GENERAL STUDIES

CSE Prelims Test Series (PTS): 2025

22th September, 2024 | Test-5 [Sectional Test]

Answer Key

1. (a) 21. (a) 41. (b) 61. (a) 81. (b)

2. (c) 22. (c) 42. (a) 62. (d) 82. (d)
3. (a) 23. (a) 43. (c) 63. (c) 83. (b)
4. (b) 24. (d) 44. (a) 64. (b) 84. (c)
5. (c) 25. (b) 45. (c) 65. (b) 85. (b)
6. (d) 26. (b) 46. (a) 66. (d) 86. (d)
7. (c) 27. (c) 47. (d) 67. (a) 87. (c)
8. (c) 28. (d) 48. (a) 68. (d) 88. (a)
9. (d) 29. (c) 49. (b) 69. (c) 89. (d)
10. (d) 30. (c) 50. (a) 70. (c) 90. (b)
11. (c) 31. (b) 51. (d) 71. (c) 91. (c)
12. (a) 32. (a) 52. (c) 72. (a) 92. (b)
13. (d) 33. (c) 53. (d) 73. (c) 93. (c)
14. (b) 34. (c) 54. (a) 74. (b) 94. (d)
15. (b) 35. (d) 55. (c) 75. (b) 95. (d)
16. (b) 36. (c) 56. (d) 76. (d) 96. (a)
17. (d) 37. (a) 57. (c) 77. (d) 97. (d)
18. (d) 38. (c) 58. (b) 78. (a) 98. (b)
19. (b) 39. (a) 59. (b) 79. (c) 99. (b)
20. (c) 40. (b) 60. (b) 80. (b) 100. (d)

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PTS Test Code: 01052209
PTS (GS):(GS):
CSE 2025 CSE 2025
Detailed Explanations

General Studies Sectional Test:

Test - M1T5 Economic, Social Development
and Current Affairs

1. (a) Statement 2 is not correct: Bonds have an

inverse relationship to interest rates. When
Statement 1 is correct: Public goods, as
interest rates rise, bond prices usually fall, and
distinct from private goods, are collectively vice-versa. Most bonds pay a fixed interest
consumed. It means that one person’s use does rate. If interest rates rise, investors won’t want
not reduce the availability of goods for others. the existing bonds with a lower fixed interest
This characteristic is referred to as “non- rate, and their prices will decline until their
rivalry” in public goods. yield matches that of new bond issues.
Statement 2 is correct: In case of private Statement 3 is correct: If the government
goods anyone who does not pay for the goods wants to borrow more, then it will have to issue
can be excluded from enjoying its benefits. more bonds, leading to an excess of bonds in
E.g. If you do not buy a ticket, you will not the bond market which will decrease the bond
be allowed to watch a movie at a local cinema prices and bond yield will go up.
hall. However, in case of public goods, there
3. (a)
is no feasible way of excluding anyone from
• About CPI and GDP Deflator: Consumer
enjoying the benefits of the good. That is why
Price Index (CPI) is the index of prices of
public goods are called non-excludable. Even
a given basket of commodities which are
if some users do not pay, it is difficult and bought by the representative consumer.
sometimes impossible to collect fees for the CPI is generally expressed in percentage
public good. terms. The ratio of nominal to real GDP is
Statement 3 is not correct: Public goods may a well known index of prices, called GDP
be produced by the government or the private Deflator.
sector. When goods are produced directly by • CPI (and analogously WPI) may differ
the government it is called public production. from GDP deflator because:
Statement 4 is correct: As there is no feasible ƒ The goods purchased by consumers do
way of excluding anyone from enjoying the not represent all the goods which are
benefits of the Public good, it makes it difficult produced in a country. GDP deflator
to collect fees for their use and private enterprise takes into account all such goods and
will in general not provide these goods. Hence, services. (Hence, Statement-II is
they must be provided by the government. correct and it explains Statement-I)
There is, however, a difference between ƒ CPI includes prices of goods consumed
public provision and public production. Public by the representative consumer, hence
provision simply means that they are financed it includes prices of imported goods.
through the budget and can be used without GDP deflator does not include prices of
any direct payment. imported goods. (Hence, Statement-
III is correct and it explains
2. (c) Statement-I)
Statement 1 is correct: In simple terms, bond ƒ The weights are constant in CPI – but
yield is the return an investor gets on a bond or they differ according to production
on a particular government security. level of each good in GDP deflator.

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 Economic, Social Development and Current Affairs : M1T5

• Hence, Both Statement-II and Option (b) is not the correct answer: The
Statement-III are correct and both of asset coverage ratio is a risk metric that
them explain Statement-I. measures a company’s ability to repay its debt
by liquidating its assets. It gives investors an
4. (b)
insight into the amount of assets needed by a
In India, between 1950 and 1990, the proportion
firm to meet its debt obligations.
of GDP contributed by agriculture declined
significantly but not the population depending Option (c) is not the correct answer: The
on it (67.5 per cent in 1950 to 64.9 per cent Capital Adequacy Ratio (CAR) is the ratio
by 1990). Why was such a large proportion of of a bank’s capital to its risk-weighted assets
the population engaged in agriculture although and current liabilities. Set by central banks and
agricultural output could have grown with much regulators, CAR aims to prevent commercial
less people working in the sector? The answer banks from taking on excessive leverage and
is that the industrial sector and the service risking insolvency..
sector did not absorb the people working in the Option (d) is the correct answer: The
agricultural sector. Many economists call this liquidity coverage ratio (LCR) refers to the
an important failure of our policies followed proportion of highly liquid assets held by
during 1950-1990. financial institutions, to ensure their ongoing
ability to meet short-term obligations. Hence
5. (c)
option (D) is the correct answer.
Statement I is correct : Inflation targeting
is a component of monetary policy in which 7. (c)
a central bank has an explicit target inflation About PPP and GDP at PPP: Purchasing power
rate. In India, the role of containing inflation is parity (PPP) is the exchange rate at which
assigned to the RBI. It adopts various tools of one nation’s currency would be converted
monetary policy to contain inflation like open into another to purchase the same and same
market operations, sterilization etc. Under the amounts of a large group of products. GDP
Monetary Policy Framework Agreement, the at PPP is gross domestic product converted to
RBI is responsible for containing inflation international dollars using purchasing power
targets at 4% (with a standard deviation of parity rates.
2%) in the medium term. Hence Statement I
Option (c) is the correct answer: Nominal
is correct.
GDP measures the total value of goods and
Statement II is not correct : The Central services produced in a country at current market
Government determines the inflation target in prices, , without adjusting for differences in
consultation with the RBI once every five years the cost of living between countries. Whereas,
under the RBI Act,1934(Section 45ZA(I)).
GDP at PPP adjusts for differences in the cost
Hence Statement II is incorrect.
of goods and services between countries to
6. (d) reflect their real value. If Country A has a lower
Option (a) is not the correct answer: Setting nominal GDP but a higher GDP at PPP than
aside money from profits to cover potential Country B, this suggests that while the overall
losses on loans is known as provisioning. The market value of goods and services (nominal
Provision Coverage Ratio (PCR) reflects the GDP) is lower in Country A, the cost of living
provisions made against bad loans from the (i.e., prices of goods and services) in Country
profits generated. A is also lower compared to Country B.

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8. (c) 4. Forex Swaps: Some central banks use

1 and 2 are correct: Under the GST regime, foreign exchange swaps for sterilisation
all imports are deemed as inter-State supplies as it helps postponement of creation of
for the purposes of levy of GST. IGST is liquidity generated by capital inflows and
leviable on imports in addition to other duties the consequent accretion to reserves.
of customs. 5. Cash Reserve Requirements: The use
Additional information: All exports are also of Cash Reserve Ratio (CRR) as a direct
deemed as inter-State supplies. Exports of method of monetary policy intervention
goods and services are treated as zero rated has the ability of sterilising liquidity by
supplies. The exporter has the option either raising the proportion of net demand and
to export under bond/Letter of Undertaking time liabilities (NDTL) of banks to be kept
impounded with the central bank.
without payment of tax and claim refund of
ITC or pay IGST by utilizing ITC or in cash 10. (d)
at the time of export and claim refund of IGST • Assets of Reserve Bank of India include:
paid. 1. Foreign Currency Assets
9. (d) 2. Gold Coin Bullion
Sterilization is a process used by the Reserve 3. Rupee Securities
Bank of India (RBI) to mitigate the impact of 4. Loans and Advances to the Central &
its actions in the foreign exchange market on State Governments, commercial and
the Indian Rupee’s liquidity. co-operative banks and others under
Option (d) is the correct answer: Some Reserve Bank of India Act, 1934.
existing instrument for sterilization of Forex 5. Bill Purchases and Discounted
inflows by Reserve Bank of India are as 6. Investment
follows: 7. Others Assets: It includes RBI’s fixed
1. Liquidity Adjustment Facility (LAF): assets like various Premises, furniture,
Over the past two years LAF has served as fittings, etc. at different centres, income
the primary means for day-to-day liquidity accrued but not received, Rupee
management through the absorption or Coins which are claims on the Issue
injection of liquidity by way of sale or Department, small coin which are
purchase of securities followed by their claims on the Government, Balances
repurchase or resale under the repo/reverse under various heads of expenditure
repo operations. such as charges account, agencies
2. Open Market Operations (OMO): The charges account etc.
main instrument of sterilisation used by the • Liabilities of Reserve Bank of India
Reserve Bank is Open Market Operations include:
(OMO). The Reserve Bank has conducted 1. Notes Issued
OMO for absorbing excess liquidity in the 2. Deposits: These represent the cash
system through outright sale of securities. balances maintained with the Reserve
3. Balances of the Government of India Bank by the Central and State
with the Reserve Bank: The surplus Governments, banks, all India financial
balances of the Government with the institutions, such as, Export Import
Reserve Bank effectively act as an Bank (EXIM Bank) and NABARD,
instrument of sterilisation. foreign central banks, international

