UPSC Essentials | Daily subject-wise quiz : Economy MCQs on Corporate Average Fuel Economy framework, implications of rising yields on US bonds and more (Week 182)

QUESTION 1

With reference to the Corporate Average Fuel Economy (CAFE)-III framework, consider the following statements:

1. CAFE-III is a set of fleet-level fuel-efficiency standards for passenger vehicles.

2. The CAFE norms will apply from October 1, 2026, to September 30, 2035.

3. Under the CAFE-III framework, a carmaker selling a large number of lighter vehicles and one selling predominantly SUVs will face the same target.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(c) All three

(d) None

Relevance: The question links with climate-change mitigation, energy conservation and the transition towards cleaner mobility. It is also useful for understanding how fleet-level efficiency norms and vehicle characteristics influence automobile-sector compliance.

Explanation

— India’s new fuel-efficiency rules for passenger vehicles will force carmakers to increasingly manage the efficiency of their entire vehicle portfolio, rather than individual models, from April 2027. The final Corporate Average Fuel Economy (CAFE)-III framework, notified on September 29, has introduced a new formula to relax norms for smaller cars, while doing away with an earlier proposed special concession for the category, and gives electric vehicles the biggest compliance benefit among the different powertrains.

— The CAFE norms will apply from April 1, 2027, to March 31, 2032. They cover M1 category passenger vehicles manufactured or imported for sale in India. At the heart of the system is a fleet-wide calculation: a manufacturer’s permitted fuel consumption is determined by the weighted average unladen weight of the vehicles it sells. Hence, statement 2 is not correct.

— This means a carmaker selling a large number of lighter vehicles and one selling predominantly SUVs do not face exactly the same target. The heavier the average fleet, the higher the permitted fuel consumption. Hence, statement 3 is not correct.

— CAFE-III is a set of fleet-level fuel-efficiency standards for passenger vehicles. First introduced in 2017 under the Energy Conservation Act, they require manufacturers to keep the average fuel consumption — and therefore CO2 emissions — of all eligible passenger vehicles they sell within a prescribed limit, rather than requiring every individual model to meet the same number. The first CAFE-III proposal dates back to 2024, with the rules subsequently going through several revisions covering the weight formula, treatment of powertrains and compliance mechanisms. Hence, statement 1 is correct.

Annual average fuel consumption = a × (W − b) + c

— Here, W is the weighted average unladen mass of the manufacturer’s eligible vehicles. The reference weight, or b, has been fixed at 1,229 kg. The figure ‘a’ determines how much the fuel-consumption target changes for every kilogram that a manufacturer’s average fleet weight is above or below the reference weight, and ‘c’ is the baseline fuel-consumption target, expressed in litres per 100 kilometres.

Therefore, option (a) is the correct answer.

QUESTION 2

Which of the following is/are the rabi crops?

1. Wheat

2. Rapeseed

3. Maize

4. Ragi

5. Barley

Select the correct answer using the codes given below:

(a) 1 and 2 only

(b) 1 only

(c) 1, 3, 4 and 5

(d) 1, 2 and 5 only

Relevance: The question is relevant to the Agriculture section of the Indian Economy syllabus, particularly cropping patterns and agricultural seasons. It is useful for understanding India’s major foodgrain, oilseed and cereal production patterns.

Explanation

— The Centre announced Minimum Support Prices (MSPs) for six rabi crops for the 2027-28 season, with wheat — India’s second-largest crop by acreage — receiving a 17-year-low hike of just Rs 25 per quintal, a marginal 0.97% increase.

— The MSP of wheat is fixed at Rs 2,610 per quintal. The Rs 25 hike in the wheat MSP is the lowest in absolute terms since 2010-11. Last year, the government had hiked the MSP for wheat by 6.6% to Rs 2,585 per quintal

— Wheat is one of the six officially mandated rabi crops in India under the government’s MSP system. The others are safflower, rapeseed and mustard, lentil, barley, and gram.

— Among the six, safflower saw the biggest hike in absolute and percentage terms, as its MSP increased by Rs 675, or 10.32%, to Rs 7,215 per quintal from Rs 6,540 per quintal announced last year.

— Maize and Ragi are Kharif crops.

Therefore, option (d) is the correct answer.

