General Studies

Indian Economy: Practice Questions with Answers

234 practice questions on Indian Economy, with answers; most also have an explanation or a worked solution. Try each one before you open its answer.

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1. Q.1

   Under the Marginal Standing Facility (MSF), scheduled commercial banks can:

   1. A Park their surplus funds with the RBI overnight
   2. B Borrow overnight from the RBI, if needed by pledging securities from their SLR holdings up to a limit
   3. C Borrow long-term funds from the RBI without any collateral
   4. D Deposit foreign exchange with the RBI at a fixed rate
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   Correct answer: (B) Borrow overnight from the RBI, if needed by pledging securities from their SLR holdings up to a limit

   MSF is an emergency overnight borrowing window from the RBI at a rate above the repo rate, for which banks may dip into their SLR securities up to a limit. Banks park surplus funds with the RBI overnight through the Standing Deposit Facility (SDF), which replaced the fixed-rate reverse repo as the floor of the policy rate corridor in April 2022; the MSF rate is the ceiling of that corridor.

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2. Q.2

   The National Commission on Farmers (2004-06), which recommended that the MSP should be at least 50% more than the weighted average cost of production, was chaired by:

   1. A Y.K. Alagh
   2. B Abhijit Sen
   3. C M.S. Swaminathan
   4. D Ashok Dalwai
   Show answer

   Correct answer: (C) M.S. Swaminathan

   M.S. Swaminathan chaired the National Commission on Farmers, which submitted its reports on farm distress between 2004 and 2006. He also coined the term 'Evergreen Revolution' for raising productivity without ecological harm.

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3. Q.3

   In the context of Finance Commission recommendations, 'horizontal devolution' means:

   1. A Distribution of the States' share of central taxes among the individual States
   2. B The share of central taxes given to all States taken together
   3. C Transfer of funds from States to panchayats
   4. D Grants from the Centre to Union Territories
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   Correct answer: (A) Distribution of the States' share of central taxes among the individual States

   Vertical devolution fixes what share of the divisible pool of central taxes goes to the States as a whole; horizontal devolution divides that share among individual States using criteria such as population, area and income distance.

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4. Q.4

   Which statement correctly distinguishes FDI from FII (foreign portfolio) investment?

   1. A FII investment gives the investor management control of the company
   2. B FDI is short-term and can be withdrawn quickly
   3. C Both are identical in nature and purpose
   4. D FDI is long-term with ownership or management interest; FII is investment in shares and bonds without control
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   Correct answer: (D) FDI is long-term with ownership or management interest; FII is investment in shares and bonds without control

   FDI involves a lasting interest, such as setting up plants or buying a controlling stake. FII/FPI money flows into financial markets and is often called 'hot money' because it can exit quickly.

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5. Q.5

   GDP at market prices is obtained from Gross Value Added (GVA) at basic prices by:

   1. A Subtracting product taxes and adding product subsidies
   2. B Adding product taxes and subtracting product subsidies
   3. C Adding depreciation
   4. D Adding net factor income from abroad
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   Correct answer: (B) Adding product taxes and subtracting product subsidies

   GDP at market prices = GVA at basic prices + product taxes − product subsidies. Adding net factor income from abroad would turn a domestic aggregate into a national one.

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6. Q.6

   The balance of trade of a country is the difference between:

   1. A Its total foreign-exchange receipts and payments of every kind
   2. B Its capital inflows and capital outflows
   3. C Its foreign-exchange reserves at the start and end of the year
   4. D The values of its exports and imports of goods
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   Correct answer: (D) The values of its exports and imports of goods

   The balance of trade covers only visible trade, that is, merchandise exports minus merchandise imports. The current account is wider, adding trade in services and other items.

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7. Q.7

   The New Industrial Policy announced in July 1991:

   1. A Nationalised the large private industrial houses
   2. B Enlarged the list of industries reserved for the public sector
   3. C Abolished industrial licensing for all except a short list of industries
   4. D Prohibited foreign direct investment in manufacturing
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   Correct answer: (C) Abolished industrial licensing for all except a short list of industries

   The 1991 policy kept compulsory licensing only for a few industries linked to security, strategic concerns, hazards or the environment, and cut the public sector's reserved list. It also opened the way to automatic approval of foreign investment in priority industries.

