UPSC IAS Archives

11. Consider the following : 1. Foreign currency convertible bonds 2. F

Consider the following :

1. Foreign currency convertible bonds
2. Foreign institutional investment with certain conditions
3. Global depository receipts
4. Non-resident external deposits

Which of the above can be included in Foreign Direct Investments?

1, 2 and 3

3 only

2 and 4

1 and 4

This question was previously asked in

UPSC IAS – 2021

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Foreign Direct Investment (FDI) refers to investment made by a firm or individual in one country into business interests located in another country. FDI involves a degree of management control or significant influence over the foreign enterprise. According to international standards and Indian regulations (like the classification by RBI/DPIIT), an investment is typically classified as FDI if a foreign investor acquires 10% or more of the equity shares of an Indian company. Based on this definition:
1. Foreign currency convertible bonds (FCCBs): While primarily debt instruments, they are convertible into equity. If converted, and the resulting equity holding is 10% or more, the investment originating from the FCCB can be classified as FDI.
2. Foreign institutional investment with certain conditions: Foreign Portfolio Investment (FPI), previously FII, is typically for portfolio diversification with less than 10% equity holding. However, if an FII/FPI invests with “certain conditions” implying the acquisition of 10% or more of the equity shares of an Indian company, it is reclassified and included under FDI.
3. Global depository receipts (GDRs): Similar to FCCBs, GDRs represent underlying equity shares of an Indian company listed abroad. If a foreign investor acquires GDRs leading to a 10% or more equity holding in the underlying Indian company, this investment can be treated as FDI.
4. Non-resident external deposits (NRE deposits): These are bank deposits held by non-resident Indians. They are financial liabilities of the banking system and do not represent equity investment or control in Indian companies. Therefore, they are not considered FDI.
Given the potential for 1, 2, and 3 to meet the FDI threshold based on the underlying equity acquisition and intent, they can be included in FDI under specific conditions, whereas 4 cannot.

FDI is primarily distinguished by the level of equity investment (typically >=10%) and the intent to gain control or significant influence, irrespective of the specific instrument used (equity shares, convertible instruments, etc.).

India’s foreign investment framework differentiates between FDI and FPI based primarily on the 10% equity holding threshold. FDI also includes reinvested earnings of foreign companies operating in India and inter-company debt between related entities.

12. Indian Government Bond Yields are influenced by which of the following

Indian Government Bond Yields are influenced by which of the following?

Actions of the United States Federal Reserve
Actions of the Reserve Bank of India
Inflation and short-term interest rates

Select the correct answer using the code given below.

1 and 2 only

2 only

3 only

1, 2 and 3

This question was previously asked in

UPSC IAS – 2021

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Indian Government Bond Yields are influenced by a multitude of factors, both domestic and international. The actions of the Reserve Bank of India (RBI), as the central bank, directly impact domestic interest rates through its monetary policy tools like the repo rate, reverse repo rate, and open market operations. These actions significantly shape the domestic yield curve. Inflation expectations play a crucial role, as bond investors demand higher yields to compensate for the loss of purchasing power due to rising prices. Short-term interest rates set by the RBI influence the short end of the yield curve, and expectations about future RBI actions affect longer-term yields. Furthermore, in an interconnected global economy, the actions of major central banks like the United States Federal Reserve have spillover effects. Changes in US interest rates and monetary policy influence global capital flows, investor sentiment towards emerging markets like India, and the relative attractiveness of Indian bonds compared to US Treasury bonds, thereby influencing Indian bond yields.

Bond yields are determined by the interplay of supply and demand for bonds, which is affected by monetary policy (domestic and international), inflation expectations, and overall economic conditions and risk perception.

Other factors influencing bond yields include government borrowing requirements (fiscal policy), credit rating of the sovereign, liquidity in the market, global economic outlook, and geopolitical events.

13. With reference to ‘Urban Cooperative Banks’ in India, consider the fol

With reference to ‘Urban Cooperative Banks’ in India, consider the following statements:

They are supervised and regulated by local boards set up by the State Governments.
They can issue equity shares and preference shares.
They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966.

Which of the statements given above is/are correct?

