UPSC Prelims Economy Trend Analysis: Part 1

In earlier series, I analysed IAS prelims polity section and we could glean some insights from that. In this series, I would analyse economy section of IAS prelims.

Economy section is the easiest section, most scoring section and on avg 16 questions are asked from it. Almost all the questions are doable ie you can get solid 28 – 30 marks out of your cut off of 107.34 (last year’s) from economy itself.

economy questions
economy questions

Like polity, on analysis a few things stand out <analysis of past 7 years papers i.e. from 2009 to 2015>

  1. Average number of questions asked in last 5 years is 16 and almost every question is solvable with decent knowledge and logic.
  2. Topics and even questions are repeated year after year
  3. Even when you don’t know all the options, often answer wallh option is clearly visible<importance of reading all the options>
  4. UPSC is not fond of statistics. So you don’t need to know if India’s growth rate is 7.6% or 7.9%, savings rate is 32% or 35%, inflation is 5% or 7% or what is India’s GDP etc.
  5. Knowing about the broad trends is very imp.. For instance – direction of GDP growth <is it increasing or slowing down>, inflation etc.
  6.  Every year 6 – 7 questions are from basics of National income accounting, Inflation -deflation, Monetary Policy, Fiscal policy, taxes, CAD, fiscal deficit, BOP etc. For solving such questions, understanding this collection – economics concepts simplified is very very important
  7. UPSC doesn’t ask very intricate details / basic understanding would be enough. For instance – it does not even ask whether govt securities are used as collateral in repo but not in bank rate or for instance a user asked today, During a OMO, who all are eligible to purchase Govt. Securities?
    Obviously Banks. Are other FI allowed to purchase G-Secs ? These questions are not asked. Go after them, only after you are confident of solving with >80% accuracy basic questions of all the subjects.
  8. From international organizations, again very superficial things are asked but you need to know them, otherwise you won’t be able to solve the questions. For instance – which organization publishes which report?, basic agreements or treaties, headquarters etc.

Most important topics

  1. National income accounting, Inflation, Fiscal Policy, monetary policy, balance of payment, RBI, PSL – This bundle – Economics concepts simplified and prelims titbits would do
  2. Basics of international organizations – WB, IMF, WTO, UNCTAD, WEF – reports, agreement/treaties, bodies w/i such organizations such as G-33, G-77 etc
  3. Finance commission – major recommendations, themes of different plans – they used to ask such questions earlier, not much now days
  4. Inclusive growth, demographic dividend, basic economic glossary – bear, bull, equity, debt, security – just basics no intricacy
  5.  Committees and their reports, Govt schemes and budget, read these bundles, govt committees  and this one – govt schemes

Let’s now look at 2015 paper

1. Pradhan Mantri Jan Dhan Yojana has been launched for

(a) providing housing loan to poor people at cheaper interest rates

(b) Promoting women’s Self Help Groups in backward areas

(c) promoting financial inclusion in the country

(d) providing financial help to marginalised communities

Very easy. No help required

Learning – Major schemes – themes and salient provisions <theme at least>, MUDRA, payment bank, small bank, Ujjawala, sahaj etc.

2. With Reference to the Fourteenth Finance Commission, which of the following statements is/are correct?

  1. It has increased the share of States in the central divisible pool from 32 percent to 42 percent
  2. It has made recommendations concerning sector-specific grants

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Did not make sector specific grants except for a very sectors.

Learning – Major recommendations of 14th FC. Remember 14th FC would remain a current topic until 15th FC submits its report. Also polity part of FC

3. A decrease in tax to GDP ratio of a country indicates which of the following?

  1. Slowing economic growth rates
  2. 2. Less equitable distribution of national income

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Controversial question. Go with what UPSC says. Both the statement can be proved right and wrong.