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8. Q.8

   Regional Rural Banks (RRBs) are jointly owned by:

   1. A The RBI, NABARD and the State Bank of India
   2. B The Central Government and the RBI only
   3. C The State Government and cooperative societies
   4. D The Central Government, the concerned State Government and a sponsor bank
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   Correct answer: (D) The Central Government, the concerned State Government and a sponsor bank

   Under the Regional Rural Banks Act, 1976, the share capital of an RRB is held by the Central Government, the State Government and a sponsor bank (the commercial bank that helps set it up and run it) in the ratio 50:15:35. Since a 2015 amendment, RRBs may also raise capital from other sources, provided the Centre and the sponsor bank together hold at least 51 per cent. Under the 'One State, One RRB' amalgamation, effective 1 May 2025, their number was cut from 43 to 28.

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9. Q.9

   The Union Budget is referred to in the Constitution of India as the:

   1. A Appropriation Bill
   2. B Finance Bill
   3. C Economic Survey
   4. D Annual Financial Statement
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   Correct answer: (D) Annual Financial Statement

   Article 112 requires the President to lay before Parliament an 'Annual Financial Statement' of estimated receipts and expenditure; this is the Union Budget. The Finance Bill and Appropriation Bill are documents that accompany it.

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10. Q.10

    MUDRA Ltd., set up in 2015 to refinance lenders to micro units, is a wholly owned subsidiary of:

    1. A Small Industries Development Bank of India (SIDBI)
    2. B National Bank for Agriculture and Rural Development (NABARD)
    3. C Reserve Bank of India
    4. D State Bank of India
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    Correct answer: (A) Small Industries Development Bank of India (SIDBI)

    MUDRA was set up as a wholly owned subsidiary of SIDBI, the apex institution for financing micro, small and medium enterprises. NABARD's focus is agriculture and rural credit.

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11. Q.11

    Who presented the first Union Budget of independent India on 26 November 1947?

    1. A John Mathai
    2. B R.K. Shanmukham Chetty
    3. C C.D. Deshmukh
    4. D Liaquat Ali Khan
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    Correct answer: (B) R.K. Shanmukham Chetty

    R.K. Shanmukham Chetty, independent India's first Finance Minister, presented the first budget on 26 November 1947. Liaquat Ali Khan had presented the interim government's budget in February 1947.

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12. Q.12

    Who was the first Indian to serve as Governor of the Reserve Bank of India?

    1. A Osborne Smith
    2. B James Taylor
    3. C Benegal Rama Rau
    4. D C.D. Deshmukh
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    Correct answer: (D) C.D. Deshmukh

    Sir C.D. Deshmukh became Governor in 1943, after Sir Osborne Smith (the first Governor) and Sir James Taylor. He later served as India's Finance Minister.

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13. Q.13

    The Sensex is a stock market index based on how many companies of the Bombay Stock Exchange?

    1. A 50
    2. B 30
    3. C 100
    4. D 500
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    Correct answer: (B) 30

    Sensex (Sensitive Index) tracks 30 large, actively traded BSE companies. Nifty 50 is the NSE's index of 50 companies.

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14. Q.14

    'Core inflation' is headline inflation excluding the prices of:

    1. A Food and fuel
    2. B Housing and clothing
    3. C Services
    4. D Manufactured goods
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    Correct answer: (A) Food and fuel

    Core inflation removes volatile components, food and fuel, from headline inflation to show the underlying, persistent price trend.

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15. Q.15

    Under Article 281, the recommendations of the Finance Commission, together with an explanatory memorandum on the action taken, are laid before each House of Parliament by:

    1. A The Union Finance Minister
    2. B The Comptroller and Auditor General
    3. C The President
    4. D The Chairman of the Finance Commission
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    Correct answer: (C) The President

    Article 281 requires the President to cause every recommendation of the Finance Commission, with a memorandum on the action taken on it, to be laid before both Houses of Parliament.

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16. Q.16

    The logo of the Make in India initiative, launched in 2014, shows:

    1. A A tiger made of circuit boards
    2. B A peacock with spread feathers
    3. C An elephant carrying a gear wheel
    4. D A lion made of cogwheels
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    Correct answer: (D) A lion made of cogwheels

    The Make in India logo is a striding lion built from cogwheels, symbolising manufacturing strength. The initiative was launched on 25 September 2014 to make India a global manufacturing hub.