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 Economic, Social Development and Current Affairs : M1T5

financial institutions, and the balance 13. d)

in different accounts relating to the Option (d) is the correct answer: Fiscal
Employees’ Provident Fund, Gratuity, consolidation describes government policy
and Superannuation Funds. intended to reduce deficits and the accumulation
3. Other Liabilities: Other liabilities of of debt.
the Reserve Bank include internal Additional information:
reserves and provisions of the Reserve • Fiscal stimulus: An attempt by a
Bank such as the Currency and Gold government to increase economic activity
Revaluation Account (CGRA), by reducing taxes, increasing government
Exchange Equalisation Account spending, or both.
(EEA), Contingency Reserve, and
• Quantitative Tightening: It refers to a
Asset Development Reserve. monetary tool adopted by central banks
11. (c) aimed at reducing liquidity within an
National Disposable Income = Net National economy
Product at market prices + Other current 14. (b)
transfers from the rest of the world. The idea Fiscal deficits are negative balances that arise
behind National Disposable Income is that it when government expenditure is more money
gives an idea of what is the maximum amount than its revenue during the fiscal year.
of goods and services the domestic economy
Statement 1 is not correct: A larger fiscal
has at its disposal. Current transfers from the
deficit means the government is borrowing
rest of the world include items such as gifts,
more, which decreases the funds available for
aids, etc.
private investments in the market and leads to
12. (a) higher interest rates. When the interest rates in
Statement 1 is correct : Regional Rural the economy increase, the bond yield also goes
Banks (RRBs) are financial institutions aimed up. Thus, bonds and debt funds will provide
at providing sufficient credit to agriculture and greater returns as bond prices rise.
other rural sectors. They were established based Statement 2 is correct: A higher fiscal deficit
on the recommendations of the Narasimham indicates more borrowing of the government.
Working Group in 1975 and the subsequent This will reduce the availability of money in
enactment of the Regional Rural Banks Act in the market for private investments and thus,
1976. increases the interest rates (given the market
principle of low money supply in wake of high
Statement 2 is not correct : The share capital
demand, increases the interest rate to reduce
of a regional rural bank is held by the Central
the monetary pressure).
Government, concerned State Government
and the Sponsor Bank in the proportion of Statement 3 is not correct: The government
50:15:35. also takes various measures like decreasing
the dearness allowance, rationalization of
Statement 3 is not correct : Regional
subsidies, increasing tax on petrol and diesel to
Rural Banks (RRBs) are included in priority
limit the increasing fiscal deficit.
sector lending, which encompasses loans
for agriculture, micro, small, and medium 15. (b)
enterprises, education, housing, weaker Statement 1 is correct: Indirect taxes are
sections, social infrastructure, and renewable levied on production and sale of commodities
energy. and services and small or a large part of the

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PTS (GS): CSE 2025

burden of indirect taxes are passed on to the of the committee is six members with the RBI
consumers. Governor as the chairman. The quorum to hold
Statement 2 is not correct: Indirect taxes a meeting of the committee is to have at least
are those whose burden can be shifted to four members present for the meeting.
others so that those who pay these taxes to the Statement 3 is correct: In the entire year, the
government do not bear the whole burden but MPC has to meet four times. Each member
pass it on wholly or partly to others. of the MPC has one vote, and in the event
Statement 3 is correct: Indirect taxes are of an equality of votes, the Governor has a
generally proportionate in nature. second or casting vote. Each Member of the
Statement 4 is not correct: Indirect taxes have Monetary Policy Committee writes a statement
a wide coverage as they affect all the sections specifying the reasons for voting in favour of,
of society. or against the proposed resolution.
18. (d)
Statement II is correct: In the first seven
Five year plans, trade strategy of India was
characterized by what is commonly called an
inward looking trade strategy. Technically,
this strategy is called import substitution.
16. (b) This policy aimed at replacing or substituting
About Monetisation of Budget Deficit: It is imports with domestic production. For
one of the ways of financing the budget deficit. example, instead of importing vehicles made
It is a two-step process where the government in a foreign country, industries would be
issues government bonds to cover its spending encouraged to produce them in India itself.
and the central bank purchases the bonds. The In this policy the government protected the
central bank holds the bonds until it matures. domestic industries from foreign competition.
Protection from imports took two forms: tariffs
Option (b) is the correct answer: Monetisation
and quotas. Tariffs are a tax on imported goods;
of the budget deficit leaves the system with
they make imported goods more expensive
an increased supply of high-powered money.
and discourage their use. Quotas specify the
As a result, in the case of monetisation of the
quantity of goods which can be imported. The
deficit, there is an increase in money supply
effect of tariffs and quotas is that they restrict
in the economy. Thus, monetisation of deficit
imports and, therefore, protect the domestic
can be inflationary. In view of the above, the
firms from foreign competition.
FRBM Act, 2003 prescribes that the Reserve
Bank of India should not buy government Statement I is not correct: Import substitution
bonds through primary issue, except under can indeed promote domestic industrialization,
exceptional circumstances. reduce dependence on foreign imports, and
create jobs, it is not always a highly effective
17. (d) strategy for achieving rapid economic growth
Statement 1 and Statement 2 are correct: and development. Import substitution can
The Monetary Policy Committee (MPC) was lead to inefficiencies, high costs, and a
constituted under the Section 45ZA of the RBI lack of competitiveness in global markets.
Act to combat and curb inflation. The MPC Additionally, it can hinder economic growth
determines the policy repo rate required to by limiting the benefits of international trade
achieve the inflation target. The composition and investment.

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 Economic, Social Development and Current Affairs : M1T5

19. (b) issued by IRDA, Nidhi companies, Chit

Statement 1 is not correct but Statement 3 companies, Housing Finance Companies
is correct: NBFCs lend and make investments regulated by National Housing Bank, Stock
and hence their activities are akin to that of Exchange or a Mutual Benefit company.
banks; however there are a few differences as 20. (c)
given below: Statement 1 is correct : A Domestic
• NBFC cannot accept demand deposits; Systemically Important Bank (D-SIB) refers to
• NBFCs do not form part of the payment a bank that is “too big to fail.” According to
and settlement system and cannot issue the RBI, some banks gain systemic importance
cheques drawn on itself; due to factors such as size, cross-jurisdictional
activities, complexity, and interconnections,
• deposit insurance facility of Deposit
with those having assets exceeding 2% of GDP
Insurance and Credit Guarantee
classified in this group. Therefore, statement 1
Corporation is not available to depositors
is correct.
of NBFCs, unlike in case of banks.
Statement 2 is correct : These are recognized
Statement 2 is correct: A Non-Banking by the Reserve Bank of India.
Financial Company (NBFC) is a company
Statement 3 is correct : As of now, RBI has
registered under the Companies Act, recognized HDFC Bank (Private sector), ICICI
1956 engaged in the business of loans and (Private Sector) and SBI (Public Sector) under
advances, acquisition of shares/stocks/ the category of D-SIBs. Hence statement 3 is
bonds/debentures/securities issued by correct.
Government or local authority or other
21. (a)
marketable securities of a like nature, leasing,
hire-purchase, insurance business, chit About Capital Expenditure: There are
business but does not include any institution expenditures of the government which result
in creation of physical or financial assets or
whose principal business is that of agriculture
reduction in financial liabilities.
activity, industrial activity, purchase or sale of
any goods (other than securities) or providing • 1 and 3 are correct: Capital Expenditure
includes expenditure on the acquisition
any services and sale/purchase/ construction of
of land, building, machinery, equipment,
immovable property.
investment in shares, and loans and
Statement 4 is not correct: In terms of Section advances by the central government to
45-IA of the RBI Act, 1934, no Non-banking state and union territory governments,
Financial company can commence or carry on PSUs and other parties.
business of a non-banking financial institution • 2 is not correct: Interest payments
without obtaining a certificate of registration on market loans is a type of revenue
from the RBI. However, in terms of the powers expenditure.
given to the RBI, to obviate dual regulation, • 4 is not correct: Borrowing by the
certain categories of NBFCs which are Government from the market is part of
regulated by other regulators are exempted capital receipt and not capital expenditure.
from the requirement of registration with • 5 is not correct: Grants given by the central
RBI viz. Venture Capital Fund/Merchant government to state governments and other
Banking companies/Stock broking companies parties are revenue expenditures(even
registered with SEBI, Insurance Company though some of the grants may be meant
holding a valid Certificate of Registration for creation of assets).

