’s external debt is owed by the private sector (corporates, financial institutions).

It includes:

External Commercial Borrowings (ECBs)

Non-Resident Indian (NRI) deposits

Short-term trade credit

Government (sovereign) external debt forms only a smaller share of total external debt.

Hence, most external debt is not owed by governmental entities.

Statement 2 – Incorrect ❌

India’s external debt is denominated in multiple currencies:

US Dollar

Euro

Japanese Yen

SDR (Special Drawing Rights)

Indian Rupee (in case of certain instruments like Masala Bonds)

Although a large share is in US dollars, it is not “all”.

Hence, statement 2 is incorrect.

Core Concept:

India’s external debt is:Mostly non-sovereign + Multi-currency

Memory Trick:

Private owes more.

Dollar dominates, but not alone.

The Service Area Approach was implemented under the purview of

(a) Integrated Rural Development Programme

(b) Lead Bank Scheme

(d) National Skill Development Mission

Correct Answer:

(b) Lead Bank Scheme

Explanation:

Service Area Approach (SAA):

Introduced in 1989 by the Reserve Bank of India (RBI).

Objective: Improve rural credit planning and delivery.

Each rural and semi-urban bank branch was assigned a specific geographical area.

The branch was responsible for identifying credit needs and providing banking services in that area.

Now evaluate options:

(a) Integrated Rural Development Programme ❌

IRDP was a poverty alleviation programme.

Service Area Approach was not implemented under IRDP.

(b) Lead Bank Scheme ✅

Service Area Approach was introduced as a refinement of the Lead Bank Scheme.

It operated under its framework for decentralised credit planning.

🏦 1️⃣ Lead Bank Scheme (LBS)

🔎 What is it?

The Lead Bank Scheme (LBS) was introduced in 1969 on the recommendation of the Gadgil Study Group.

🎯 Objective:

To ensure that banking services reach all districts of India in a planned manner.

📌 How it works:

Each district is assigned to one commercial bank.

That bank becomes the Lead Bank for that district.

It coordinates with:

Other banks

District administration

NABARD

Prepares district credit plans.

📊 Example:

Suppose:

District A is assigned to State Bank of India (SBI).

Then SBI becomes the Lead Bank.

SBI will:

Assess credit needs of farmers, MSMEs

Prepare Annual Credit Plan

Coordinate with other banks operating in that district

It does not mean only SBI gives loans.

It means SBI coordinates.

🌾 2️⃣ Service Area Approach (SAA)

🔎 What is it?

Introduced in 1989 under the Lead Bank Scheme.

🎯 Objective:

To improve rural credit delivery and avoid duplication of efforts.

📌 How it worked:

Each rural/semi-urban bank branch was assigned specific villages.

That branch became responsible for:

Surveying credit needs

Providing loans

Monitoring recovery

📊 Example:

Suppose:

Bank Branch X is assigned 10 villages.

Only that branch:

Identifies farmer credit needs

Gives crop loans

Monitors repayment

Other banks do not interfere in those villages.

This created geographical responsibility.

🔄 Difference Between LBS and SAA

Lead Bank Scheme → District-level coordination

Service Area Approach → Village-level allocation to specific branch

❓ Does Service Area Approach Still Exist?

❌ No.

In 2004, RBI discontinued the Service Area Approach.

Reason:

It restricted competition among banks.

It reduced borrower choice.

Liberalisation required flexibility.

✅ But Lead Bank Scheme Still Exists

Yes.

The Lead Bank Scheme continues even today.

District Consultative Committees (DCCs) still function.

🎯 Final Summary

Lead Bank Scheme → Still active (district coordination)

Service Area Approach → Discontinued (2004)

🧠 Memory Trick

Lead Bank = Leader of District

Service Area = Assigned Villages (Now Gone)

MGNREGS is a wage employment scheme, not a banking framework.

(d) National Skill Development Mission ❌

Concerned with skill development, not rural credit delivery.

Hence, correct answer is (b).

Memory Trick:

Lead Bank → Leads the Area.

Service Area Approach = Credit responsibility area under Lead Bank Scheme.

Expected Questions

Relationship between Lead Bank Scheme (LBS) with Priority Sector Lending (PSL)?

🏦 First: What is Priority Sector Lending (PSL)?

RBI mandates banks to lend a certain percentage of their loans to priority sectors.