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17. Q.17

    Which earlier health insurance scheme, launched in 2008, was subsumed into Ayushman Bharat PM-JAY when PM-JAY was launched in 2018?

    1. A Janani Suraksha Yojana
    2. B Rashtriya Swasthya Bima Yojana (RSBY)
    3. C Pradhan Mantri Suraksha Bima Yojana
    4. D Central Government Health Scheme
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    Correct answer: (B) Rashtriya Swasthya Bima Yojana (RSBY)

    PM-JAY, the hospital-cover component of Ayushman Bharat, absorbed the Rashtriya Swasthya Bima Yojana of 2008; it is implemented by the National Health Authority under the Ministry of Health and Family Welfare. The Janani Suraksha Yojana is a cash-assistance scheme for institutional deliveries.

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18. Q.18

    If the nominal GDP of an economy rises by 10 per cent in a year while the general price level rises by 6 per cent, real GDP grows by approximately:

    1. A 16 per cent
    2. B 10 per cent
    3. C 4 per cent
    4. D 6 per cent
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    Correct answer: (C) 4 per cent

    Real growth is roughly nominal growth minus inflation: 10 − 6 = about 4 per cent (exactly 1.10/1.06 − 1, about 3.8 per cent). Nominal GDP includes the price rise; real GDP removes it.

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19. Q.19

    A slow, mild and steady rise in the general price level over a long period is called:

    1. A Creeping inflation
    2. B Galloping inflation
    3. C Hyperinflation
    4. D Stagflation
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    Correct answer: (A) Creeping inflation

    Creeping inflation is a gradual, mild rise in prices and is generally not considered harmful. Galloping inflation and hyperinflation describe very rapid price rises.

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20. Q.20

    Who was the first Deputy Chairman of the Planning Commission?

    1. A V.T. Krishnamachari
    2. B C.D. Deshmukh
    3. C Gulzarilal Nanda
    4. D P.C. Mahalanobis
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    Correct answer: (C) Gulzarilal Nanda

    When the Planning Commission was set up in 1950, Prime Minister Jawaharlal Nehru was its Chairman and Gulzarilal Nanda its first Deputy Chairman. V.T. Krishnamachari succeeded Nanda as Deputy Chairman.

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21. Q.21

    Which of the following was a recommendation of the first Narasimham Committee (1991)?

    1. A Nationalisation of the remaining private banks
    2. B Raising the SLR to channel more funds to the government
    3. C Tighter administrative control over interest rates
    4. D A phased reduction in the SLR and CRR
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    Correct answer: (D) A phased reduction in the SLR and CRR

    The Committee wanted banks to work on commercial lines and called for a phased cut in the high SLR and CRR and deregulation of interest rates. The other options run opposite to its approach.

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22. Q.22

    Consider the following statements about the Finance Commission of India: 1. Its recommendations are binding on the Union Government. 2. It consists of a chairman and four other members appointed by the President. Which of the statements given above is/are correct?

    1. A Only 1
    2. B Only 2
    3. C Both 1 and 2
    4. D Neither 1 nor 2
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    Correct answer: (B) Only 2

    Under Article 280 the Commission has a chairman and four other members appointed by the President. Its recommendations are advisory; the government decides whether to accept them.

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23. Q.23

    Make in India and Startup India are both coordinated by which department?

    1. A Department of Economic Affairs
    2. B Ministry of Micro, Small and Medium Enterprises
    3. C NITI Aayog
    4. D Department for Promotion of Industry and Internal Trade (DPIIT)
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    Correct answer: (D) Department for Promotion of Industry and Internal Trade (DPIIT)

    DPIIT, known as DIPP until 2019, is part of the Ministry of Commerce and Industry; it is the nodal department for Make in India and recognises startups under Startup India. NITI Aayog is a policy think tank, not the implementing department.

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24. Q.24

    The State Bank of India was constituted on 1 July 1955 by taking over:

    1. A The Central Bank of India
    2. B The Imperial Bank of India
    3. C The Allahabad Bank
    4. D The Punjab National Bank
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    Correct answer: (B) The Imperial Bank of India

    Acting on the All India Rural Credit Survey Committee's recommendation, the SBI Act, 1955 converted the Imperial Bank of India, formed in 1921 from the three Presidency Banks, into the State Bank of India.