QUESTION 3

Consider the following statements:

1. Gross Foreign Direct Investment (FDI) is the total amount of foreign capital entering a country after excluding repatriation and disinvestment by foreign investors.

2. Net FDI is calculated after adjusting gross FDI for investments that are repatriated by foreign companies and overseas investments made by Indian companies.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Relevance: The question is relevant to the Indian Economy syllabus, particularly foreign investment and balance of payments. It is useful for understanding how headline FDI inflows can differ significantly from the actual net capital inflow into India.

Explanation

— Amid continued pressure on the external front due to changes in the global investment environment and better opportunities elsewhere, India saw a jump in net Foreign Direct Investment (FDI) inflows in July, with data released late Friday by the Reserve Bank of India (RBI) showing that it soared to an over five-year high of $7.35 billion. This is the highest monthly inflow since May 2021’s $8.80 billion. On a gross basis, FDI in July was $14.58 billion, the third-highest in the last six years.

— Gross FDI inflows refer to the total FDI entering India before adjusting for repatriation/disinvestment. Hence, statement 1 is not correct.

— Net FDI is calculated after adjusting gross FDI for investments that are repatriated by foreign companies and overseas investments made by Indian companies. Hence, statement 2 is correct.

Therefore, option (b) is the correct answer.

QUESTION 4

The concept of ‘Tokenising financial assets’ refers to:

(a) breaking down an asset into smaller pieces, making it accessible for the retail audience by reducing ownership cost.

(b) converting physical financial assets into digital currencies that can be used for everyday transactions.

(c) replacing conventional ownership records of financial assets with a centralised database maintained by a single financial institution.

(d) creating a new financial asset by combining multiple securities and issuing them as a single tradable instrument.

Relevance: The question is relevant to the Indian Economy syllabus, particularly financial markets, fintech and digital financial infrastructure. It is useful for distinguishing asset tokenisation from related concepts such as cryptocurrencies and securitisation.

Explanation

— Tokenising financial assets means breaking down an asset into smaller pieces, making it accessible for the retail audience by reducing ownership cost.

— For example, a bond worth Rs 10 lakh apiece can be broken into smaller units so investors can buy a part for just Rs 100. It also means digitising assets, leading to stronger ownership records and shorter settlement times.

Therefore, option (a) is the correct answer.

QUESTION 5

Which of the following is/are the implications of the rising yields on US bonds?

1. It can make borrowing costs higher for the US government.

2. It can increase borrowing costs for other governments and businesses.

Select the correct answer using the codes given below:

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Relevance: The question is relevant to the Indian Economy syllabus, particularly interest rates, government borrowing and financial markets. It links rising US bond yields with capital flows, exchange rates and financing conditions in emerging markets.

Explanation

— The yield on the 30-year US Treasury bond hit the highest level in around 25 years. The yield denotes the return on investment that a lender can expect when loaning the money to the government for a particular length of time. So a 30-year bond refers to a loan the government repays over that same period.

— Rising yields on US bonds have two broad implications:

— One, it signals higher borrowing costs for the US government. In other words, if yields on existing bonds are rising, the US government will have to match them when it goes to the market to borrow again. Like any other government, the US government, too, routinely goes to the market to borrow money — either to meet some new expenditure or to pay back old debt that is maturing. Hence, statement 1 is correct.

— Either way, higher borrowing costs typically imply that a larger portion of the US budget would have to be spent towards paying interest. That, in turn, leaves less money available for other priorities — say providing social security for US citizens.

— Two, higher yields for the US government also signal higher borrowing costs for every other government and business, including higher interest rates on home loans. Hence, statement 2 is correct.

— Since lending money to the US government is the safest lending one can do — because everyone believes the US government will always pay back and never default on its debt — if the yield on US government bonds rises, it typically means all other kinds of loans also become costlier. In other words, lenders demand even higher returns for giving loans to other governments and businesses since they are all riskier than lending money to the US government.

Therefore, option (c) is the correct answer.

Previous Daily Subject-Wise-Quiz

Daily Subject-wise quiz — History, Culture, and Social Issues (Week 165)

Daily subject-wise quiz — Polity and Governance (Week 182)

Daily subject-wise quiz —  Science and Technology (Week 182)

Daily subject-wise quiz — Economy (Week 181)

Daily subject-wise quiz — Environment and Geography (Week 181)

Daily subject-wise quiz – International Relations (Week 181)

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