Priority sectors include:

Agriculture

MSMEs

Weaker sections

Education

Housing

Renewable energy

Purpose: Ensure credit flows to neglected sectors.

🔗 Now: How LBS Links With PSL

Lead Bank Scheme works at district level.

PSL is a national target.

LBS helps ensure PSL targets are achieved locally.

📌 Mechanism

1️⃣ Lead Bank prepares District Credit Plan (DCP).

2️⃣ Identifies credit needs for:

Farmers

SHGs

MSMEs

3️⃣ Allocates targets to different banks.

4️⃣ Monitors whether PSL lending is happening properly.

So:

PSL = What to lend

LBS = Where and how to implement it

📊 Example

Suppose:

District has high agriculture potential.

Lead Bank estimates:

₹500 crore agricultural credit needed.

Banks operating in district must meet PSL targets in agriculture.

District Consultative Committee reviews performance.

🎯 Why This Matters

Without LBS:

Banks may focus only on profitable urban loans.

With LBS:

District-level coordination ensures rural credit expansion.

🧠 Simple Logic

PSL sets the rule.

Lead Bank makes it work on ground.

🔥 One-Line Memory Trick

PSL = Policy target

LBS = District execution

Explain complete the rural credit architecture?

We’ll connect:

RBI

NABARD

Lead Bank Scheme

Cooperative Banks

Regional Rural Banks (RRBs)

🏦 1️⃣ RBI – The Regulator

RBI:

Sets Priority Sector Lending (PSL) targets

Regulates banks

Controls monetary policy

Supervises RRBs (with NABARD support)

RBI = Top regulator.

🌾 2️⃣ NABARD – Rural Development Specialist

NABARD = National Bank for Agriculture and Rural Development (established 1982).

Role:

Refinance institution for rural banks

Supervises cooperative banks

Supports SHGs (Self Help Groups)

Funds rural infrastructure

🔎 What is Refinance?

Suppose:

RRB gives ₹100 crore loan to farmers.

RRB may borrow funds from NABARD at lower rate.

So NABARD supports rural credit flow.

🏦 3️⃣ Lead Bank Scheme (District Coordinator)

Each district has one Lead Bank.

Prepares District Credit Plan.

Coordinates credit delivery.

Lead Bank = Planner and Coordinator.

🌾 4️⃣ Cooperative Credit Structure

Three-tier system:

State Cooperative Banks (SCBs)

District Central Cooperative Banks (DCCBs)

Primary Agricultural Credit Societies (PACS)

PACS directly lend to farmers.

NABARD supervises this structure.

🏦 5️⃣ Regional Rural Banks (RRBs)

Created in 1975

Owned by:

Central Government

State Government

Sponsor Bank

Focus:

Rural and small borrowers

Agriculture and MSMEs

🎯 How All Work Together

RBI → Sets rules (PSL)

NABARD → Provides refinance & supervision

Lead Bank → District coordination

RRBs & Cooperative Banks → Actual lending

PACS → Village-level credit

📊 Simple Flow Example

Farmer needs crop loan.

PACS / RRB gives loan.

RRB may borrow from NABARD.

Lead Bank monitors district performance.

RBI monitors overall system.

🔥 Big Picture

Rural Credit System = Multi-layer support system.

Policy at top → Implementation at village level.

🧠 One Clean Memory Structure

RBI → Rule

NABARD → Rural fund

Lead Bank → District plan

RRB/PACS → Ground lending

Kisan Credit Card (KCC) properly importance in rural credit system.

🌾 What is Kisan Credit Card (KCC)?

Kisan Credit Card (KCC) was introduced in 1998.

Objective:

Provide short-term crop loans to farmers in a simple and flexible manner.

Instead of taking loan again and again, farmer gets a credit limit.

🏦 Who Gives KCC Loans?

KCC is issued by:

Scheduled Commercial Banks

Regional Rural Banks (RRBs)

Cooperative Banks

PACS (through cooperative structure)

So it works through the existing rural banking network.

📌 How It Works (Simple Example)

Suppose:

A farmer needs ₹1 lakh for seeds, fertiliser and diesel.

Bank assesses landholding and cropping pattern.

Bank gives KCC limit of ₹1 lakh.

Farmer can:

Withdraw as needed

Repay after harvest

Reuse the limit next season

It works like a credit card for farming.

🔄 Link with NABARD and Lead Bank

NABARD:

Played major role in designing KCC scheme.

Supports cooperative and RRB network through refinance.

