Indian Economy MCQs
Indian Economy Multiple Choice Questions (MCQs) for SSC, State and all One Day Examinations of India. Objective Questions on Indian Economy for competitive examinations.
1. Agricultural Income Tax revenue goes to which of the following governments in India?
[A] State Governments
[B] Central Government
[C] Collected by State Governments , delivered to Central Government
[D] Collected by Central Government, delivered to State Governments
Show Answer
Correct Answer: A [State Governments]
Notes:
The taxing powers of the central government encompass taxes on income (except agricultural income), excise on goods produced (other than alcohol), customs duties, and inter-state sale of goods.
The state governments are vested with the power to tax agricultural income, land and buildings, sale of goods (other than inter-state), and excise on alcohol. Local authorities such as Panchayat and Municipality also have power to levy some minor taxes.
2. Which among the following imposes a greater burden (relative to resources) on the poor than on the rich ?
[A] Progressive tax
[B] Regressive Tax
[C] Lump Sum tax
[D] Proportional tax
Show Answer
Correct Answer: B [Regressive Tax]
Notes:
A regressive tax is the one in which tax rate decreases as the amount subject to taxation increases; and the tax rate progresses from high to low. The lowest amount is subject to higher taxation and this leads to individuals with low income bear the highest burden of regressive taxes. Such tax does not take into account the ability to pay.
3. Why are commercial banks called creators of money?
[A] Because they buy securities from the central government
[B] Because the loans they issue create new deposits
[C] Because they distribute existing money in the system
[D] Because they purchase investments from investors
Show Answer
Correct Answer: B [Because the loans they issue create new deposits]
Notes:
Commercial banks create money when issuing loans by crediting the borrower’s account with new deposits, thus increasing the money supply. This accounts for over 90% of money creation in modern economies, as seen in the period 2001-2020. The process operates under central bank monetary policies and reserve requirements. The bank records loans as assets and matching deposits as liabilities, expanding broad money aggregates such as M1 to M4 without needing prior cash deposits.
4. Consider the following:
- Minor Irrigation Scheme: CCA less than 2000 Hectares
- Medium Irrigation Scheme : CCA more than 2000 Hectares but less than 10000 Hectares
- Major Irrigation Scheme : CCA more than 10000 Hectares
Which among the above statements is / are correct?
[A] Only 1 and 2 are correct
[B] Only 2 and 3 are correct
[C] all are correct
[D] all are incorrect
Show Answer
Correct Answer: C [all are correct]
Notes:
Various irrigation schemes in India were classified by the erstwhile planning commission into three parts viz. Minor, Medium and Major Irrigation schemes.
- Major irrigation Scheme: Major irrigation schemes are those schemes which have a Culturable Command Areas of More than 10,000 hectares.
- Medium irrigation Schemes: The Medium Irrigation Schemes have a CCA of 2,000-10,000 hectares.
- Minor Schemes: Those with Culturable command areas up to 2000 hectares.
Cultural command area is the basis for the design of water course and basis for the design of an irrigation project. It is the proportion of the Gross Command Area which is Culturable and cultivable.
5. Which banks have a minimum capital adequacy set by RBI regulations?
[A] Private Sector Banks
[B] Banks that Undertake Insurance Business
[C] Local Area Banks
[D] Scheduled Commercial Banks
Show Answer
Correct Answer: C [Local Area Banks]
Notes:
The Reserve Bank of India mandates a minimum Capital to Risk-Weighted Assets Ratio (CRAR) of 9% for Local Area Banks under the RBI (Local Area Banks–Prudential Norms on Capital Adequacy) Directions, 2025. Local Area Banks are regulated separately from other banking categories as per RBI’s guidelines. These banks are mainly established in rural and semi-urban areas to mobilize rural savings and invest in local economies.
6. Which action increases cash reserves of commercial banks by RBI?
[A] Release gold from its reserves
[B] Purchase government securities in open market operations
[C] Prohibit bills of exchange transactions
[D] Increase IMF tranche reserves
Show Answer
Correct Answer: B [Purchase government securities in open market operations]
Notes:
The Reserve Bank of India increases cash reserves of commercial banks by purchasing government securities through open market operations. When government securities are purchased, funds are transferred to commercial banks, raising their cash reserves. OMOs are used by the RBI as a monetary policy instrument to regulate liquidity and money supply. As of 2023, RBI actively uses OMOs to manage system liquidity.
7. How does the Indian government provide food subsidy?
[A] By fixing Central Issue Prices only
[B] Through Public Distribution System only
[C] By funding Food Corporation of India only
[D] All of the above
Show Answer
Correct Answer: D [All of the above]
Notes:
The Public Distribution System distributes subsidized foodgrains to eligible households under the National Food Security Act, 2013. The Food Corporation of India receives government funding for procurement and distribution of grains. Central Issue Prices are set by the government for affordable supply. As of January 2024, free foodgrains are provided to beneficiary households, impacting over 81 crore people.
8. Directorate General of foreign Trade (DGFT) functions under which of the following ministries?
[A] Ministry of Commerce and Industry
[B] Ministry of Finance
[C] Home Ministry
[D] Ministry of Finance
Show Answer
Correct Answer: A [ Ministry of Commerce and Industry ]
Notes:
The Directorate General of foreign Trade (DGFT) is the agency of the Ministry of Commerce and Industry of the Government of India, responsible for execution of the import and export Policies of India.
9. Which of the following is India’s first payments bank?
[A] Jio Payments Bank Ltd
[B] Paytm Payments Bank
[C] India Post Payments Bank
[D] Airtel Payments Bank
Show Answer
Correct Answer: D [ Airtel Payments Bank ]
Notes:
Fourth option is the correct answer. Airtel Payments Bank is India’s first payments bank.
10. Why is full convertibility of the Indian rupee advocated? (UPSC Prelims 1996)
[A] It stabilizes the rupee’s exchange value globally.
[B] It attracts more foreign capital into India.
[C] It helps promote Indian exports.
[D] It helps India secure loans on attractive terms.
Show Answer
Correct Answer: A [It stabilizes the rupee’s exchange value globally.]
Notes:
Full convertibility allows the rupee to be freely exchanged with foreign currencies for all transactions at market rates without Reserve Bank of India restrictions. India achieved current account convertibility in 1994. Full capital account convertibility is under consideration. Currency stability and reduced exchange rate uncertainty are key reasons for advocating convertibility to stabilize the rupee’s value against global currencies.