1 only

2 and 3 only

1 and 3 only

1, 2 and 3

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UPSC IAS – 2021

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The correct option is B. Statements 2 and 3 are correct, while statement 1 is incorrect.

– Urban Cooperative Banks (UCBs) are regulated and supervised by both the Reserve Bank of India (RBI) (for banking functions) and the Registrar of Co-operative Societies (RCS) of the concerned State (or Central RCS if multi-state) (for registration and management). They are not solely supervised and regulated by local boards set up by State Governments. Statement 1 is incorrect.
– UCBs are permitted to raise capital through various means, including the issue of equity shares to their members and other forms of capital instruments akin to preference shares or long-term deposits with equity features, as per regulations issued by RBI and the Registrar. Recent amendments to the Banking Regulation Act have enhanced their ability to raise capital. Statement 2 is correct.
– Certain provisions of the Banking Regulation Act, 1949, were extended to cooperative banks, including UCBs, through the Banking Laws (Application to Co-operative Societies) Act, 1965, which came into effect on March 1, 1966. This brought their banking operations under the purview of the RBI. Statement 3 is correct.

The dual regulation structure (RBI and RCS) has historically posed some challenges. The Banking Regulation (Amendment) Act, 2020, sought to bring UCBs more directly under RBI supervision concerning banking-related matters, while cooperative administration remains with the RCS.

14. Consider the following statements: Other things remaining unchanged, m

Consider the following statements:
Other things remaining unchanged, market demand for a good might increase if

price of its substitute increases
price of its complement increases
the good is an inferior good and income of the consumers increases
its price falls

Which of the above statements are correct?

1 and 4 only

2, 3 and 4

1, 3 and 4

1, 2 and 3

This question was previously asked in

UPSC IAS – 2021

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The correct option is A. Market demand for a good might increase if the price of its substitute increases or if its own price falls.

– 1. Price of its substitute increases: If the price of a substitute good (e.g., tea vs. coffee) increases, consumers will switch from the substitute to the original good (coffee), increasing the demand for the original good at every price. This causes a rightward shift in the demand curve. Statement 1 is correct.
– 2. Price of its complement increases: If the price of a complementary good (e.g., cars vs. petrol) increases, the total cost of consuming the bundle increases. This typically leads to a decrease in demand for both the complement and the original good (cars). This causes a leftward shift in the demand curve. Statement 2 is incorrect.
– 3. The good is an inferior good and income of the consumers increases: For an inferior good (e.g., cheap noodles), as consumer income increases, demand for that good decreases (consumers switch to normal goods). This causes a leftward shift in the demand curve. Statement 3 is incorrect.
– 4. Its price falls: According to the law of demand, if the price of a good falls, the quantity demanded increases. While this is technically a movement *along* the demand curve (not a shift of the curve which is typically meant by “increase in market demand”), in the context of competitive multiple-choice questions, “market demand… increase” is sometimes used more broadly to include factors that lead to more of the good being bought, which includes a price reduction. Given the options, this interpretation is likely intended. Statement 4 leads to an increase in the quantity demanded.

Factors causing a rightward shift in the demand curve (increase in demand) include increased price of substitutes, decreased price of complements, increase in consumer income (for normal goods), decrease in consumer income (for inferior goods), change in tastes favouring the good, increase in population, expectations of future price increases. A fall in the good’s own price increases the quantity demanded, representing a movement along the existing demand curve. However, option A which includes 1 and 4 is the only combination where both factors lead to more of the good being demanded/bought.

15. Which among the following steps is most likely to be taken at the time

Which among the following steps is most likely to be taken at the time of an economic recession?

Cut in tax rates accompanied by increase in interest rate

Increase in expenditure on public projects

Increase in tax rates accompanied by reduction of interest rate

Reduction of expenditure on public projects

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UPSC IAS – 2021

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The correct option is B. Increasing expenditure on public projects is an expansionary fiscal policy typically used to stimulate the economy during a recession.