Lead Bank:

Ensures district-level KCC targets are met.

Coordinates credit expansion in rural areas.

🎯 Why KCC is Important

Before KCC:

Farmers depended on moneylenders.

After KCC:

Institutional credit increased

Interest rates reduced

Crop loans formalised

📊 Additional Features

Interest subvention (interest subsidy) by Government.

Crop insurance linked.

Covers allied activities (dairy, fisheries in extended versions).

🔥 Big Picture

KCC is the operational tool.

PSL = Policy

NABARD = Support

Lead Bank = Planning

KCC = Actual credit to farmer

🧠 One-Line Memory Trick

PSL targets farming.

KCC delivers farming credit.

🌾 What is Interest Subvention Scheme (ISS)?

It is a Government of India scheme to make crop loans cheaper for farmers.

Under this scheme:

Farmers get short-term crop loans at subsidised interest rates.

The Government pays part of the interest to banks.

🏦 How It Works

Step 1:

Bank gives crop loan up to ₹3 lakh under KCC.

Step 2:

Normal interest rate may be around 9%.

Step 3:

Government gives 2% interest subvention.

So effective rate becomes 7%.

Step 4:

If farmer repays on time,

Extra 3% incentive is given.

So final effective rate becomes 4% per annum.

📊 Example

Farmer takes ₹1 lakh crop loan.

Normal interest = 9%

After 2% subvention → 7%

If timely repayment → additional 3% rebate

Final rate = 4%

This encourages:

Institutional borrowing

Timely repayment

🎯 Who Benefits?

Farmers taking short-term crop loans up to ₹3 lakh.

Available through:

Commercial Banks

RRBs

Cooperative Banks

🔗 Link with Rural Credit System

KCC → Loan instrument

Interest Subvention → Makes loan affordable

NABARD → Supports refinance

RBI → Sets PSL norms

🔥 Why Important for UPSC

Reduces dependence on moneylenders

Promotes formal credit

Improves credit discipline

Strengthens agricultural productivity

🧠 Memory Trick

9 → 7 → 4

Normal 9%

Subsidy 2%

Timely payment bonus 3%

End result: 4%

complete the agriculture credit ecosystem by linking Kisan Credit Card (KCC) with Pradhan Mantri Fasal Bima Yojana (PMFBY).

🌾 1️⃣ What is PMFBY?

PMFBY = Pradhan Mantri Fasal Bima Yojana (launched in 2016)

Objective:

Provide crop insurance coverage against crop failure due to natural calamities, pests, and diseases.

🏦 2️⃣ How It Connects with KCC

If a farmer takes a crop loan under KCC:

Earlier, crop insurance was compulsory for loanee farmers.

Now, it is voluntary but strongly linked.

Premium is very low for farmers:

2% for Kharif crops

1.5% for Rabi crops

5% for commercial/horticulture crops

Remaining premium is shared by:

Central Government

State Government

📊 Example

Farmer takes ₹1 lakh crop loan via KCC.

He pays:

2% premium for Kharif crop = ₹2,000

If crop fails due to flood/drought:

Insurance company compensates farmer.

Thus:

Loan risk reduces.

Bank risk reduces.

Farmer risk reduces.

🎯 Why This Is Important

Without insurance:

Crop failure → Farmer cannot repay → NPA (Non-Performing Asset)

With PMFBY:

Compensation received → Loan repayment possible → Banking stability improves.

🔗 Full Ecosystem Flow

RBI → Sets PSL target

Banks → Provide KCC loans

Government → Gives interest subsidy

PMFBY → Protects against crop loss

NABARD → Supports refinance

Complete rural credit safety net.

🔥 Big Picture

KCC = Credit

Interest Subvention = Cheap Credit

PMFBY = Risk Protection

Together they reduce:

Default risk

Farmer distress

Rural credit instability

🧠 One Clean Memory Line

KCC gives money.

ISS makes it cheap.

PMFBY makes it safe.

Even after:

KCC (credit access)

Interest Subvention (cheap loans)

PMFBY (insurance protection)

👉 Farm loan waivers still happen.

Why?

Let’s break it clearly.

🌾 1️⃣ Income Problem, Not Just Credit Problem

Most schemes address:

Access to credit

Cost of credit

Risk of crop failure

But farmers’ main issue is:

👉 Low and unstable income.