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25. Q.25

    Which of the following is a non-tax revenue receipt of the Central Government?

    1. A Corporation tax
    2. B Interest received on loans given to States
    3. C Customs duty
    4. D Recovery of loans given to States
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    Correct answer: (B) Interest received on loans given to States

    Interest, dividends, fees and fines are non-tax revenue receipts. Recovery of the principal of a loan reduces an asset, so it is a capital receipt, not revenue.

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26. Q.26

    Consider the following statements: 1. One-rupee notes are issued by the Government of India and carry the signature of the Finance Secretary. 2. Coins in India are issued by the Reserve Bank of India. Which of the statements given above is/are correct?

    1. A Only 1
    2. B Only 2
    3. C Both 1 and 2
    4. D Neither 1 nor 2
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    Correct answer: (A) Only 1

    One-rupee notes and all coins are issued by the Government of India; coins are minted at government mints and only distributed through the RBI. Other banknotes are issued by the RBI and signed by its Governor.

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27. Q.27

    The National Rural Employment Guarantee Act was renamed after Mahatma Gandhi in which year?

    1. A 2005
    2. B 2009
    3. C 2006
    4. D 2012
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    Correct answer: (B) 2009

    An amendment renamed NREGA as the Mahatma Gandhi National Rural Employment Guarantee Act with effect from 2 October 2009, Gandhi's birth anniversary. The original Act was passed in 2005 and came into force in 2006. MGNREGA was repealed from 1 July 2026 and replaced by the VB-G RAM G Act.

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28. Q.28

    NABARD, the apex institution for agriculture and rural credit, was established in:

    1. A 1975
    2. B 1964
    3. C 1982
    4. D 1990
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    Correct answer: (C) 1982

    NABARD was set up on 12 July 1982 on the recommendation of the Shivaraman Committee. 1975 is the year of RRBs and 1990 of SIDBI.

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29. Q.29

    Which of the following is NOT a function of the Reserve Bank of India?

    1. A Acting as banker to the Central and State Governments
    2. B Managing India's foreign exchange reserves
    3. C Accepting savings deposits from the general public
    4. D Acting as lender of last resort to banks
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    Correct answer: (C) Accepting savings deposits from the general public

    The RBI is banker to the governments and to banks, the lender of last resort and the custodian of foreign exchange reserves, and it issues currency. It does not open savings accounts for the general public; commercial banks do that.

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30. Q.30

    The two committees on capital account convertibility of the rupee, set up by the RBI in 1997 and 2006, were both headed by:

    1. A M. Narasimham
    2. B S.S. Tarapore
    3. C Raja J. Chelliah
    4. D C. Rangarajan
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    Correct answer: (B) S.S. Tarapore

    S.S. Tarapore, a former RBI Deputy Governor, chaired both committees, which suggested preconditions and a phased path towards capital account convertibility. M. Narasimham is known for the banking sector reform committees of 1991 and 1998.

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31. Q.31

    Which of the following statements about the Wholesale Price Index (WPI) and the Consumer Price Index (CPI) is correct?

    1. A WPI covers services while CPI covers only goods
    2. B Both measure prices only at the retail level
    3. C CPI tracks retail prices paid by consumers, while WPI tracks prices in bulk transactions
    4. D CPI excludes food items, while WPI includes them
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    Correct answer: (C) CPI tracks retail prices paid by consumers, while WPI tracks prices in bulk transactions

    CPI measures changes in the retail prices of a basket of goods and services bought by households. WPI measures prices at the wholesale (bulk sale) level and covers goods, not services.

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32. Q.32

    Treasury bills, issued by the RBI on behalf of the Government of India, have maturities of:

    1. A 30, 60 and 90 days
    2. B 1, 3 and 5 years
    3. C 7, 14 and 28 days
    4. D 91, 182 and 364 days
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    Correct answer: (D) 91, 182 and 364 days

    Treasury bills are short-term, zero-coupon money market instruments issued at a discount in 91-day, 182-day and 364-day tenors. Instruments running for several years are dated government securities.

