UPSC Essentials Special: Six key areas to focus from Economy for Prelims 2024

About our Expert: Rohit Pande brings over a decade of experience in strategy and consulting to the world of CSE examinations. His team has helped many students clear the exam using scientific framework-driven mentorship. He keeps a keen eye on the evolving patterns of the UPSC IAS exam and the changing study habits of GenZ UPSC aspirants, enabling them with deep, actionable, and unrivaled insights.

Why do aspirants find Economy challenging for Prelims? 

Rohit Pande: Future bureaucrats should understand the fundamentals of how the Indian economy operates. Ultimately, your role is crucial in its growth and development. Naturally, Economy is a significant subject in the UPSC exam. Given its technical nature, it is an obstacle in the preparation of students, especially those from the arts background. They spend a disproportionate amount of time without tangible returns and also end up compromising other subjects.

One of the reasons is the fact that it is difficult to set boundaries in a subject like Economics. One could keep reading endlessly assuming that it is important.

There is a simple strategy. Spend more time on predictable themes and try to know as much as possible about these themes. It will give you a competitive advantage and this is all that you need to have.

Let’s discuss 6 predictable themes from Economy based on PYQ analysis that you must brush up for Prelims 2024.

Type 1: Inflation  

Inflation is USPC’s favorite topic. The expectation is you understand the implementation-level details about inflation. A basic theoretical understanding from NCERTs, core books is not enough.

Definition, indices, how it is calculated, weightage of the different components, the various governmental and non-governmental organizations associated with it. Its impact, various methods to control.

You must keep enriching your knowledge about inflation whenever it is discussed in newspapers. 

 [CSP 2020] Consider the following statements

1. The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).

2. The WPI does not capture changes in the prices of services, which CPI does.

3. Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.

Which of the statements given above is/are correct? 

(a) 1 and 2 only

(b) 2 only

(c) 3 only

(d) 1, 2 and 3

 [CSP 2013] With reference to the Indian Economy, demand-pull inflation can be caused/increased by which of the following?

1. Expansionary policies

2. Fiscal stimulus

3. Inflation-indexing wages

4. Higher purchasing power

5. Rising interest rates

Select the correct answer using the code given below. 

(a) 1, 2 and 4 only

(b) 3, 4 and 5 only

(c) 1, 2, 3 and 5 only

(d) 1, 2, 3, 4 and 5

 [CSP 2021] Which one of the following is likely to be the most inflationary in its effects? 

(a) Repayment of public debt

(b) Borrowing from the public to finance a budget deficit

(c) Borrowing from the banks to finance a budget deficit

(d) Creation of new money to finance a budget deficit

 [CSP 2022] In India, which one of the following is responsible for maintaining price stability by controlling inflation?                                                                                                                                                                               

(a) Department of Consumer Affairs

(b) Expenditure Management Commission                                                                                                                                       

(c) Financial Stability and Development Council

(d) Reserve Bank of India                                                                                                              

 [CSP 2022] With reference to the Indian economy, consider the following statements:

1. If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities.

2. If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market.

3. If interest rates in the USA or European Union were to fall, that is likely to induce RBI to buy dollars.

Which of the statements given above are correct? 

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Another important point to note here is the contrast that we see in the questions on the above theme in previous years. The questions now are more difficult and detailed than they were 6-7 years back. It is evident from the questions below: 

[CSP 2013] A rise in general level of prices may be caused by

1. an increase in the money supply

2. a decrease in the aggregate level of output

3. an increase in the effective demand

Select the correct answer using the codes given below. 

(a) 1 only

(b) 1 and 2 only

(c) 2 and 3 only

(d) 1, 2 and 3

 [CSP 2013] Which one of the following is likely to be the most inflationary in its effect?

(a) Repayment of public debt

(b) Borrowing from the public to finance a budget deficit

(c) Borrowing from the banks to finance a budget deficit

(d) Creating new money to finance a budget deficit

[CSP 2013] Consider the following statements:

1. Inflation benefits the debtors.

2. Inflation benefits the bondholders.

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

[CSP 2015] With reference to inflation in India, which of the following statements is correct? 