Even if crop doesn’t fail:

Market prices may crash

MSP procurement may not reach all

Input costs rise

So repayment becomes difficult.

📉 2️⃣ Price Risk Not Fully Covered

PMFBY covers:

Yield loss due to natural calamity

It does NOT cover:

Price fall

Market volatility

If production is good but price crashes:

Farmer earns less → Loan repayment stress.

🌦 3️⃣ Insurance Delays & Implementation Gaps

Claim settlement delays

Area-based assessment problems

Data issues

Sometimes compensation is late or inadequate.

So credit stress continues.

🏦 4️⃣ Structural Small Holdings

India has:

Very small and fragmented landholdings

Low economies of scale

High input costs

Even good harvest may not generate large surplus.

📊 5️⃣ Political Economy

Loan waivers are:

Visible

Immediate relief

Politically attractive

Long-term structural reforms are slow.

So states announce waivers during distress.

🎯 Core Structural Issue

Agriculture suffers from:

Low productivity + High risk + Price volatility

Credit schemes treat symptoms, not root income instability.

🔥 Big Conceptual Difference

KCC solves liquidity problem.

Loan waiver addresses solvency crisis.

Liquidity = Temporary shortage

Solvency = Inability to repay long-term

Farm distress is often solvency-based.

🧠 Memory Line

Loans fail when income fails.

Credit schemes can’t fix price shocks.

⚖ Why Loan Waivers Are Problematic

Increase fiscal burden

Moral hazard

Credit discipline weakens

Banks become cautious

If the real problem is unstable and low farm income,

then long-term reforms must target income stability.

🌾 1️⃣ Price Stabilisation & Market Reform

Problem: Farmers suffer from price crashes.

Solutions:

Stronger MSP procurement where needed

Better implementation of e-NAM (National Agriculture Market)

Direct farmer–buyer linkage

Promotion of Farmer Producer Organisations (FPOs)

👉 Goal: Better price realisation.

🏭 2️⃣ Agro-Processing & Value Addition

Problem: Farmers sell raw produce at low prices.

Solution:

Food processing units

Cold storage chains

Warehousing infrastructure

Example: Instead of selling tomatoes raw, convert into paste or processed products.

👉 Value addition increases income stability.

🌾 3️⃣ Crop Diversification

Problem: Over-dependence on wheat and rice.

Solution:

Promote pulses

Oilseeds

Horticulture

Dairy & fisheries

Diversified income = Lower risk.

💧 4️⃣ Irrigation & Infrastructure

Problem: Monsoon dependency.

Solution:

Micro-irrigation (drip, sprinkler)

PMKSY (Pradhan Mantri Krishi Sinchayee Yojana)

Rural roads

Stable irrigation = Stable production.

📊 5️⃣ Income Support Schemes

Instead of loan waivers:

Direct income transfer like PM-KISAN.

This:

Supports income

Does not distort credit discipline

Is fiscally more predictable

🏦 6️⃣ Formalisation & Financial Inclusion

Expand KCC coverage

Digitise land records

Improve crop insurance efficiency

Stronger institutions = Lower distress.

🔄 7️⃣ Shift from Loan Waiver to Risk Management

Loan waiver = Short-term relief

Risk management + market reform = Long-term stability

🎯 Core Structural Logic

Income ↑

Risk ↓

Market access ↑

Productivity ↑

Then loan waivers become unnecessary.

🧠 One Strong Memory Line

Waivers treat the wound.

Reforms cure the disease.

The economic cost of food grains to the Food Corporation of India is Minimum Support Price and bonus (if any) paid to the farmers plus

(a) transportation cost only

(b) interest cost only

(d) procurement incidentals and charges for godowns

Correct Answer:

Explanation:

Economic cost of food grains for the Food Corporation of India (FCI) includes:

MSP (Minimum Support Price) paid to farmers

Bonus (if any)

Procurement incidentals

Distribution cost

Now examine options:

(a) Transportation cost only ❌

Transportation is only one component of distribution cost.

Economic cost includes more than just transport.

(b) Interest cost only ❌

Interest is part of carrying cost, but not the only component.

Procurement incidentals include:

Handling charges

Mandi charges

Labour charges

Administrative cost

Distribution cost includes:

Storage

Transport

Interest

Handling

This matches the official definition.

(d) Procurement incidentals and charges for godowns ❌

Godown charges are only one part of storage cost.

Distribution cost is broader.