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22. (c) China and Southeast Asia. It is known for

Direct taxes are those taxes whose burden its loud human-like whistling song at dawn
cannot be shifted to others and the person who and dusk.
pays these to the government has to bear it • The Giant Shrike: The Giant Shrike
are called direct taxes. In other words direct is a bird commonly found in the high
tax is imposed on an individual or a group of altitude regions of China. In a first record
individuals, which affects them directly i.e, of its sighting in India,it was sighted near
which they have to pay to the government Tawang in Arunachal Pradesh. With the
directly. sighting, the bird has been added to the
Option (c) is the correct answer: Example of avian checklist in the country.
Direct Taxes are- 24. (d)
• Income tax Statement 1 is not correct: Revenue receipts
• Corporation tax (Or Corporate tax) are those receipts that do not lead to a claim
• Minimum Alternate Tax on the government. They are therefore termed
• Wealth tax (abolished in India since non-redeemable.
2016) Statement 2 is not correct: Capital receipts
• Gift tax (abolished in India since 1998) either increase the government liability or
reduce assets for the government. On the
• Property tax
contrary, Capital expenditure either reduces
• Capital Gain Tax the government liability or creates assets for
• Dividend Distribution Tax the government.
• Securities Transaction Tax
25. (b)
23. (a) Psychic Income is the satisfaction that results
Option (a) is the correct answer: Blue from the ownership and utilisation of goods
magpie, White Common Sandpiper, Blue and services. It can also be defined as the
Whistling Thrush, Giant Shrike are species of satisfaction derived from real income. It is
birds. difficult to quantify psychic income in terms
• Blue magpie: Magpies belong to the of rupees. It is a form of hidden income. It
Corvidae family of birds that includes is intangible and subjective and the most
crows, jays and ravens.From Kashmir important in terms of quality of living.
to Myanmar, a few closely related blue 26. (b)
magpie species are a common sight. Statement 1 is not correct : The Marginal
• White Common Sandpiper: The Common Standing Facility (MSF), introduced in 2011,
Sandpiper bird is a small sandpiper with a allows scheduled commercial banks to borrow
rather long body and short legs. It is grey- additional overnight funds from the Reserve
brown above and white below, extending Bank, beyond the repo rate, by utilizing up to
up in a pointed shape between the wing and 2% of their SLR portfolio at a penal interest
the dark breast band.There is an indistinct rate (so, it is not without collateral). This
white supercilium (eyebrow) and white serves as a safety valve against unexpected
eye-ring. liquidity shocks.
• Blue whistling Thrush :The blue Statement 2 is correct : MSF is an additional
whistling thrush is a bird that is found in facility that allows banks to borrow rupee funds
the mountains of Central Asia, South Asia, from the RBI at a higher rate, using eligible

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 Economic, Social Development and Current Affairs : M1T5

collateral and dipping below the statutory SLR Among them, the name of the statistician,
up to a specified limit. MSF Rate = Repo Rate Prasanta Chandra Mahalanobis, stands out.
+ 0.25%. Planning, in the real sense of the term, began
with the Second Five Year Plan. The Second
27. (c)
Plan, a landmark contribution to development
Statement 1 is correct : The total liability of planning in general, laid down the basic ideas
the monetary authority of the country, RBI, regarding goals of Indian planning; this plan
is called the monetary base or high powered was based on the ideas of Mahalanobis. In that
money. sense, he can be regarded as the architect of
Statement 2 is correct : Components of Indian planning.
Reserve Money or High Powered Money :
Mahalanobis established the Indian Statistical
• Currency in Circulation: Currency in Institute (ISI) in Calcutta and started a journal,
Circulation includes notes in circulation, Sankhya, which still serves as a respected
rupee coins and small coins. forum for statisticians to discuss their ideas.
• Bankers’ Deposits with the RBI: Both, the ISI and Sankhya, are highly regarded
Bankers’ Deposits with the RBI represent by statisticians and economists all over the
balances maintained by banks in the current world to this day.
account with the Reserve Bank mainly for
maintaining Cash Reserve Ratio (CRR) and 30. (c)
as working funds for clearing adjustments. About regressive tax: This refers to taxes
• Other Deposits with the Reserve Bank: in which low-income owners pay a larger
Other Deposits with the Reserve Bank percentage of income than middle- and high-
for the purpose of monetary compilation income earners. The tax burden decreases
includes deposits from foreign central with regressive taxes as income rises. This is
banks, multilateral institutions, financial in contrast to a progressive tax that takes a
institutions and sundry deposits net of IMF. larger percentage from high-income earners.
28. (d) Most of the Indirect Taxes are regressive in
nature as they affect people with low incomes
A bank run occurs when many customers
more severely than those with higher incomes
withdraw their deposits simultaneously due to
fears that the bank may run out of reserves. As because they’re applied uniformly to all
more people withdraw funds, the likelihood situations regardless of the taxpayer.
of the bank defaulting increases, prompting 1 and 2 are correct: Common forms of
even more withdrawals. This panic can lead regressive tax include sales tax, excise tax, and
to a situation where the bank’s reserves are payroll tax.
insufficient to cover all requests. In such cases, • Excise Duty: Excise duty is a form of
the RBI acts as a guarantor, extending loans to indirect tax that is levied by the Central
maintain the solvency of banks. This assurance Government of India for the production,
helps reassure account holders that their banks sale, or license of certain goods. It is
can meet their obligations during a crisis, thus
regressive in nature as it’s the same for
preventing panic and avoiding bank runs. This
everyone regardless of income. This is
function of the RBI is known as the “lender of
especially true for products consumed
last resort.”
by low-income individuals because
29. (c) these earners are likely to spend a larger
Many distinguished thinkers contributed to proportion of their income on taxed goods
the formulation of India’s five year plans. than high-income earners.

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• Sales Tax: A sales tax is a consumption Thus it is a short term lending facility. If the
tax imposed by the government on the WMA exceeds 90 days, it would be treated as
sale of goods and services. Since the tax is an overdraft (interest rate on overdrafts is 2
the same for all, the person with the lower percentage points more than the repo rate).
income pays a higher percentage of their Statement 2 is not correct: The Ways and
income, making the tax regressive. Means Advances scheme was introduced
• Commodities Transaction Tax (CTT): in 1997. It is a loan facility provided by the
Commodity Transaction Tax (CTT) is a RBI to the Central government and state
tax imposed by the Indian government governments.
on transactions executed on commodity Statement 3 is correct: The WMA scheme
exchanges. It is a form of Direct Tax and seeks to meet temporary mismatches in the
is not regressive in nature. receipts and payments of the government.
31. (b) The limits for Ways and Means Advances are
decided by both the government and RBI on a
Statement 1 is NOT correct: A swell wave
mutual basis and revised periodically.
is the formation of long wavelength waves on
the surface of the seas. These are composed of 33. (c)
a series of surface gravity waves. Option (c) is the correct answer: Land
• Swell waves are formed by an ocean reforms were not implemented uniformly
swell which occurs not due to the local across all states of India. Land reforms were
winds, but rather due to distant storms like successful in Kerala and West Bengal because
hurricanes, or even long periods of fierce these states had governments committed to
gale winds. the policy of land to the tiller. Unfortunately
• During such storms, huge energy transfer other states did not have the same level of
takes place from the air into the water, commitment and vast inequality in landholding
leading to the formation of very high continues to this day.
waves. Such waves can travel thousands of Option (a): Abolition of intermediaries meant
kilometers from the storm center until they that some 200 lakh tenants came into direct
strike shore. contact with the government — they were thus
• In contrast, tsunamis are a sequence freed from being exploited by the zamindars.
of immense waves typically caused by The ownership conferred on tenants gave
undersea seismic activity, most commonly them the incentive to increase output and this
earthquakes near or beneath the ocean contributed to growth in agriculture.
floor. Option (b): Land ceiling was a policy to
Statement 2 is correct: Tsunamis are around promote equity in the agricultural sector.
10 times faster than swell waves. Although This means fixing the maximum size of land
both swell waves and tsunamis slow down near which could be owned by an individual. The
the coast, the latter hit land at 30–50 km/h. purpose of the land ceiling was to reduce
the concentration of land ownership in a few
32. (a) hands.
Statement 1 is not correct: The government Optition (d): The goal of equity was, however,
can avail immediate cash from the Reserve not fully served by abolition of intermediaries.
Bank of India, if required. But this money In some areas, the former zamindars continued
has to be returned within 90 days. Interest on to own large areas of land by making use of
this loan is charged at the existing repo rate. some loopholes in the legislation; there were

