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. Consider the following statements about money supply in India:
- M1 is called narrow money.
- M3 is called broad money.
Which of the above statements is/are correct?
[A] 1 only
[B] 2 only
[C] Both 1 and 2
[D] Neither 1 nor 2
Show Answer
Correct Answer: C [Both 1 and 2]
Notes:
In India’s money supply classification, M1 represents narrow money because it includes currency with the public, demand deposits and other highly liquid balances. M3 is known as broad money since it covers M1 plus time deposits held with banks and therefore reflects a wider measure of money in the economy. Hence, both statements are correct. This classification is widely used in banking and monetary policy analysis.
3. Inflation Indexed Bonds (IIBs) in India are primarily linked to which inflation index?
[A] WPI
[B] CPI
[C] Both WPI and CPI
[D] None of the above
Show Answer
Correct Answer: B [CPI]
Notes:
In India, Inflation Indexed Bonds issued for retail investors were CPI-based, meaning both principal and coupon payments were protected against inflation measured by the Consumer Price Index. RBI FAQs also distinguish these from earlier capital indexed bonds, which were linked to WPI. Hence, CPI is the correct answer.
4. RBI applies the principle of reciprocity to which type of banks?
[A] Private Banks
[B] Foreign Banks
[C] Regional Rural Banks
[D] Urban Cooperative Banks
Show Answer
Correct Answer: B [Foreign Banks]
Notes:
The Reserve Bank of India applies the reciprocity principle to foreign banks operating in India. This allows foreign banks similar operating rights as Indian banks only if Indian banks receive comparable treatment in the respective foreign country. RBI norms on subsidiarization, updated in November 2013, emphasize this guideline for foreign banks. Indian-Singapore banking agreements in 2015 reflected application of this principle.
5. What does Revenue Neutral Rate (RNR) mean?
[A] A policy where revenue receipts equal revenue expenditures
[B] A tax rate to ensure income tax equity
[C] A property tax rate generating same revenue as previous year
[D] A tax policy increasing revenue without hearings
Show Answer
Correct Answer: C [A property tax rate generating same revenue as previous year]
Notes:
The Revenue Neutral Rate is a property tax rate calculated so total tax revenue equals the previous year’s amount, based on current assessed property valuations. The formula is previous year’s tax revenue divided by current year’s assessed valuation, multiplied by 1,000. If property values increase, the RNR decreases to keep tax revenue flat.
6. Which steel plant was not built during the 2nd Five Year Plan?
[A] Bhilai plant
[B] Salem plant
[C] Rourkela plant
[D] Durgapur plant
Show Answer
Correct Answer: B [Salem plant]
Notes:
Salem Steel Plant is located in Tamil Nadu. It was established in 1972 and commissioned in 1982. The Second Five Year Plan was from 1956 to 1961. Bhilai, Durgapur, and Rourkela steel plants were constructed during the Second Five Year Plan. Salem Steel Plant was not constructed during that period.
7. The report of Vijay Kelkar committee is related to which of the following?
[A] Trade Reforms
[B] Centre-State Financial Relations
[C] Disinvestment in Public Sector Enterprises
[D] Tax Reforms
Show Answer
Correct Answer: D [Tax Reforms]
Notes:
Impetus to direct tax reforms in India, came with the recommendations of the Task Force on Direct & Indirect Taxes under the chairmanship of Vijay Kelkar in 2002. The main recommendations of this task force related to the direct taxes related to increasing the income tax exemption limit, rationalization of exemptions, abolition of long term capital gains tax, abolition of wealth tax etc.
8. What does a decreasing agricultural sector share in GDP generally indicate for a country?
[A] The country is undergoing structural transformation toward a more industrial and service-based economy
[B] The country is becoming a developing nation
[C] The country is becoming less developed
[D] Agricultural production has completely stopped
Show Answer
Correct Answer: A [The country is undergoing structural transformation toward a more industrial and service-based economy]
Notes:
A declining share of agriculture in GDP usually means the economy is diversifying beyond farming. As countries develop, production shifts toward manufacturing and services, while agriculture’s relative contribution falls even if output may still rise in absolute terms. This pattern is commonly seen in economies undergoing structural change and modernization. Therefore, a decreasing agricultural sector share generally points to movement toward a more industrial and service-based economy.
9. 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.
10. Which among the following is an example of micro-economic variable?
[A] National Income
[B] Consumer’s Equilibrium
[C] Aggregate Supply
[D] Employment
Show Answer
Correct Answer: B [Consumer’s Equilibrium]
Notes:
Microeconomic variables are those patterns or elements that can be used to describe the behavior of a person or an individual economic unit, like a business. Eg. Consumer’s Equilibrium.