Core Logic:

Economic Cost = MSP + Procurement Cost + Distribution Cost

Memory Trick:

Buy → Store → Supply

MSP = Buy

Procurement = Handling

The Chairman of public sector banks are selected by the

(a) Banks Board Bureau

(b) Reserve Bank of India

(d) Management of concerned bank

Correct Answer:

(a) Banks Board Bureau

Explanation:

Earlier, final appointment is formally made by the Government (through the Appointments Committee of the Cabinet).

However, the question uses the word “selected”, not “appointed”.

Important distinction:

Banks Board Bureau (BBB) (now Financial Services Institutions Bureau – FSIB) is responsible for selecting/recommending candidates for the post of Chairman/MD & CEO of Public Sector Banks.

The Government (Ministry of Finance / ACC) formally appoints them.

Now evaluate options:

(a) Banks Board Bureau ✅

Correct — It selects/recommends candidates.

(b) Reserve Bank of India ❌

RBI regulates banks but does not select PSB Chairmen.

Government makes formal appointment, not selection.

(d) Management of concerned bank ❌

PSBs cannot appoint/select their own Chairman.

Core Distinction:

Selection → Banks Board Bureau

Appointment → Government

Memory Trick:

Select → Bureau

Seal (final approval) → Government

So correct answer is (a).

Expected Questions

🏦 Appointment of RBI Governor – Complete Picture

📜 Legal Basis

Under Section 8 of the RBI Act, 1934:

The Governor is appointed by the Central Government.

There is no mention in the Act of any independent constitutional body for appointment.

🏛 Who Actually Selects?

In practice, the process involves:

1️⃣ Financial Sector Regulatory Appointment Search Committee (FSRASC)

This committee:

Recommends names for top financial regulators

Includes senior government officials and experts

It shortlists candidates for positions such as:

RBI Governor

SEBI Chairman

IRDAI Chairman

PFRDA Chairperson

However:

It is advisory in nature.

2️⃣ Appointments Committee of the Cabinet (ACC)

Final approval authority

Chaired by the Prime Minister

After ACC approval:

Official appointment notification is issued

President formally appoints

🔎 Important Clarification

FSRASC does not appoint.

It only recommends.

Final authority lies with:

Central Government (via ACC).

📌 Why This Matters for UPSC

If question says:

“Who appoints RBI Governor?”

Correct answer → Central Government.

If question asks about selection mechanism:

Search Committee plays a role in recommendation.

⏳ Tenure Reminder

3 years

Eligible for reappointment

Holds office at pleasure of Central Government

🧠 Clean Memory Structure

Search Committee → Recommends

ACC → Approves

President → Formally appoints

Which of the following is/are correct regarding the Maternity Benefit (Amendment) Act, 2017?

Statement 1: Pregnant women are entitled for 3 months pre-delivery and 3 months post-delivery paid leave.

Statement 2: Enterprises with crèches must allow the mother minimum 6 crèche visits daily.

Statement 3: Women with two children get reduced entitlements.

Select the correct answer using the code given below.

(a) 1 and 2 only

(b) 2 only

(d) 1, 2 and 3

Correct Answer:

Explanation:

Statement 1 – Incorrect ❌

🌸 Under Maternity Benefit (Amendment) Act, 2017:

✅ 26 weeks paid leave

Is available only for the first two surviving children.

It is per pregnancy, not per child separately.

📌 If a woman has:

First child → 26 weeks

Second child → 26 weeks

Third child → Only 12 weeks

So after two surviving children, entitlement reduces.

🔎 Important Details

Out of 26 weeks:

Maximum 8 weeks before expected delivery

Remaining after delivery

For women with 2+ surviving children:

Total leave = 12 weeks

Maximum 6 weeks before delivery

🎯 So Answer in One Line

26 weeks is per pregnancy,

but only for first two surviving children.

After that → reduced to 12 weeks.

🧠 Memory Line

First two babies → Full 26

After two → Only 12

Hence, statement 1 is incorrect.

Statement 2 – Incorrect ❌

Establishments with 50 or more employees must provide a crèche facility.

The mother is allowed 4 visits per day (including rest interval), not 6 visits.

Hence, statement 2 is incorrect.

Statement 3 – Correct ✅

For women with two or more surviving children, maternity leave entitlement is reduced to 12 weeks (6 weeks pre-delivery and 6 weeks post-delivery).

Thus, statement 3 is correct.