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 Economic, Social Development and Current Affairs : M1T5

cases where tenants were evicted and the other exceptional circumstances as the Central
landowners claimed to be self cultivators (the Government may specify.
actual tillers), claiming ownership of the land; Statement 3 is correct: According to section
and even when the tillers got ownership of 3(2) of the FRBM Act, 2003, the Central
land, the poorest of the agricultural laborers Government shall lay before both Houses
(such as sharecroppers and landless laborers) of Parliament a Medium-term Fiscal Policy
did not benefit from land reforms. Statement along with the annual financial
34. (c) statement and the demands for grants. The
Medium-term Fiscal Policy Statement shall set
The Liquidity Adjustment Facility (LAF) is a
forth a three-year rolling target for four fiscal
monetary policy tool used by the Reserve Bank
indicators: (i) revenue deficit as a percentage
of India to manage liquidity and signal interest
of gross domestic product; (ii) fiscal deficit as
rates to the market. It helps banks address
a percentage of gross domestic product; (iii)
daily liquidity mismatches and consists of
tax revenue as a percentage of gross domestic
two components: the repo rate and the reverse
product; and (iv) total outstanding liabilities as
repo rate. In a repo transaction, banks borrow
a percentage of gross domestic product.
from the RBI against government securities,
while in reverse repo, the RBI borrows from 36. (c)
banks by lending securities. All Scheduled Internal and Extra Budgetary Resources
Commercial Banks, including Regional Rural are financial liabilities in the form of loans
Banks, and Primary Dealers can participate in and equities that are raised by Public Sector
LAF auctions. Primary Dealers are registered Undertakings. It thus constitutes the resources
entities licensed by the RBI to trade government raised by the Public Sector Undertakings
securities. Hence (C) is the correct answer. through profits, loans and equity. They don’t
35. (d) form part of the Union budget. These also
go by the name “Off-budget borrowings.”
The enactment of the FRBMA, in 2003, marked
Off Budget Borrowings are those taken
a turning point in fiscal reforms, binding the
out by state-owned businesses to finance
government through an institutional framework
government programmes but which are not
to pursue a prudent fiscal policy.
included in the official budget calculations.
Statement 1 is correct: According to section
Even though they increase the total amount
5(2) of the FRBM Act, 2003, the Central
of government debt, these are not included in
Government shall not borrow from the Reserve
calculations of the fiscal deficit.
Bank of India except by way of advances to
meet temporary excess of cash disbursement 37. (a)
over cash receipts, in accordance with the Statement 1 is correct : According to the
provisions of section 17(5) of the Reserve Reserve Bank of India guidelines for licensing
Bank of India Act, 1934. payments banks, the primary goal is to enhance
Statement 2 is correct: As per the FRBM financial inclusion. This is achieved by offering
Act 2003, RBI could subscribe to primary small savings accounts, payment services, and
issues of Central Government securities only remittance options to migrant workers, low-
up to 31st March 2006. At present, RBI can income households, small businesses, and
not subscribe to primary issues of Central other users in the unorganized sector.
Government securities except on grounds of Statement 2 is correct : A payments bank is
national security or national calamity or such not permitted to offer loans or issue credit cards,

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PTS (GS): CSE 2025

as these are considered forms of unsecured refers to the difference between revenue
personal loans. receipts and revenue expenditure. Prior to
Statement 3 is not correct : A Payments Bank 2011, the accounting system classified all
can accept demand deposits, issue ATM/debit grants from the Union Government to state
cards and prepaid payment instruments (PPIs), governments and other bodies as revenue
provide remittance services (including cross- expenditure, even when used to create assets.
border), and offer internet banking. It can also These assets, owned by the state governments,
engage in non-risk-sharing financial services contribute to economic growth and should not
like distributing mutual funds, insurance, and be viewed as unproductive. In the 2011-12
pension products, as well as handling bill budget, a new methodology was introduced to
payments. However, it cannot accept NRI calculate the “effective revenue deficit,” which
deposits or operate as a “virtual” or branchless excludes revenue expenditures made as grants
bank. for capital asset creation.
Pair 2 is not correctly matched : Primary
38. (c)
deficit is the difference between the current
A Pigovian tax is a way of discouraging year’s fiscal deficit and the interest paid on
negative externalities or activities that borrowings from the previous year. It reflects
impose a cost on third parties and society. the government’s borrowing needs excluding
• 1 is correct: One of the most widespread interest payments.
Pigovian taxes is the carbon emissions tax, Pair 3 is correctly matched : Monetised
as it is designed to address the negative deficit, also referred to as “net reserve bank
externalities of carbon emissions, which credit to the government,” represents the
contribute to climate change. portion of the government deficit financed
• 2 is not correct: Taxes on luxury goods exclusively through borrowing from the RBI.
are generally not classified as Pigouvian This includes both short-term and long-term
because their purpose is not to address borrowings. Consequently, the monetised
market failures or negative externalities. deficit is the total of the net issuance of short-
Instead, these taxes are primarily term treasury bills, dated securities (long-term
intended for revenue generation or wealth borrowing), and rupee coins held by the RBI,
redistribution. minus the government’s deposits with the RBI.
• 3 is correct: Sin Tax or taxes on “sin” 40. (b)
items like tobacco, alcohol, etc, can also As per the structure of GST in India, credits of
be construed as Pigovian taxes. This is input taxes paid at each stage will be available
because they discourage behavior that can in the subsequent stage of value addition. This
not only harm the individual user but also makes GST essentially a tax only on value
have damaging effects on others. Second- addition at each stage.
hand smoke is an obvious example, but so
Statement 1 is not correct: The input tax
is the financial burden on the healthcare
credit of CGST is available for discharging
system from smokers who become ill with
the CGST liability on the output at each stage.
cancer or emphysema.
Similarly, the credit of SGST paid on inputs
39. (a) is allowed for paying the SGST on output. No
Pair 1 is not correctly matched : The term cross utilization of credit is permitted.
“Effective Revenue Deficit” was introduced Statement 2 is correct: Cross utilization of
in the Union Budget 2011-12. Revenue deficit credit of CGST between goods and services

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 Economic, Social Development and Current Affairs : M1T5

is allowed. Similarly, the facility of cross 43. (c)

utilization of credit will be available in case of Central Government Liabilities constitutes the
SGST. three categories: (a) Internal debt, (b) External
debt, and (c) Public Account Liabilities. Public
41. (b)
debt in India includes only that debt which
Statement 1 is not correct: Both SDF and
is contracted against the Consolidated Fund
Reverse repo are tools of RBI to absorb excess
of India. Hence, it includes only Internal
liquidity. In 2018, the amended Section 17 of and External Debt incurred by the Central
the RBI Act empowered the Reserve Bank Government. Whereas, the Public Account
to introduce the SDF – an additional tool for Liabilities are grouped under the “other
absorbing liquidity without any collateral. SDF liabilities”.
will replace the fixed rate reverse repo (FRRR)
as the floor of the liquidity adjustment facility 44. (a)
corridor. Option (a) is the correct answer: Real
Statement 2 is correct: Unlike the FRRR, Gross Domestic Product measures the value
which typically operates through auctions of all goods and services produced within the
conducted on specific days, the SDF is an economy, adjusted for inflation. If we compare
“ontap” facility. This means banks can deposit using Nominal GDP (which doesn’t adjust for
inflation) across years, we might see an increase
funds into the SDF at any time during business
that’s solely due to rising prices, not an actual
hours, offering them greater flexibility in
increase in the quantity of goods and services
managing their liquidity.
produced. Real GDP removes this price effect,
Statement 3 is correct: The SDF operates giving us a clearer picture of changes in the
without the need for collateral, such as real output of the economy.
government securities. This simplifies the
process for banks, eliminates potential 45. (c)
collateral shortages, and allows the RBI to KYC is the process of verifying customers’
absorb liquidity more efficiently identity and address before they can access
regulated financial products like shares, mutual
42. (a) funds, insurance, and banking. Currently,
Statement 1 is correct: Peer-to-peer lending customers must submit KYC each time they
is a direct alternative to a bank loan with the open a bank account, invest in mutual funds
difference that, instead of borrowing from a or stocks, or purchase life, health, or auto
single source, companies can borrow directly insurance. Financial institutions may also
from tens, sometimes hundreds, of individuals request customers to update their KYC details
who are ready to lend. P2P lending is also periodically. Thus, all the statements are
known as “social lending” or “crowd lending.” correct.
Statement 2 is correct: Reserve Bank of India 46. (a)
(RBI) has set a ₹50-lakh cap on the aggregate Pair 1 is not correctly matched: Recently
exposure of a lender to all borrowers across , The Sri Lankan Cabinet has approved the
all Non-Banking Financial Company – Peer renovation of Kankesanthurai Port in the
to Peer (NBFC-P2P) lending platforms at any Northern Province, with India agreeing to
point of time. cover the entire estimated cost.
Statement 3 is not correct: In India, peer- • This port is located in Jaffna near Point
topeer lending is regulated by the Reserve Pedro- the northernmost point in Sri
Bank of India (RBI). Lanka.