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33. Q.33

    The Foreign Exchange Regulation Act (FERA), 1973 was replaced by the:

    1. A Prevention of Money Laundering Act, 2002
    2. B Foreign Exchange Management Act (FEMA), 1999
    3. C Foreign Trade (Development and Regulation) Act, 1992
    4. D Customs Act, 1962
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    Correct answer: (B) Foreign Exchange Management Act (FEMA), 1999

    FEMA, which came into force in 2000, replaced FERA and shifted from regulating to managing foreign exchange, treating most violations as civil rather than criminal matters. The Foreign Trade Act of 1992 governs export-import policy.

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34. Q.34

    The Planning Commission of India was set up in which year?

    1. A 1947
    2. B 1951
    3. C 1952
    4. D 1950
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    Correct answer: (D) 1950

    The Planning Commission was created on 15 March 1950 by a resolution of the Union Cabinet, with the Prime Minister as its chairman. The First Five-Year Plan began in 1951.

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35. Q.35

    The Goods and Services Tax (GST) came into effect in India on:

    1. A 1 April 2016
    2. B 1 January 2017
    3. C 1 April 2018
    4. D 1 July 2017
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    Correct answer: (D) 1 July 2017

    GST was launched at midnight on 1 July 2017, replacing multiple central and state indirect taxes with a single destination-based tax.

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36. Q.36

    'Disinflation' refers to:

    1. A A continuous fall in the general price level
    2. B High inflation combined with stagnant output
    3. C A sudden rise in prices due to a supply shock
    4. D A fall in the rate of inflation, while prices continue to rise
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    Correct answer: (D) A fall in the rate of inflation, while prices continue to rise

    Disinflation means inflation slows down, for example from 7 per cent to 4 per cent; prices still rise, but more slowly. A continuous fall in the price level is deflation.

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37. Q.37

    'Food, Work and Productivity' were the focus areas of which Five-Year Plan?

    1. A Seventh Plan (1985-90)
    2. B Fourth Plan (1969-74)
    3. C Sixth Plan (1980-85)
    4. D Ninth Plan (1997-2002)
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    Correct answer: (A) Seventh Plan (1985-90)

    The Seventh Plan stressed rapid growth in foodgrain production, more employment and higher productivity, summed up as 'Food, Work and Productivity'. The Ninth Plan's theme was growth with social justice and equity.

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38. Q.38

    Arrange the following financial institutions in the chronological order of their establishment: 1. SIDBI 2. EXIM Bank 3. IDBI 4. IFCI

    1. A 3, 4, 2, 1
    2. B 4, 3, 1, 2
    3. C 4, 3, 2, 1
    4. D 3, 4, 1, 2
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    Correct answer: (C) 4, 3, 2, 1

    IFCI was set up in 1948, IDBI in 1964, the EXIM Bank in 1982 and SIDBI in 1990, so the order is 4, 3, 2, 1.

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39. Q.39

    The National Payments Corporation of India (NPCI), the umbrella organisation for retail payment systems, was set up in 2008 as an initiative of:

    1. A The RBI and the Indian Banks' Association
    2. B SEBI and the Ministry of Finance
    3. C NITI Aayog and the Ministry of Electronics and IT
    4. D The State Bank of India and LIC
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    Correct answer: (A) The RBI and the Indian Banks' Association

    NPCI was promoted by the RBI and the Indian Banks' Association under the Payment and Settlement Systems Act, 2007, as a not-for-profit company. It runs retail payment systems such as IMPS and the RuPay card network.

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40. Q.40

    The GDP deflator is calculated as:

    1. A Real GDP divided by nominal GDP, multiplied by 100
    2. B Nominal GDP minus real GDP
    3. C CPI divided by WPI, multiplied by 100
    4. D Nominal GDP divided by real GDP, multiplied by 100
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    Correct answer: (D) Nominal GDP divided by real GDP, multiplied by 100

    GDP deflator = (Nominal GDP / Real GDP) x 100. It measures the overall price level of all domestically produced goods and services, not just a consumer basket.

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41. Q.41

    Which of the following 'revolution' and product pairs is correctly matched?

    1. A Yellow Revolution – Milk production
    2. B White Revolution – Oilseed production
    3. C Green Revolution – Egg production
    4. D Blue Revolution – Fish production
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    Correct answer: (D) Blue Revolution – Fish production

    The Blue Revolution refers to the rapid growth of fisheries and aquaculture. Milk is linked with the White Revolution, oilseeds with the Yellow Revolution and foodgrains with the Green Revolution.