(a) Controlling the inflation in India is the responsibility of the Government of India only

(b) The Reserve Bank of India has no role in controlling the inflation

(c) Decreased money circulation helps in controlling the inflation

(d) Increased money circulation helps in controlling the inflation

Type 2: Banks  

Testing you on your awareness about the different kinds of banks/ new categories of banks seems to be UPSC’s pet peeve. If you read any news where a new bank is being discussed, you need to cover it thoroughly. Covering all the banks mentioned below should also be a fruitful exercise. 

[CSP 2021] With reference to “Urban Cooperative Banks” in India, consider the following statements:

1. They are supervised and regulated by local boards set up by the State Governments.

2. They can issue equity shares and preference shares.

3. They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966.

Which of the statements given above is/are correct?

(a) 1 only (b) 2 and 3 only (c) 1 and 3only (d) 1,2 and 3

[CSP 2020] Consider the following statements:

1. In terms of short-term credit delivery to the agriculture sector, District Central Cooperative Banks (DCCBs) deliver more credit in comparison to Scheduled Commercial Banks and Regional Rural Banks.

2. One of the most important functions of DCCBs is to provide funds to the Primary Agricultural Credit Societies.

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

[CSP 2017] What is the purpose of setting up of Small Finance Banks (SFBs) in India?

1. To supply credit to small business units

2. To supply credit to small and marginal farmers

3. To encourage young entrepreneurs to set up business particularly in rural areas. Select the correct answer using the code given below:

(a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1,2 and 3

[CSP 2016]  The establishment of ‘Payment Banks’ is being allowed in India to promote financial inclusion. Which of the following statements is/are correct in this context?

1. Mobile telephone companies and supermarket chains that are owned and controlled by residents are eligible to be promoters of Payment Banks.

2. Payment Banks can issue both credit cards and debit cards.

3. Payment Banks cannot undertake lending activities.

Select the correct answer using the code given below. 

(a) 1 and 2 only (b) 1 and 3 only (c) 2 only (d) 1, 2 and 3

[CSP 2013] Which of the following grants/grant direct credit assistance to rural households?

1. Regional Rural Banks

2. National Bank for Agriculture and Rural Development

3. Land Development Banks

Select the correct answer using the codes given below. 

(a) 1 and 2 only (b) 2 only

(c) 1 and 3 only (d) 1,2 and 3

Type 3: Banking sector measures

The Banking Sector has been in the news constantly. We want the banking sector to expand but, at the same time, adhere to regulatory measures being proposed time and again. 

[CSP 2020] What is the importance of the term “Interest Coverage Ratio” of a firm in India?

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

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

3. The higher a borrowing firm’s level of Interest Coverage Ratio, the worse is its ability to service its debt.

Select the correct answer using the code given below:

(a) 1 and 2 only (b) 2 only

(c) 1 and 3 only (d) 1, 2 and 3

[CSP 2019] What was the purpose of the Inter-Creditor Agreement signed by Indian banks and financial institutions recently? 

(a) To lessen to Government of India’s perennial burden of fiscal deficit and current account deficit

(b) To support the infrastructure projects of Central and State Governments

(c) To act as independent regulatory in case of applications for loans of Rs. 50 crore of more

(d) To aim at faster resolution of stressed assets of Rs. 50 crore of more which are under consortium Lending

[CSP 2018] Consider the following statements:

1. Capital Adequacy Ratio (CAR) is the amount that banks have to maintain in the form of their own funds to offset any loss that banks incur if the account-holders fail to repay dues.

2. CAR is decided by each individual bank.

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

Type 4: Bonds 

Bonds as Financial Instruments are UPSC’s favorites. Any new bond in the news should trigger an alert. 

[CSP 2022] With reference to the Indian economy, what are the advantages of “Inflation-Indexed Bonds (IIBs)”?