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• The port spans approximately 16 acres and • SMART is a next-generation missile-

is situated 104 km (56 nautical miles) from based light-weight torpedo delivery
Karaikal Port in Puducherry, India. system, designed and developed by the
• A direct ferry service operates between Defence Research and Development
Nagapattinam in Tamil Nadu and Organisation (DRDO)
Kankesanthurai, covering about 111 km • It will enhance the anti-submarine warfare
(60 nautical miles) in approximately three capability of the Indian Navy far beyond
and a half hours. the conventional range of lightweight
Pair 2 is correctly matched: La Cumbre is a torpedoes.
shield volcano on Fernandina Island in the
Statement 2 is correct:This canister-based
Galápagos Islands, Ecuador.
missile system consists of several advanced sub-
• It is the youngest and one of the most systems, namely two-stage solid propulsion
active volcanoes in the archipelago. The system, electromechanical actuator system,
island is known for its unique wildlife,
precision inertial navigation system etc.
including a significant population of rare
land iguanas that nest on the rim and within • The system carries an advanced light-
the volcano’s caldera. weight torpedo as payload along with a
parachute-based release system.
• Recent eruptions have caused lava flows
that have damaged the island’s endemic • The missile was launched from the ground
vegetation and the iguanas’ habitat, raising mobile launcher.
concerns among researchers monitoring 48. (a)
the situation
Among the given options, only Exports from
Pair 3 is not correctly matched: Recently,
Exclusive Economic Zones are included in
Satellite images have shown China building
the GDP. Gross Domestic Product measures
a road into the lower Shaksgam Valley. This
the aggregate production of final goods and
area faces the strategically important Siachen
services taking place within the domestic
glacier
economy during a year.
• Shaksgam Valley is part of Pakistan-
Occupied Kashmir (PoK) and Pakistan • Resale of goods: The resale of goods
ceded it to China in 1963, shortly after the doesn’t add new production to the
1962 India-China war. economy, therefore it is not included in the
• India’s Ministry of External Affairs GDP.
maintains that Shaksgam Valley is • Social security benefits: These are
Indian territory transfer payments from the government
• India rejects the 1963 China-Pakistan and don’t represent the production of
Boundary Agreement. The agreement is goods or services. Hence, it is not included
viewed by India as an unlawful attempt by in the GDP.
Pakistan to cede the area to China • Exports from Exclusive Economic
47. (d) Zones: An “exclusive economic zone,” or
“EEZ” is an area of the ocean, generally
Statement 1 is correct: Supersonic Missile-
extending 200 nautical miles (230 miles)
Assisted Release of Torpedo (SMART) system
beyond a nation’s territorial sea, within
was successfully flight-tested on May 01, 2024
from Dr APJ Abdul Kalam Island off the coast which a coastal nation has jurisdiction over
of Odisha. both living and nonliving resources

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 Economic, Social Development and Current Affairs : M1T5

49. (b) and this results in a downward sloping demand

• An allocation of the scarce resource of curve.
the economy gives rise to a particular 51. (d)
combination of different goods and services.
Gross Value Added (GVA) is the value of all
Given the total amount of resources, it
goods and services produced within a country
is possible to allocate the resources in
after deducting the value of intermediate goods
many different ways and, thereby, achieve
and services. On the other hand, GDP is the
different mixes of all possible goods and
market value of all the final goods and services
services.
produced within the boundary of a country.
• The collection of all possible
Statement 1 is correct: While GVA gives a
combinations of the goods and services
picture of the state of economic activity from
that can be produced from a given
the producers’ side or supply side, the GDP
amount of resources and a given stock
model gives the picture from the consumers’
of technological knowledge is called the
side or demand perspective.
production possibility set of the economy.
Statement 2 is correct: GVA is calculated at
50. (a) producers’ prices or basic prices. On the other
Statement 1 is correct: A demand curve is hand, GDP is calculated at purchasers’ prices
a graphic presentation of various quantities or market prices.
of a commodity that a consumer is willing to Statement 3 is correct: It is used to measure
buy at different prices of the same commodity the output or contribution of a particular sector.
while holding constant prices of other related When such GVAs from all sectors (∑ GVA)
commodities and the income of the consumer. are added together, adding taxes (product) and
As per the Law of Demand, there is a negative reducing subsidies (product), we can get the
relationship between the price of a commodity GDP (at market price).
and the quantity demanded. Thus, the demand • Thus, GDP at Market Prices = ∑ GVA
is a Demand Curve is downward sloping. at basic prices + product taxes – product
Statement 2 is correct: Marginal utility subsidies.
(MU) is the change in total utility due to
the consumption of one additional unit of 52. (c)
a commodity. The Law of Diminishing The Statutory Liquidity Ratio (SLR) requires
Marginal Utility states that the marginal utility all Scheduled Commercial Banks in India to
diminishes with an increase in consumption of maintain a percentage of their Net Demand
the commodity. This happens because having and Time Liabilities (NDTL) in their own
obtained some amount of the commodity, the holdings, which can include cash, government
desire of the consumer to have still more of it bonds, and gold. In contrast, the Cash Reserve
becomes weaker. Ratio (CRR) is the minimum fraction of total
Statement 2 explains Statement 1: An customer deposits that commercial banks must
explanation for a downward-sloping demand keep with the central bank.
curve rests on the notion of diminishing Statement 1 is correct : Since SLR assets
marginal utility. The law of diminishing are held by banks, they are easier to liquidate
marginal utility states that each successive compared to CRR assets, which banks cannot
unit of a commodity provides lower marginal easily access. Therefore, statement 1 is correct.
utility. Therefore the individual will not be Statement 2 is correct : Assets under CRR
willing to pay as much for each additional unit, do not earn interest, while banks can generate

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PTS (GS): CSE 2025

returns from assets under SLR. Therefore, • Need for Government Intervention:
statement 2 is correct. The level of employment and prices in
the economy is influenced by aggregate
53. (d)
demand, which is determined by the
• The Human Development Index (HDI) spending decisions of private individuals,
is a statistic developed and compiled by businesses, and the government. These
the United Nations since 1990 to measure spending decisions are shaped by various
various countries’ levels of social and factors like income and credit availability.
economic development. • Correcting Fluctuations in Employment
• The Human Development Index (HDI) and Income: Sometimes, aggregate
is a summary measure of average demand may fall short, leading to
achievement in key dimensions of human underutilization of labor and other
development: a long and healthy life, resources. In such cases, wages and prices
being knowledgeable and having a decent do not decrease sufficiently to restore
standard of living. employment automatically. This requires
government intervention to increase
• The health dimension is assessed by life
aggregate demand, helping to bring
expectancy at birth.
employment and income back to optimal
• The education dimension is measured by levels.
mean of years of schooling for adults
• Dealing with Excess Demand: Conversely,
aged 25 years and more and expected
when demand exceeds the economy’s
years of schooling for children of school
output capacity, especially under
entering age. conditions of high employment, inflation
• The standard of living dimension is can occur. In such cases, the government
measured by gross national income per may need to adopt restrictive policies
capita. to lower aggregate demand and control
Thus, it is composed of four principal areas inflation.
of interest: mean years of schooling, expected 56. (d)
years of schooling, life expectancy at birth, and
• About Postal ballot: It allows voters who
Gross National Income (GNI) per capita. cannot be physically present in polling
54. (a) stations to vote remotely, as specified in
Fiscal slippage is a situation where a Section 60 of the RPA. This method differs
from normal voting in three ways.
government’s actual fiscal performance
deviates from its planned or targeted fiscal ƒ Polling takes place outside the polling
targets, usually resulting in higher-than- station;
expected budget deficits, increased public debt, ƒ It takes place without EVMs (EDC
or a combination of both. voters are an exception — more on
them later);
55. (c)
ƒ Polling takes place before the designated
The stabilization function of the government poll poll date in the constituency.
refers to its role in managing the overall level • Option (d) is correct: As per Rule 18 of
of economic activity by adjusting aggregate The Conduct of Election Rules, 1961, the
demand to maintain stability in income, following classes of persons are entitled to
employment, and prices. vote by postal ballot:

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 Economic, Social Development and Current Affairs : M1T5