Core Concept:

26 weeks (up to 8 weeks before delivery)

12 weeks if two or more children

4 crèche visits per day

Memory Trick:

26 weeks general,

12 weeks if two children,

4 crèche visits — not 6.

Expected Questions

“surviving children.”

Under the Maternity Benefit (Amendment) Act, 2017:

The law clearly says:

26 weeks of paid leave is available if the woman has less than two surviving children.

12 weeks if she has two or more surviving children.

🔎 Case:

A woman had:

Two children

One child died

Now she has only one surviving child

She is pregnant again

✅ She will get 26 weeks leave.

Because the condition is based on number of surviving children at the time of pregnancy, not total births in the past.

She has only one surviving child, so she qualifies for full entitlement.

🎯 Core Legal Logic

Law counts living children, not total deliveries.

🧠 Memory Line

Count the living, not the born.

In a given year, official poverty lines are higher in some states than in other states because

(a) Poverty rates vary from state to state.

(b) Price levels vary from state to state.

(d) Quality of Public Distribution varies from state to state.

Correct Answer:

(b) Price levels vary from state to state.

Explanation:

Official poverty line represents the minimum consumption expenditure required to meet basic needs.

It is based on:

Cost of food

Cost of non-food essentials

Price level in that region

Now evaluate options:

(a) Poverty rates vary ❌

Poverty rate is an outcome.

Poverty line is fixed first; poverty rate is calculated later.

Poverty line does not change because poverty rate changes.

(b) Price levels vary ✅

Different states have different cost of living.

Food, housing, transport costs vary.

Higher price level → Higher poverty line.

This is the correct reason.

State income level does not directly determine poverty line.

Poverty line depends on consumption cost, not total output.

(d) Quality of Public Distribution varies ❌

Public Distribution System (PDS) affects food access.

But poverty line is calculated based on price indices, not PDS quality.

Core Logic:

Poverty line measures cost of minimum consumption.

If prices are higher → Required income higher → Poverty line higher.

Memory Trick:

Poverty line follows Prices, not Poverty rate.

Consider the following statements:

1.Purchasing Power Parity (PPP) exchange rates are calculated by the prices of same basket of goods and services in different countries.

2.In terms of PPP dollars, India is the sixth largest economy in the world.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(d) Neither 1 nor 2

Correct Answer:

(a) 1 only

Explanation:

Statement 1 – Correct ✅

Purchasing Power Parity (PPP) compares the prices of the same basket of goods and services across countries.

It determines exchange rate based on purchasing power instead of market exchange rate.

If a basket costs $100 in the US and ₹2000 in India, PPP exchange rate = ₹20 per dollar.

Thus, statement 1 is correct.

Statement 2 – Incorrect ❌

In PPP terms, India is currently among the top three economies globally (after China and the United States).

It is not the sixth largest in PPP terms.

India ranks lower ( 4th) in nominal GDP, not in PPP GDP.

Hence, statement 2 is incorrect.

Core Concept:

PPP ranking ≠ Nominal GDP ranking.

Memory Trick:

PPP = Price Power Comparison.

India = Top 3 in PPP, not sixth.

Which one of the following is not the most likely measure the government or RBI takes to stop the slide of Indian rupee?

(a) Curbing imports on non-essential goods and promoting exports.

(b) Encouraging Indian borrowers to issue rupee-denominated masala bonds.

(d) Following an expansionary monetary policy.

Correct Answer:

(d) Following an expansionary monetary policy.

Explanation:

When the rupee is depreciating (sliding), the objective is to:

Increase foreign exchange inflow

Reduce demand for foreign currency

Strengthen investor confidence

Now evaluate each option:

Statement (a) Curbing imports and promoting exports ✅

Reduces demand for foreign currency (for imports).

Increases foreign exchange earnings (via exports).

Helps improve current account balance.

Likely measure.

Statement (b) Encouraging Masala Bonds ✅

Masala Bonds are rupee-denominated bonds issued abroad.

Foreign investors bring dollars.

Currency risk is borne by investors.

Increases capital inflow.

Likely measure.

Statement (c) Easing External Commercial Borrowings (ECBs) ✅

Makes it easier for Indian firms to borrow from abroad.

Increases foreign currency inflow.

Supports rupee.

Likely measure.

Statement (d) Following expansionary monetary policy ❌

Expansionary policy → Lower interest rates.

Lower returns for foreign investors

Capital outflow may increase.