1. Government can reduce the coupon rates on its borrowing by way of IIBs.

2. IIGs provide protection to the investors from uncertainty regarding inflation. 3. The interest received as well as capital gains on IIBs are not taxable.

Which of the statements given above are correct? 

(a) 1 and 2 only (b) 2 and 3 only

(c) 1 and 3 only (d) 1, 2 and 3

[CSP 2022] With reference to Convertible Bonds, consider pin the following statements:

1. As there is an option to exchange the bond for equity, Convertible Bonds pay a lower rate of interest.

2. The option to convert to equity affords the bondholder a degree of indexation to rising consumer prices.

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

[CSP 2021] Indian Government Bond Yields are influenced by which of the following?

1. Actions of the United States Federal Reserve

2. Actions of the Reserve Bank of India

3. Inflation and short-term interest rates

Select the correct answer using the code given below. 

(a) 1 and 2 only     (b) 2 only

(c) 3 only                (d) 1,2 and 3

[CSP 2016] What is/are the purpose/purposes of Government’s Sovereign Gold Bond Scheme’ and ‘Gold Monetization Scheme’?

1. To bring the idle gold lying with Indian households into the economy.

2. To promote FDI in the gold and jewellery sector.

3. To reduce India’s dependence on gold imports.

Select the correct answer using the code given below.:

(a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1,2 and 3

[CSP 2016] With reference to ‘IFC Masala Bonds’, sometimes seen in the news, which of the statements given below is/ are correct?

1. The International Finance Corporation, which offers these bonds, is an arm of the World Bank.

2. They are the rupee-denominated bonds and are a source of debt financing for the public and private sector.

Select the correct answer using the code given below. 

(a) 1 only              (b) 2 only

(c) Both 1 and 2  (d) Neither 1 nor 2

Type 5: Taxes 

Perhaps because Revenue Officers are selected through this exam, taxes are an important theme. So, different kinds of taxes, their relationship with GDP etc. – everything matters! 

[CSP 2018] Consider the following items:

1. Cereal grains hulled

2. Chicken eggs cooked

3. Fish processed and canned

4. Newspapers containing advertising material

Which of the above items is/are exempted under GST (Goods and Services Tax)? 

(a) 1 only (b) 2 and 3 only

(c) 1, 2 and 4 only (d) 1, 2, 3 and 4

Consider the following:

1. Demographic performance

2. Forest and ecology

3. Governance reforms

4. Stable government

5. Tax and fiscal efforts

[CSP 2023] For the horizontal tax devolution, the Fifteenth Finance Commission used how many of the above as criteria other than population area and income distance? (2023)

(a) Only two (b) Only three

(c) Only four (d) All five

[CSP 2018] With reference to India’s decision to levy an equalization tax of 6% on online advertisement services offered by non-resident entities, which of the following statements is/are correct?

1. It is introduced as a part of the Income Tax Act.

2. Non-resident entities that offer advertisement services in India can claim a tax credit in their home country under the “Double Taxation Avoidance Agreements”.

Select the correct answer using the code given below: 

(a) 1 only             (b) 2 only

(c) Both 1 and 2 (d) Neither 1 nor 2

[CSP 2017] What is/are the most likely advantages of implementing ‘Goods and Services Tax (GST)’?

1. It will replace multiple taxes collected by multiple authorities and will thus create a single market in India.

2. It will drastically reduce the ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange reserves.

3. It will enormously increase the growth and size of economy of India and will enable it to overtake China in the near future.

Select the correct answer using the code given below: 

(a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3

[CSP 2015] A decrease in the tax-to-GDP ratio of a country indicates which of the following?

1. Slowing economic growth rate.

2. Less equitable distribution of national income.

Select the correct answer using the code given below.