1. Special voters: Individuals holding Statement 3 is correct: Loss assets are those
declared office under Section 20(4) assets which are un-collectible and of such
of RPA, including the President, little value that its continuance as a bankable
Vice President, Governors, Cabinet asset is not warranted.
Ministers, other high-ranking 58. (b)
dignitaries, etc. and their spouses.
Statement 1 is correct: Final goods are those
2. Service voters: Members of the Indian that are bought for end use rather than for further
armed forces, paramilitary forces, an production. This category includes both capital
armed state police member serving goods, such as machinery and equipment used
outside their state, or a government in production, and consumer goods, like food
employee stationed abroad and their and clothing bought by individuals for personal
spouses residing with them. consumption.
3. Voters on election duty: This includes Statement 2 is not correct: Non-durable
all Commission’s observers, presiding consumer goods are goods that are used up
officers, polling officers and agents, or consumed in a short period, like food and
police personnel, and public servants fuel. They can be final goods too if they are
assigned official tasks on polling day. purchased for final consumption and not for
Private individuals and non-government further processing.
staff, such as videographers, control Statement 3 is not correct: Durable consumer
room staff, drivers, conductors, cleaners, goods are goods that last for a relatively long
helpline staff, etc., are also covered. period, like cars and appliances. While they
4. Electors subjected to preventive do depreciate, they are not considered capital
detention goods.
5. Absentee voters under Section 60 (c) Statement 4 is correct: Part of the final output
of RPA, 1951: In 2019, the Election that comprises capital goods is considered as
Commission created the ‘Absentee the Gross investment of the economy.
Voters’ category. This includes senior 59. (b)
citizens aged 85+ (AVSC), persons with
Lorenz curve is a graphical representation of
disabilities having at least 40% disability
the distribution of income or wealth within a
(AVPD), Covid-19 suspect or affected
population. Lorenz curves graph percentiles of
persons (AVCO), and persons employed the population against cumulative income or
in essential services (AVES). wealth of people at or below that percentile.
57. (c) 60. (b)
NPAs or Non-Performing Assets refer to the Statement 1 is not correct: The small finance
accrued money in the form of principal or banks are subject to all prudential norms and
interest amount that is not being paid back to regulations of RBI as applicable to existing
the bank as per the loan agreement. commercial banks including requirement of
Statement 1 is correct: Substandard Assets maintenance of Cash Reserve Ratio (CRR)
are NPAs where the principal or interest is and Statutory Liquidity Ratio (SLR).
overdue for less than 12 months. No forbearance would be provided for
Statement 2 is correct: Doubtful Assets are complying with the statutory provisions.
NPAs where the principal or interest is overdue Statement 2 is correct: The small finance
for 12 to 36 months. banks can extend 75 percent of its Adjusted

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Net Bank Credit (ANBC) to the sectors 7. Renewable Energy

eligible for classification as priority sector 8. Others
lending (PSL) by the Reserve Bank.
63. (c)
Statement 3 is not correct: Scope of activities
released by Reserve Bank of India mandates the About Market Stabilization Scheme (MSS): It
small finance bank shall primarily undertake is a monetary policy intervention by the RBI
basic banking activities of acceptance of aimed at withdrawing excess liquidity from the
deposits and lending to unserved and economy by selling government securities. It
underserved sections including small business was introduced in April 2004.
units, small and marginal farmers, micro Statement 1 is correct - MSS is used when
and small industries and unorganised sector there is high liquidity in the system.
entities. And there will not be any restriction in Statement 2 is correct - In MSS, the RBI
the area of operations of small finance banks. issues and sells government securities. The
61. (a) issued securities are government bonds and
they are called Market Stabilization Bonds
Option (a) is the correct answer: A cess is
(MSBs).
a tax levied for a specific purpose, such as
education or health. The proceeds from a cess 64. (b)
must be used for the particular purpose for • 1 is not correct: If the price of a substitute
which it was collected. Whereas, a surcharge good increases, consumers are likely to
is an additional charge or tax levied on an switch to the original good, leading to
existing tax. It is imposed for generating an increase in demand for the original
general revenue and does not need to be used good. This would shift the demand curve
for any specific purpose. rightward.
Additional information: The proceeds from • 2 is correct: If the price of a complementary
both cess and surcharge go entirely to the good increases, the demand for the original
central government and are not shared with good is likely to decrease. For example, if
states. the price of petrol increases, the demand
62. (d) for cars might decrease. This would shift
Priority Sector means those sectors which the the demand curve leftward.
Government of India and Reserve Bank of India • 3 is not correct: If consumer preferences
consider as important for the development of shift in favor of the good, demand for the
the basic needs of the country and are to be good increases, causing the demand curve
given priority over other sectors. The banks to shift rightward, not leftward.
are mandated to encourage the growth of such
65. (b)
sectors with adequate and timely credit.
Monopolistic competition exists when many
1, 2, 3, 4 and 6 are correct: Categories of
companies offer competing products or services
Priority Sector are as follows:
that are similar but not perfect substitutes.
1. Agriculture (Hence, statement 1 is correct)
2. Micro, Small and Medium Enterprises The barriers to entry in a monopolistically
3. Export Credit competitive industry are low, and the
4. Education decisions of any one firm do not directly
5. Housing affect its competitors. Competing companies
6. Social Infrastructure differentiate themselves based on pricing and

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 Economic, Social Development and Current Affairs : M1T5

marketing decisions. (Hence, statement 2 is to invest in new projects and expand their
not correct) operations
• In monopolistic competition, one firm 68. (d)
does not monopolise the market. Rather,
Based on principles of need, equity and
multiple companies can enter the market,
performance, the overall horizontal devolution
and all can compete for market share.
formula is as follows:
Companies do not need to consider how
their decisions influence competitors,
and each firm can operate without fear of
increasing competition.
Demand is highly elastic in monopolistic
competition and very responsive to price
changes. Consumers will change from one
brand name to another for items like laundry
detergent based solely on price increases.
(Hence, statement 3 is correct)
66. (d)
Period poverty describes the struggle many
low-income women and girls face while trying
to afford menstrual products. The term also
refers to the increased economic vulnerability
women and girls face due the financial burden
posed by menstrual supplies. These include
not only menstrual pads and tampons, but
also related costs such as pain medication and • Income distance: Income distance is
underwear. the distance of a state’s income from the
67. (a) state with the highest income. Income of
Expansionary monetary policy is a policy by a state has been computed as average per
monetary authorities to expand the money capita GSDP during the three-year period
supply and boost economic activity by keeping between 2016-17 and 2018-19. A state
interest rates low to encourage borrowing by with lower per capita income will have
companies, individuals and banks a higher share to maintain equity among
states.
• 1 is not correct: Lower interest rates make
investing in India less attractive for foreign • Demographic performance: The Terms
investors, leading to capital outflows and a of Reference of the Commission required
depreciation of rupee. to use the population data of 2011 while
making recommendations. Accordingly,
• 2 is not correct: Lower interest rates
the Commission used 2011 population data
discourage savings as the return on savings
for its recommendations. The demographic
decreases. People are more likely to spend
performance criterion has been used to
or invest their money when interest rates
reward efforts made by states in controlling
are low.
their population. States with a lower
• 3 is correct: Lower interest rates make fertility ratio will be scored higher on this
borrowing cheaper, encouraging businesses criterion.

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PTS (GS): CSE 2025

• Forest and ecology: This criterion has 71. (c)

been arrived at by calculating the share of • The invisible hand is a metaphor for the
the dense forest of each state in the total unseen forces that move the free market
dense forest of all the states. economy. Through individual self-
• Tax and fiscal efforts: This criterion has interest and freedom of production and
been used to reward states with higher tax consumption, the best interest of society,
collection efficiency. It is measured as the as a whole, are fulfilled. The constant
ratio of the average per capita own tax interplay of individual pressures on market
revenue and the average per capita state supply and demand causes the natural
movement of prices and the flow of trade.
GDP during the three years between 2016-
17 and 2018-19. • The term “invisible hand” first appeared in
Adam Smith’s famous work, The Wealth
69. (c) of Nations, to describe how free markets
The “State Finances: A Study of Budgets” is a can incentivize individuals, acting in
major source of disaggregated state-wise fiscal their own self-interest, to produce what is
data and provides an analytical discussion on societally necessary. The invisible hand is
the fiscal position of state governments. The part of laissez-faire, meaning the “let do/let
analysis, orientation, coverage and format of go,” approach to the market.
the report have been restructured periodically to 72. (a)
make it more informative and analytical. From
Context: Reserve Bank of India (RBI) has
2005-06 onwards, the report also incorporates allowed default loss guarantee (DLG), a
a special theme based on a specific issue of safetynet arrangement among banks, non-
relevance. It is published annually by the banking finance companies, and lending
Reserve Bank of India. service providers (LSPs, popularly known as
70. (c) fintech players) in the digital lending space.
DLG is also known as First Loss Default
About ICOR: ICOR is a metric that assesses
Guarantee (FLDG).
the marginal amount of investment capital
Option (a) is the correct answer: FLDG is
necessary for a country or other entity to
an arrangement whereby a third party such as
generate the next unit of production.
a financial technology (fintech) player (LSP)
Statement I is correct: A lower ICOR means compensates lenders if the borrower defaults.
that less capital investment is needed to The LSP provides certain credit enhancement
generate a unit of output. This indicates greater features such as first loss guarantee up to a
efficiency in capital utilization and leads to pre-decided percentage of loans generated
faster economic growth. by it. From the perspective of the fintechs,
Statement II is correct and correctly offering FLDG acts as a demonstration of its
explains Statement 1: lower ICOR means underwriting skills. From the perspective of
that for every additional unit of output, less the lender, it ensures the platform’s skin in the
investment is needed, which reflects better business. The step is expected to boost fintech
capital efficiency. This explains why a lower activity in the financial sector.
ICOR is considered beneficial. 73. (c)
Statement III is not correct: ICOR measures Option (c) is the correct answer: Angel Tax
the efficiency of capital utilization, not labor refers to the income tax payable on capital
productivity. raised by unlisted companies via the issue

