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. Which of the following is an example of a progressive tax?
[A] Customs duty
[B] Sales tax
[C] Excise duty
[D] Income tax
Show Answer
Correct Answer: D [Income tax]
Notes:
Income tax was introduced in India in 1860 by Sir James Wilson. Income tax rates in India increase with higher income slabs as per the Finance Act. The income tax structure is defined in the Income Tax Act, 1961. Income tax collection is administered by the Central Board of Direct Taxes. A progressive tax system is implemented where tax liability rises as an individual’s income increases, with no fixed single rate for all.
2. “Lockout” is term used for a work stoppage in industry for which of the following?
[A] Employees refuse to work
[B] Employer prevents employees from working
[C] Trade unions prevent the employees to work
[D] Employer close the work premises permanently
Show Answer
Correct Answer: B [Employer prevents employees from working]
Notes:
In the context of industry, a lockout is a temporary measure used by employers to prevent workers from entering the workplace. This is typically done in response to a labor dispute or strike, and is intended to protect the employer’s property and ensure the safety of workers and others on the premises. A lockout may be imposed by an employer unilaterally, or it may be agreed upon as part of a collective bargaining agreement with a labor union. During a lockout, workers are not allowed to enter the workplace or perform their duties, and the employer may not provide any work or pay to the affected workers. A lockout can have significant economic and social consequences for both the employer and the affected workers, and is generally considered a last resort in the resolution of labor disputes.
3. What is the main reason companies issue sweat equity shares?
[A] To provide more profits to retail investors
[B] To reduce cash flow requirements for compensation
[C] To retain and attract top talent via ownership stakes
[D] To save taxes on employee compensation
Show Answer
Correct Answer: C [To retain and attract top talent via ownership stakes]
Notes:
Sweat equity shares are offered to employees or directors for their work or know-how, as per Section 54 of the Companies Act, 2013. Such shares are issued to retain and attract skilled personnel by granting ownership stakes without immediate cash outflow. SEBI regulates sweat equity issuance for listed companies. Companies often use sweat equity during initial stages to incentivize and retain employees without cash expenditure.
4. A Bank opened in Special Economic Zones in India comes under which among the following ?
[A] International Banking
[B] Domestic Banking
[C] Offshore Banking
[D] National banking
Show Answer
Correct Answer: C [Offshore Banking]
Notes:
The correct answer is Offshore Banking. In India, banks operating in Special Economic Zones (SEZs) are classified as offshore banks. These banks cater primarily to foreign entities and provide services that are exempt from certain domestic regulations, promoting international trade and investment. SEZs in India were established to enhance economic growth and attract foreign investment, with specific benefits like tax exemptions and simplified regulations.
5. Which of the following indicates a Liquidity trap?
[A] expansionary monetary policy does not encourage economic growth
[B] open market operations results in decrease in interest rates
[C] government prefers fiscal policies over monetary policies to regulate the money supply
[D] government undergoes liquidation of the government holdings on larger-scale to reduce fiscal deficit
Show Answer
Correct Answer: A [ expansionary monetary policy does not encourage economic growth ]
Notes:
Liquidity trap is a situation when expansionary monetary policy does not increase the interest rate, income and hence does not encourage the economic growth.
6. Which Public Sector Giant issued world’s first Indian green masala bond?
[A] ONGC
[B] NTPC
[C] IOCL
[D] CIL
Show Answer
Correct Answer: B [NTPC]
Notes:
State-owned energy major National Thermal Power Corporation (NTPC) raised almost Rs 2,000 crores with the launch of its ‘Green Masala Bond’ on the London Stock Exchange (LSE). NTPC’s bond issue has been described as the first-ever Indian quasi-sovereign to issue a Masala Bond.
7. Which mineral is India the largest producer and exporter of?
[A] Cotton
[B] Mica
[C] Tea
[D] Copper
Show Answer
Correct Answer: B [Mica]
Notes:
India accounts for about 60% of global mica production. Major mica mines are located in Andhra Pradesh, Rajasthan, and Jharkhand. India exported $38.2 million worth of mica in 2024, ranking second globally after China. Vast high-quality mica reserves contribute to India’s leading role in the mica market worldwide.
8. Which term refers to FIIs buying shares and bonds in Indian companies?
[A] Foreign Direct Investment
[B] NRI Investment
[C] Portfolio Investment
[D] Foreign Indirect Investment
Show Answer
Correct Answer: C [Portfolio Investment]
Notes:
Foreign Portfolio Investment allows FIIs, now classified as FPIs in India, to invest in securities like shares or bonds of Indian companies without obtaining management control. FIIs and FPIs are regulated by the Securities and Exchange Board of India. This is different from FDI, which involves direct investment in business operations or ownership. FIIs were reclassified under SEBI FPI Regulations 2014.
9. What is the classification of a Local Area Bank in India?
[A] Always Non-scheduled Bank
[B] Can be Scheduled or Non-scheduled Bank
[C] Always Scheduled Bank
[D] None of the above
Show Answer
Correct Answer: B [Can be Scheduled or Non-scheduled Bank]
Notes:
Local Area Banks were introduced in India by the RBI in 1996 with a minimum paid-up capital of Rs 5 crore. Local Area Banks can be included in the Second Schedule of the RBI Act, 1934 if they satisfy RBI’s criteria, thereby becoming scheduled banks. If they do not meet these criteria, they remain non-scheduled banks.
10. The demand for heavy loans can lead to which situation for banks?
[A] Improved bank cost efficiency through scale economies
[B] Liquidity constraints and solvency risks for banks
[C] Reduced need for risk management systems
[D] Automatic increases in bank capital reserves
Show Answer
Correct Answer: B [Liquidity constraints and solvency risks for banks]
Notes:
Heavy loan demand can strain a bank’s available liquid assets, increasing the risk of liquidity shortfall. High loan volumes, if unmatched by equivalent growth in capital or asset quality, can adversely impact the solvency position of banks. The Basel III regulatory framework emphasizes maintenance of adequate capital buffers to absorb credit risk and liquidity shocks. Instances of aggressive loan growth have historically preceded bank distress during financial crises.