(a) 1 only (b) 2 only

(c) Both 1 and 2 (d) Neither 1 nor 2

[CSP 2014] The sales tax you pay while purchasing a toothpaste is a 

(a) tax imposed by the Central Government

(b) tax imposed by the Central Government but collected by the State Government

(c) tax imposed by the State Government but collected by the Central Government

(d) tax imposed and collected by the State Government

[CSP 2017] Consider the following statements:

1. Tax revenue as a percent of GDP of India has steadily increased in the last decade.

2. Fiscal deficit as a percent of GDP of India has steadily increased in the last decade. 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

Type 6: Trade  

We live in a globalized world. A deep understanding of how our economy and global economy are intertwined is important.  So when UPSC asks questions related to trade, themes and topics like Exports, FDI, BoP, etc. become important. 

[CSP 2023] Consider the following statement:

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

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

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

[CSP 2021] With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic? 

(a) It is the investment through capitol instruments essentially in a listed company.

(b) It is largely non-debt creating capital flow.

(c) It is the investment which involves debt-servicing.

(d) It is the investment made by foreign institutional investors in the Government securities.

[CSP 2020] With reference to Trade-Related Investment Measures (TRIMS), which of the following statements is/are correct?

1. Quantitative restrictions on imports by foreign investors are prohibited.

2. They apply to investment measures related to trade in both goods and services.

3. They are not concerned with the regulation of foreign investment.

Select the correct answer using the code given below: 

(a) 1 and 2 only (b) 2 only

(c) 1 and 3 only (d) 1, 2 and 3

[CSP 2020] Consider the following statements:

1. The value of Indo-Sri Lanka trade has consistently increased in the last decade.

2. “Textile and textile articles” constitute an important item of the trade between India and Bangladesh.

3. In the last five years, Nepal has been the largest trading partner of India in South Asia. Which of the statements given above is/are correct? (2020)

(a) 1 and 2 only  (b) 2 only

(c) 3 only      (d) 1, 2 and 3

[CSP 2020] With reference to the international trade of India at present, which of the following statements is/are correct?

1. India’s merchandise exports are less than its merchandise imports.

2. India’s imports of iron and steel, chemicals, fertilisers and machinery have decreased in recent years.

3. India’s exports of services are more than its imports of services.

4. India suffers from an overall trade/current account deficit. Select the correct answer using the code given below:

(a) 1 and 2 only (b) 2 and 4 only

(c) 3 only           (d) 1, 3 and 4 only

[CSP 2019] 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

(c) Pulses (d) Vegetable oils

Within this theme, the questions being asked 5-7 years back were simpler. Have a look:

[CSP 2014] With reference to Balance of Payments, which of the following constitutes/constitute the Current Account?

1. Balance of trade

2. Foreign assets

3. Balance of invisibles

4. Special Drawing Rights Select the correct answer using the code given below. (2014)

(a) 1 only (b) 2 and 3

(c) 1 and 3 (d) 1, 2 and 4

[CSP 2013] The balance of payments of a country is a systematic record of 

(a) all import and export transactions of a country during a given period of time, normally a year

(b) good exported from a country during a year

(c) economic transaction between the government of one country to another

(d) capital movements from one country to another.

[CSP 2013] Which of the following constitute Capital Account?

1. Foreign Loans

2. Foreign Direct Investment

3. Private Remittances

4. Portfolio Investment

Select the correct answer using the codes given below.

(a) 1, 2 and 3 (b) 1, 2 and 4

(c) 2,3 and 4 (d) 1, 3 and 4

EXPERT’S ADVICE: 

No doubt, questions from Economics are on the tougher side. Being well prepared with PYQs will ensure you have some idea about some options and that you are in a position to take a leap of faith, make intelligent guesses. 

Subscribe to our UPSC newsletter and stay updated with the news cues from the past week.

The UPSC articles of Indian Express is now on Telegram. Join our Telegram channel- Indian Express UPSC Hub and stay updated with the latest Updates.

https://www.youtube.com/watch?v=wsnxUastCeM?si=HoxOR2sQ_LGqYJVk&w=560&h=315