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42. Q.42

    Under MGNREGA, if a registered applicant was not given work within how many days of applying, the state had to pay a daily unemployment allowance?

    1. A 7 days
    2. B 15 days
    3. C 30 days
    4. D 45 days
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    Correct answer: (B) 15 days

    The Act required work to be provided within 15 days of the application, failing which the state government paid an unemployment allowance. Wages, too, were due within a fortnight of the work done. MGNREGA was repealed from 1 July 2026 and replaced by the VB-G RAM G Act.

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43. Q.43

    India's foreign exchange reserves are made up of foreign currency assets, gold, Special Drawing Rights and:

    1. A Deposits of non-resident Indians in Indian banks
    2. B External commercial borrowings of Indian companies
    3. C Foreign portfolio investment in Indian shares
    4. D The Reserve Tranche Position in the IMF
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    Correct answer: (D) The Reserve Tranche Position in the IMF

    The RBI reports the reserves under four heads: foreign currency assets, gold, SDRs and the reserve tranche position in the IMF. NRI deposits and ECBs are liabilities that bring in foreign exchange, not components of the reserves themselves.

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44. Q.44

    The agreement establishing the World Trade Organization was signed in April 1994 at:

    1. A Doha, Qatar
    2. B Punta del Este, Uruguay
    3. C Geneva, Switzerland
    4. D Marrakesh, Morocco
    Show answer

    Correct answer: (D) Marrakesh, Morocco

    The Marrakesh Agreement concluded the Uruguay Round, which had been launched at Punta del Este in 1986. Doha is where the next round of WTO talks was launched in 2001.

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45. Q.45

    SEBI, the regulator of India's securities market, received statutory powers in:

    1. A 1992
    2. B 1988
    3. C 1995
    4. D 2000
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    Correct answer: (A) 1992

    SEBI was set up as a non-statutory body in 1988 and became a statutory regulator under the SEBI Act, 1992. Its headquarters are in Mumbai.

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46. Q.46

    Which of the following statements about India's Green Revolution is NOT correct?

    1. A It reduced the disparities between regions from the very start
    2. B It depended on HYV seeds, chemical fertilisers and assured irrigation
    3. C Its early gains were concentrated in irrigated regions such as Punjab
    4. D It helped India reduce its dependence on imported foodgrains
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    Correct answer: (A) It reduced the disparities between regions from the very start

    Because the HYV package needed assured irrigation and costly inputs, its early benefits went to already irrigated regions such as Punjab, so regional disparities widened rather than narrowed. The other three statements are correct.

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47. Q.47

    Who was the Union Finance Minister when the 1991 economic reforms (LPG) were launched?

    1. A P. Chidambaram
    2. B Manmohan Singh
    3. C Yashwant Sinha
    4. D Pranab Mukherjee
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    Correct answer: (B) Manmohan Singh

    Manmohan Singh, Finance Minister in the P.V. Narasimha Rao government, presented the July 1991 budget that opened the economy through liberalisation, privatisation and globalisation.

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48. Q.48

    Which Industrial Policy Resolution is often called the 'Economic Constitution of India'?

    1. A Industrial Policy Resolution 1948
    2. B Industrial Policy 1977
    3. C Industrial Policy Resolution 1956
    4. D New Industrial Policy 1991
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    Correct answer: (C) Industrial Policy Resolution 1956

    The IPR 1956 classified industries into three schedules and gave the public sector a dominant role; it guided industrial policy until 1991 and is called the Economic Constitution of India.

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49. Q.49

    The Forward Markets Commission, which regulated commodity futures trading, was merged with SEBI in:

    1. A 2015
    2. B 2008
    3. C 2012
    4. D 2019
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    Correct answer: (A) 2015

    The Forward Markets Commission was merged with SEBI on 28 September 2015, bringing commodity derivatives markets under the securities regulator.

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50. Q.50

    'Disguised unemployment' means a situation in which:

    1. A Workers lose jobs only in a particular season
    2. B Workers are replaced by machines
    3. C More people are employed than required, so that removing some would not reduce output
    4. D Workers are temporarily out of work while changing jobs
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    Correct answer: (C) More people are employed than required, so that removing some would not reduce output

    In disguised unemployment the marginal productivity of the surplus workers is zero. It is typical of Indian agriculture, where a family farm supports more people than it needs.

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