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 Economic, Social Development and Current Affairs : M1T5

of shares where the share price is seen as and non-executive chairpersons on the
exceeding the fair market value of the shares. Boards of financial services institutions
The excess realization is treated as income and and for advising on certain other matters
taxed accordingly. This tax was introduced to relating to personnel management in these
combat money laundering through the transfer institutions.
of shares of unlisted companies at exorbitantly • The functions of the Bureau as outlined in
high prices, but it also impacts genuine the Clause 2 of the Government Resolution
investments in startups. are :-
74. (b) ƒ To recommend persons for appointment
• A Goldilocks economy describes an ideal as whole-time directors (WTDs) and
state for an economy whereby the economy non-executive chairpersons (NECs) on
is not expanding or contracting by too the Boards of Directors in Public Sector
much. It has the following characteristics: Banks, financial institutions and Public
• Moderate growth and low inflation: The Sector Insurers
economic growth is neither too high to ƒ To advise the Government on matters
trigger inflation and nor too low for a relating to appointments, transfer
slowdown. In simple terms, in a goldilocks or extension of term of office and
scenario, the economy is not expanding by termination of services of the said
a huge margin with inflation or shrinking directors.
into recession.
77. (d)
• Low unemployment: The unemployment
Indexation is the process of adjusting the
rate in the economy is low
original purchase price of an asset or investment
75. (b) in order to neutralize the impact of inflation
Statements 1 and 2 are correct: The Index on it. Put simply, it involves revising upward
of Industrial Production (IIP) is an index for the cost of acquisition of an asset based on
India that details the growth of various sectors the inflation over the period for which it was
in an economy, such as mining, electricity and held. Inflation reduces the value of money over
manufacturing. The all-India IIP is a composite time, and therefore, when an asset is sold or
indicator that measures the short-term changes an investment is redeemed, indexation helps
in the volume of production of a basket of in arriving at the cost of acquisition with the
industrial products during a given period with impact of inflation over the holding period
respect to that in a chosen base period. factored in.
Statement 3 is NOT correct: It is compiled 78. (a)
and published monthly by the Central
Both statements are correct and Statement II
Statistical Organisation (CSO) six weeks after
explains Statement I: The Statutory Liquidity
the reference month ends. The base year is
Ratio (SLR) is the ratio of Net Demand and
2004-2005.
Time Liabilities that banks must maintain in
76. (d) liquid assets and securities, as mandated by
• Financial Services Institutions Bureau the Reserve Bank of India (RBI). A reduction
has been constituted effective from July in SLR will leave more funds in the hands of
01, 2022, by the Central Government for banks, which can be used for lending purposes.
the purpose of recommending persons As the interest earned on these additional funds
for appointment as whole-time directors will bring in greater profits for the banks, the

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PTS (GS): CSE 2025

banks may choose to cut their lending rates to Capital receipts: Those receipts of the
pass on the benefits to the borrowers. government which either creates liability
or reduces the assets (physical or financial)
79. (c)
are called capital receipts. The main items
The Union Budget has three sets of data for of capital receipts are loans raised by the
every concerned sector or sub-sector of the government from the public (market
economy. borrowings), borrowing by the government
• 1 is correct : If the budget is being from the RBI, commercial banks and other
presented for the year 2024-25, the financial institutions through the sale of
preceding year will be 2022-23, and the government securities (treasury bills/dated
budget will provide the final or actual data securities), loans received from foreign
for the year 2022-23. governments and international organizations,
• 2 is correct : Since the Budget for the and recovery of loans previously granted
year 2024-25 is presented at the end of the by the central government. It also includes
fiscal year 2023-24, it provides Provisional small savings schemes (Post office savings
Estimates (PE) for the current year, i.e., accounts, National Savings Certificates etc.),
2023-24. Provident Funds and net receipts obtained
• 3 is correct : The Budget also includes the from the sale of shares in PSUs (disinvestment).
Budgetary estimates (BE) for the following 81. (b)
year, i.e. one year after the year in which
Statement 1 is correct: The Marrakesh
the Budget is being presented or the year
Agreement establishing the World Trade
for which the Budget is being presented,
Organization was signed by 123 countries on
i.e., 2024-25.
15 April 1994, leading to the birth of the WTO
80. (b) on 1 January 1995. (30 years completion of
Only Pair 1 and Pair 4 are correctly The Marrakesh Agreement)
matched. Statement 2 is correct but not correct
Revenue receipts: Those receipts of the explanation of statement 1: The World
government which neither creates a liability Trade Organization (WTO) is the only global
for the government nor reduces the assets international organization dealing with the
(physical or financial) of the government are rules of trade between nations.
called revenue receipts.Revenue receipts can 82. (d)
be of two types: Statement 1 is not correct: The Marginal
• Tax Revenues consist of direct and indirect Cost of Funds Based Lending Rate (MCLR)
taxes of the central government. is the minimum interest rate at which a bank
• Non-Tax Revenue consists of interest can lend, with exceptions allowed by the RBI.
receipts on account of loans given by the It serves as an internal benchmark for banks,
central government, dividend and profits determining the minimum loan interest rate
on investments made by the central based on the marginal cost of raising additional
government (i.e., PSUs), fees and fines funds for borrowers.
and other receipts for services rendered by Statement 2 is not correct: The MCLR
the government like passport fees etc. Cash methodology for setting loan interest rates
grants-in-aid from foreign countries and was introduced by the Reserve Bank of
international organizations are also part of India on April 1, 2016. This methodology is
the non-tax revenue determined by the RBI, not individual banks,

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 Economic, Social Development and Current Affairs : M1T5

which calculate their MCLR using the same 85. (b)

framework. • 1 is correct: As the “banker to banks,”
83. (b) the RBI holds the reserves of commercial
banks and facilitates interbank transfers
• 1 is correct: Bank nationalization aimed
to promote financial inclusion and extend and settlements through its clearing and
banking services to underserved areas, payment systems.
particularly in rural India. • 2 is correct: As banker of banks, RBI
• 2 is correct: Before nationalization, a few Reserve Bank provides short-term loans
private players controlled the banking and advances to select banks, when
sector, and nationalization aimed to reduce necessary, to facilitate lending to specific
this concentration of economic power and sectors and for specific purposes.
ensure that banking served the needs of a • 3 is not correct: Interest rates on savings
broader section of society. accounts offered by banks are not directly
• 3 is not correct: Controlling NPA was regulated by RBI. RBI only sets policy
not a primary objective of nationalization. rates like Repo which indirectly impacts
In fact, NPAs became a significant issue the interest rates offered by banks.
in later years after nationalization, partly
86. (d)
due to directed lending practices after
nationalization. Statement 1 is correct: Increment in the debt-
to-GDP ratio will lead to increase in debt. Thus,
• 4 is not correct: Profitability was not
the revenue is less than expenditure, which will
the primary focus of nationalization. The
lead to an increase in the deficit. Traditionally,
main goals were social and economic
it has been argued that when a government
development
cuts taxes and runs a budget deficit, consumers
84. (c) respond to their after -tax income by spending
Context: Recently, The Atlanta-based Centre more. It is possible that these people are short-
for Disease Control has advised people to sighted and do not understand the implications
desist from consuming uncooked dairy food of budget deficits.
products such as raw, unpasteurised milk, or Statement 2 is correct: Any increase in the
raw cheeses from animals with suspected or debt-to-GDP ratio, will lead to increment in
confirmed H5N1 bird flu virus infection. the borrowing portions of the public entities,
Statement 1 is correct: H5N1 also known here, government. Hence, in the budget, there
as avian influenza, or bird flu causes a highly will be substantial increment in the revenue
contagious respiratory illness in birds expenditure, especially, the component of
• It is spread from wild birds to domestic increase in interest payment.
poultry and other bird and animal species Statement 3 is correct: Any further repayment
through bird droppings. of loans in the future will require an increase
Statement 2 is correct: Avian influenza, which in the taxes to enhance the revenue receipts.
usually spreads in birds but can sometimes Therefore, any increase in the tax will lead to a
spread to humans. Even while no case of H5N1 decrease in disposable income.
infection in humans has been reported after
consuming raw milk, scientists believe that the 87. (c)
virus can be transmitted via an infected cow’s This distinction between direct and indirect
milk that has not been pasteurized monetary instruments can operate in two ways:

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PTS (GS): CSE 2025

1. Direct instruments set or limit either prices The remittance facility under the Scheme is not
(interest rates) or quantities (credit) through available for the following:
regulations, while indirect instruments • Remittance for any purpose specifically
operate through the market by influencing prohibited under Schedule-I (like
underlying demand and supply conditions; purchase of lottery tickets/sweep stakes,
2. Direct instruments in the form of credit proscribed magazines, etc.) or any item
ceilings are mainly aimed at the balance restricted under Schedule II of Foreign
sheets of the commercial banks, while Exchange Management (Current Account
most indirect instruments are aimed at the Transactions) Rules, 2000.
balance sheet of the central bank. • Remittance from India for margins or
Statement I is correct: Cash Reserve Ratio margin calls to overseas exchanges /
(CRR) is considered a direct instrument of overseas counterparty.
Monetary Policy and being a direct instrument • Remittances for purchase of FCCBs issued
it immediately impacts the system liquidity. by Indian companies in the overseas
Statement II is not correct: Indirect secondary market
instruments (not direct) are tools of monetary • Remittance for trading in foreign
policy that operate through the market by exchange abroad.
influencing underlying demand and supply • Capital account remittances, directly or
conditions. indirectly, to countries identified by the
Financial Action Task Force (FATF)
88. (b)
as “non- cooperative countries and
Statement 1 is not correct: Scheduled banks territories”, from time to time
typically have a higher capital adequacy ratio
• Remittances directly or indirectly to
requirement compared to non-scheduled
those individuals and entities identified as
cooperative banks. This ensures greater
posing significant risk of committing acts
financial stability.
of terrorism as advised separately by the
Statement 2 is correct: Scheduled cooperative Reserve Bank to the banks.
banks gain the privilege of directly borrowing
funds from the Reserve Bank of India (RBI) 90. (b)
through the repo window. This allows them to Statement 1 is correct: PACS constitute
manage liquidity more effectively. the lowest tier of the short-term cooperative
Statement 3 is not correct: Scheduled banks credit structure at village level. Short-term
don’t necessarily enjoy relaxed provisioning rural credit co-operatives comprise of state
co-operative banks (StCBs) at the state level,
norms for bad loans. RBI regulations on bad
district central co-operative banks (DCCBs) at
loan provisioning apply to both scheduled and
the district level and primary agricultural credit
non-scheduled banks
societies (PACS) at the village level.
89. (d) Statement 2 is correct: Primary Agricultural
Under the Liberalised Remittance Scheme, Credit Societies (PACS) and long-term co-
all resident individuals, including minors, are operatives are outside the purview of the
allowed to freely remit up to USD 2,50,000 Banking Regulation Act, 1949, and hence
per financial year for any permissible current not regulated by RBI. Primary Agricultural
or capital account transaction or a combination Credit Societies (PACS) are regulated by the
of both. respective State Governments.

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 Economic, Social Development and Current Affairs : M1T5

Statement 3 is not correct: PACs are 93. (c)

refinanced by NABARD through District Rules and laws which were aimed at regulating
Central Cooperative Banks (DCCBs) and State economic activities became major hindrances
Cooperative Banks (StCBs) in growth and development. Liberalisation was
91. (c) introduced to put an end to these restrictions
and open up various sectors of the economy.
Option (c) is the correct answer: Purchasing
Managers’ Index or PMI is an economic Statement 1 is correct: Industrial licensing
indicator, which is derived after monthly was abolished for almost all but product
categories — alcohol, cigarettes, hazardous
surveys of different companies. The index helps
chemicals, industrial explosives, electronics,
in determining whether the market conditions,
aerospace and drugs and pharmaceuticals. The
as seen by purchasing managers, is expanding,
only industries which are now reserved for the
contracting or staying the same. It is used to
public sector are defence equipments, atomic
provide information regarding the current and
energy generation and railway transport.
future business conditions.
Statement 2 is correct: In 1991, as an
• PMI is one of the closely watched indicators
immediate measure to resolve the balance of
of business activity and helps in predicting
payments crisis, the rupee was devalued against
the economic health of a country.
foreign currencies. This led to an increase in
• The index shows trends in both the the inflow of foreign exchange. It also set the
manufacturing and services sector. tone to free the determination of rupee value in
Thus, there are two types of PMI — the foreign exchange market from government
Manufacturing PMI and Services PMI. control.
• A combined index is also made using both Statement 3 is correct: Import licensing
manufacturing PMI and services PMI. was abolished except in case of hazardous
92. (b) and environmentally sensitive industries.
Statement I is correct : Section 18 of the Quantitative restrictions on imports of
RBI Act, 1934 allows the RBI to function as manufactured consumer goods and agricultural
a “Lender of Last Resort.” Walter Bagehot, in products were also fully removed from April
his 1873 book “Lombard Street,” argued that 2001.
central banks should lend freely to the banks 94. (d)
during crises to prevent panics, a principle About Chir Pine trees: The chir pine trees
known as Bagehot’s dictum. This suggests they are occasionally blamed for forest fires in the
should provide loans against quality collateral hill state during summers.While the bark of the
at a high interest rate during emergencies. tree doesn’t catch fire easily as it has a very
Statement II is correct : The RBI offers “Ways high ignition temperature, the needles and
and Means Advances” (WMA), a temporary resin-filled cones of the chir pines do.
loan facility for central and state governments • Forest fires mostly occur during the pre-
to address short-term cash mismatches. This monsoon summer season when there is a
90-day loan must be repaid after the term, lot of moisture in the area due to snowmelt
with interest charged at the repo rate. WMA water.
limits are set collaboratively by the RBI and • Pinus roxburghii commonly known as
the Government of India. long-leaved pine or chir pine is one of the
However, Statement II is not the correct most important conifers in the Himalayan
explanation for Statement I region , which moulds the life of various

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PTS (GS): CSE 2025

ethnic and other communities of the region. policies of the Government from a gender
It is distributed in the mountainous areas perspective
between 600-2300 m elevation over Statement 3 is correct: Gender Budget has
Statement 1 is not correct: They are native to been made a part of Union Budget of India
the Himalayas and were not introduced to the since 2005-06 that entails fund allocation
Himalayas by the British, as is often believed, towards programmes/schemes dedicated to
though they certainly gave it preference for its women.
commercial use, mainly lumber and resin
97. (d)
Statement 2 is not correct: It is distributed
in the Himalayan mountainous areas (both Statement 1 and 3 are correct: Under
western and eastern) between 600-2300 strategic sector, Bare minimum presence of the
m elevation over Bhutan, Uttarakhand, public sector enterprises will be maintained
Kashmir, Nepal, Pakistan, Sikkim, and and remaining to be privatized or merged or
southern part of Tibet. subsidiarized with other CPSEs or closed.
Following 4 sectors come under strategic
95. (d) sector:
Statement 1 is NOT correct: The
• Atomic energy, Space and Defence
International Court of Justice, which has its
• Transport and Telecommunications
seat in The Hague, is the principal judicial
organ of the United Nations. The International • Power, Petroleum, Coal and other minerals
Criminal Court (ICC), on the other hand, is not • Banking, Insurance and financial services
an organ of United Nation. Statement 2 is correct: In non-strategic
Statement 2 is NOT correct:.International sector, CPSEs will be privatised, otherwise
Court of Justice primary deals with disputes shall be closed.
between states. Whereas, ICC primarily
98. (b)
adjudicates cases involving individuals.
Statement 3 is NOT correct: India is a Legal Tender is a coin or a banknote that is
member of The International Court of Justice legally tenderable for discharge of debt or
while it is not a member of The International obligation.
Criminal Court (ICC) 1 and 2 are not correct: Cheques and demand
drafts are not legal tenders.
96. (a)
3 is correct: Fifty paise (half rupee) coin are
Statement 1 is correct: The focus of Gender
legal tender for any sum not exceeding ten
Budgeting is to assess how public spending
rupees
affects men and women differently and to
ensure that government policies and budgets Other legal tenders are as follows:
address the specific needs and inequalities • Coin of any denomination not lower than
faced by women. one rupee shall be legal tender for any sum
Statement 2 is not correct: Gender Budget not exceeding one thousand rupees
is not a separate Budget and also not about • Every banknote issued by Reserve Bank of
spending the same on women and men. Further, India (₹2, ₹5, ₹10, ₹20, ₹50, ₹100, ₹200,
it is not just about addressing programmes ₹500 and ₹2000), unless withdrawn from
targeted specifically at women and girls, and circulation, shall be legal tender at any
not confined to budgets alone. In short, Gender place in India in payment or on account for
Budgeting covers analyzing various economic the amount expressed

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 Economic, Social Development and Current Affairs : M1T5

99. (a) 100.(d)

Option (b) is the correct answer: Global Option (d) is the correct answer:
Minimum Tax is designed to set a minimum • Type of GST: IGST (Integrated Goods
corporate tax rate globally, preventing and Services Tax) is levied on interstate
multinational companies from shifting their supplies of goods and services. Since the
profits to countries with very low tax rates (tax transaction is between Maharashtra and
havens) to avoid paying higher taxes elsewhere Karnataka, it’s an interstate supply.
• Revenue sharing: The revenue is shared
between the Central Government and the
destination state (where the goods/services
are consumed). In this case, the revenue
will be shared between the Centre and
Karnataka.

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