Learning – Tax classification – who levies which tax, where proceeds go, GST, Tax to GDP ratio, direct v/s indirect tax

4. In the Index of Eight Core Industries, which one of the following is given the highest weight?

(a) Coal Production

(b) Electricity generation

(c) Fertilizer Production

(d) Steel Production

  • You have to remember the weights. But fertilizer can be easily eliminated, it can not be the highest
  • Manufacturing, mining an electricity are the 3 broad heads of IIP – through this you can reach electricity
  • BTW, question on core sector of IIP was asked in 2013 also <not eaxct>. Importance of solving papers

Learning – IIP, who computes it, who computes GDP, CPI, WPI, CPI (ML). CPI(UNME), CPI(IW). Weight-age of different items <broadly not exact, food highest or manufacturing highest etc>

5. The Fair and Remunerative Price of Sugarcane is approved by the

(a) Cabinet Committee on Economic Affairs

(b) Commission for Agricultural Costs and Prices

(c) Directorate of Marketing and Inspection, Ministry of Agriculture

(d) Agricultural Produce Marketing Committee

  • approval is always by govt i.e cabinet, commissions and committees never take final decision, they only recommend
  • Question on FRP, MSP sugar was asked in 2010 also

Learning – CACP, MSP, FRP, Essential commodities act, Food processing etc

6. Which one of the following issues the “Global Economic Prospects” report periodically?

(a) The Asian Development Bank

(b) The European Bank for Reconstruction and Development

(c) The US Federal Reserve Bank

(d) The World Bank

Question on report. Reports very important. Global report will be published by global body not Asian, European or American

Learning – Reports of WB, WTO, IMF, UNCTAD, WEF <just names and theme>WB group

7. When the Reserve Bank of India reduces the Statutory Liquidity by 50 basis points, which of the following is likely to happen?

(a) India’s GDP growth rate increases drastically

(b) Foreign Institutional Investors may bring more capital into our country

(c) Scheduled Commercial Banks may cut their lending rates

(d) It  may drastically reduce the liquidity to the banking system.

  • Reduced SLR # more money to lend # reduced interest rate
  • Drastically in option a and d is exaggeration. Pause and think
  • Question from the holy bundle

#8. In India, markets in agricultural products are regulated under the  

(a) Essential Commodities Act, 1955

(b) Agricultural Produce Market Committee Act enacted by States

(c) Agricultural Produce (Grading and Marking) Act, 1937

(d) Food Products Order, 1956 and Meat and Food Products Order, 1973

  • Obviously a market act would regulate markets. so only option is b
  • Also in your mains syllabus paper 3

Learning – essential commodities act, APMC, food safety act, FSSAI <what’s the status of act under option c and d?>

#9.Which of the following brings out the ‘Consumer Price Index Number for the Industrial Workers’?

(a) The Reserve Bank of India

(b) The Department of Economic Affairs

(c) The Labour Bureau

(d) The department of Personnel and Training

  • Confusion could be b/w labour bureau and CSO but CSO not even in the option.
  • RBI and DOPT easily ruled out. DEA prepares budget

Learning – CPI, WPI, GDP, IIP, CPI (AL), CPI (IW)- calculation done by?, CSO v/s NSSO

#10. The terms ‘Agreement on Agriculture’, ‘Agreement on the Application of Sanitary and Phytosanitary Measures’ and Peace Clause’ appear in the news frequently in the context of the affairs of the:

(a) Food and Agriculture Organization

(b) United Nations Framework Conference on Climate Change

(c) World Trade Organization

(d) United Nations Environment Programme

Learning – Reports and agreements of international organizations

#11. Convertibility of rupee implies:

(a) being able to convert rupee notes into gold

(b) allowing the value of rupee to be fixed by market forces

(c) freely permitting the conversion of rupee to other currencies and vice versa

(d) developing an international market for currencies in India

Convertibility is being able to convert int other currencies

Learning – Current and capital account convertibility, Narsimhan committee, LRS and panama papers, FDI v/s FII, ECB

#12. The Government of India has established NITI Aayog to replace the

(a) Human Rights Commission

(b) Finance Commission

(c) Law Commission

(d) Planning Commission

Learning – Governing council of NITI, rank of Vice chairperson and members, NDC, status of interstate council and zonal council