Rupee may weaken further.

To defend rupee, RBI generally tightens liquidity or raises interest rates, not expands.

Core Logic:

Weak rupee → Need more foreign currency → Tight policy preferred.

Expansionary policy increases liquidity and may worsen depreciation.

Memory Trick:

To save rupee → Attract dollars, not cheap money.

Expansion = Weak currency

Tightening = Stronger currency

Money multiplier in an economy increases with which one of the following?

(a) Increase in the Cash Reserve Ratio

(b) Increase in the banking habit of the population

(d) Increase in the population of the country

Correct Answer:

(b) Increase in the banking habit of the population

Explanation:

💰 What is Money Multiplier?

Money Multiplier means:

The total amount of money the banking system can create from one initial deposit.

Banks don’t just keep your deposit.

They lend most of it.

That loan becomes someone else’s deposit.

That deposit is again lent.

This repeated cycle multiplies money.

🏦 Step-by-Step Example

Suppose:

You deposit ₹1,000 in a bank.

CRR (Cash Reserve Ratio) = 10%.

Round 1:

Bank keeps 10% = ₹100

Bank lends ₹900

Round 2:

₹900 is deposited in another bank.

Bank keeps 10% = ₹90

Bank lends ₹810

Round 3:

₹810 deposited again.

Bank keeps ₹81

Bank lends ₹729

This continues.

Even though original deposit was ₹1,000,

total deposits created in the system can become ₹10,000.

📐 Formula

Money Multiplier = 1 / Reserve Ratio

If Reserve Ratio = 10% (0.10)

Money Multiplier = 1 / 0.10 = 10

So ₹1,000 × 10 = ₹10,000 total money supply.

🧠 Why It Happens?

Because banks lend most of deposits,

and that lending becomes new deposits.

🌊 Simple Analogy

Think of one candle lighting many candles.

Original flame is small,

but total light multiplies.

🎯 One-Line Understanding

Money Multiplier = How much total money is created from one rupee deposited in banks.

Money Multiplier = 1 / Reserve Ratio

It depends on:

Cash Reserve Ratio (CRR)

Currency–Deposit Ratio

Overall banking behaviour

Now evaluate options:

Statement (a) Increase in the Cash Reserve Ratio ❌

Higher CRR → Banks keep more money with RBI

Less money available for lending

Money multiplier decreases

So multiplier moves inversely to CRR.

Statement (b) Increase in the banking habit of the population ✅

More people deposit money in banks

Currency held by public decreases

Banks get more deposits

More lending possible

Credit creation increases

So money multiplier increases.

Statement (c) Increase in the statutory liquidity ❌

Higher SLR → Banks must hold more liquid assets

Lending capacity reduces

Multiplier decreases

Statement (d) Increase in the population ❌

Population growth does not directly affect multiplier.

It depends on banking behaviour and reserve ratios.

Core Logic:

More deposits in banks → More credit rounds → Higher multiplier.

Memory Trick:

More banking → More multiplying.

More reserve → Less multiplying.

why money multiplier becomes weak when people hold more cash.

💰 Step 1: How Multiplier Works Normally

Money multiplies only when:

Deposit → Bank lends → That loan becomes deposit → Bank lends again

This chain continues.

More deposits = More lending = Bigger multiplier.

🧾 Step 2: What If People Keep Cash at Home?

Suppose:

You deposit ₹1,000.

Bank lends ₹900.

Now imagine:

The borrower keeps ₹900 as cash at home

instead of depositing it in a bank.

Now what happens?

The chain stops.

No new deposit.

No further lending.

No multiplication.

📉 Result

Money creation becomes much smaller.

📊 Simple Comparison

Case 1: Strong Banking Habit

All money redeposited → Multiplier high

Case 2: People hold cash

Money not redeposited → Multiplier low

🧠 Technical Idea (Simple Form)

Money multiplier depends on:

Reserve ratio

Currency–Deposit Ratio

If people hold more cash:

Currency–Deposit ratio increases

Multiplier decreases.

🎯 Real-Life Example

During:

Financial crisis

Panic

Lack of trust in banks

People withdraw money and hold cash.

Banks get fewer deposits.

Lending falls.

Multiplier weakens.

🔥 Core Logic

Money multiplies only inside banks.

Outside banks, it just sits.

🧠 Memory Line

Cash in pocket = Multiplier blocked

Cash in bank = Multiplier active

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