#13. In India the steel production industry requires the import of

  1. saltpetre
  2. rock phosphate
  3. coking coal
  4. All of the above
  • Everyone knows rock phosphate has nothing to do with steel. USed in fertilizer production. 2 and 4 ruled out
  • India is rich in coal, but coal is of poor quality – last year question was asked – low Sulfur, high ash content – can’t be used in coking
  • Saltpetre is KNO3, used in gun powder, ancient Indian Industry

#14. ‘Basel III Accord’ or simply ‘Basel III’, often seen in the news, seeks to

(a) develop national strategies for the conservation and sustainable use of biological diversity

(b) improve banking sector’s ability to deal with financial and economic stress and improve risk management

(c) reduce the greenhouse gas emissions but places a heavier burden on developed countries

(d) transfer technology from developed Countries to poor countries to enable them to replace the use of chlorofluorocarbons in refrigeration with harmless chemicals

  • Simple. No intricate detail
  • You only have to know about Basel committee on banking supervision – not even Capital adequacy ratio

Learning – CAR, CRAR, tier1 , tioer 2 capital, recapitalisation of public sector banks, LCR, stress test, systemically important banks, NPAs etc

#15. With reference to India economy, consider the following statements:

  1. The rate of growth of real Gross Domestic Product has steadily increased in the last decade.
  2. The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade

Which of the statement given above is/are correct?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. Neither 1 nor 2
  • Broad trend. No data
  • Real GDP growth rate ca not increase steadily for 10 years in any country. It’s very difficult. In any case, 2008 financial crisis led to slow down, growth gain slowed down in final years of UPA. Modiji won on the plank to improve the economy.
  • Nominal even real GDP would grow in the absence of recession which do not occur in developing country like India

#16. With reference to India economy, consider the following :

  1. Bank rate
  2. Open market operations
  3. Public debt
  4. Public revenue

Which of the above is/are component/components of Monetary Policy?

      1. 1 only
      2. 2, 3 and 4
      3. 1 and 2
      4. 1, 3 and 4
  • What RBI does is monetary policy, what govt does is fiscal policy.
  • Revenue and debt is of govt – fiscal
  • Question from the sacred bundle

#17. Which 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

  • c and d contradict each other, one has to be true. # decrease money circulation # less money chasing same goods # price fall # inflation controlled
  • a and b, no role, sole responsibility, red flags, pause and think
  • Question from the holy bundle

#18. The substitution of steel for wooden ploughs in agricultural production is an example of

(a) labour-augmenting technological progress

(b) capital-augmenting technological progress

(c) capital-reducing technological progress

(d) None of the above

Common sense. Also b and c contradict each other. One of them has to be true

#19. The problem of international liquidity is related to the non-availability of

(a) goods and services

(b) gold and silver

(c) dollars and other hard currencies

(d) exportable surplus

  • Liquidity is ability to convert into cash. Cash is currency
  • Question on liquidity was also asked last year

#20. There has been a persistent deficit budget year after year. Which of the following actions can be taken by the government to reduce the deficit?

  1. Reducing revenue expenditure
  2. Introducing new welfare schemes
  3. Rationalizing subsidies
  4. Expanding industries

Select the correct answer using the code given below.

(a) 1 and 3 only

(b) 2 and 3 only

(c) 1 only

(d) 1,2,3 and 4

  • Simple, raise revenues, reduce expenditure.
  • More welfare schemes increases expenditure while rationalizing subsidies reduces expenditure
  • Again from the bundle

Learning – Targeting of subsidies, JAM, DBT, BAPU

#21. With reference to the Indian Renewable Energy Development Agency Limited (IREDA), which of the following statements is/are correct?

  1. It is a Public Limited Government Company.
  2. It is a Non – Banking Financial Company.

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 or 2

  • Common sense – Name suggests it’s public limited company.
  • It gives finances to companies in renewable business, hence – finance company. It’s not a bank hence NBFC

Learning – Bank v/s NBFC, Small bank, Payment bank, universal bank, MUDRA, NABARD just basics

Bottom line – 17/21 absolute joke

P.S. – Solutions of 2009 to 2014 with analysis and learning objectives will be published in next few days

You may also want to read – How to approach prelims 2016

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