– During an economic recession, there is a decrease in aggregate demand. Governments employ expansionary policies to boost demand.
– Increasing expenditure on public projects (like infrastructure) directly injects money into the economy, creates jobs, increases income, and stimulates further spending through the multiplier effect. This is an expansionary fiscal policy.
– Cutting tax rates is also an expansionary fiscal policy, as it increases disposable income, potentially leading to increased consumption and investment. Increasing tax rates is contractionary.
– Reducing interest rates is an expansionary monetary policy aimed at making borrowing cheaper to encourage investment and consumption. Increasing interest rates is contractionary.
– To combat a recession, expansionary policies are needed. Options A, C, and D involve either contractionary elements or exclusively contractionary policies (D). Option B is a clear expansionary fiscal policy.

Typical counter-cyclical measures during a recession include increasing government spending (fiscal stimulus) and lowering interest rates (monetary stimulus).

16. With reference to casual workers in India, consider the following stat

With reference to casual workers in India, consider the following statements :

1. All casual workers are entitled for Employees Provident Fund coverage.
2. All casual workers are entitled for regular working hours and overtime payment.
3. The government can by a notification specify that an establishment or industry shall pay wages only through its bank account.

Which of the above statements are correct?

1 and 2 only

2 and 3 only

1 and 3 only

1, 2 and 3

This question was previously asked in

UPSC IAS – 2021

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The correct option is B. Statements 2 and 3 are correct, while statement 1 is incorrect as it uses the term ‘All’.

– While laws like the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 apply to establishments above a certain size (currently 20 employees), coverage is mandatory for employees within such establishments who meet certain criteria, including casual workers. However, not *all* casual workers in India are covered, particularly those in the informal sector or in very small establishments where the Act doesn’t apply or is not enforced. Statement 1 is incorrect due to the word ‘All’.
– Labour laws such as the Factories Act, 1948 and State-specific Shops and Establishments Acts regulate working hours and mandate overtime payment for work beyond prescribed hours for covered establishments and workers. Casual workers in such covered establishments are entitled to these provisions. While enforcement might be an issue, the entitlement exists for many casual workers under relevant laws. Statement 2 is generally correct in principle, although the term ‘All’ might again be too strong depending on the specific context of “casual workers”. However, compared to statement 1, it’s more broadly applicable legally.
– The Payment of Wages Act, 1936 was amended in 2017 to allow the appropriate government (Central or State) to mandate payment of wages through bank accounts or cheques for specified industries or establishments. Statement 3 is correct.

Given the options, and the definitive correctness of statement 3 and the typical application of working hours/overtime laws to many casual workers in formal/semi-formal settings (statement 2), while EPF coverage (statement 1) has more specific applicability thresholds, (2 and 3) is the most plausible correct answer set.

17. Consider the following statements : 1. The Governor of the Reserve

Consider the following statements :

1. The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government.
2. Certain provisions in the Constitution of India give the Central Government the right to issue directions to the RBI in public interest.
3. The Governor of the RBI draws his power from the RBI Act.

Which of the above statements are correct?

1 and 2 only

2 and 3 only

1 and 3 only

1, 2 and 3

This question was previously asked in

UPSC IAS – 2021

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The correct option is C. Statements 1 and 3 are correct, while statement 2 is incorrect.

– The Governor of the Reserve Bank of India is appointed by the Central Government of India. Statement 1 is correct.
– The power of the Central Government to issue directions to the RBI in public interest is derived from Section 7 of the Reserve Bank of India Act, 1934, not directly from the Constitution of India. Statement 2 is incorrect.
– The powers and functions of the RBI Governor are defined and drawn from the Reserve Bank of India Act, 1934. Statement 3 is correct.

Section 7(1) of the RBI Act states: “The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest.”

18. In the nature, which of the following is/are most likely to be found s

In the nature, which of the following is/are most likely to be found surviving on a surface without soil?

1. Fern
2. Lichen
3. Moss
4. Mushroom

Select the correct answer using the code given below.

1 and 4 only

2 only

2 and 3

1, 3 and 4

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UPSC IAS – 2021

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The correct option is C. Lichens and mosses are pioneering organisms that can survive and grow on surfaces without soil.

– Lichens are symbiotic organisms (fungus and alga/cyanobacterium) known for their ability to colonize bare rock, bark, and other surfaces, obtaining nutrients primarily from the atmosphere and rain. They play a key role in primary succession, helping to break down rock and create conditions for other plants.
– Mosses are simple plants that can grow in various environments, including on rocks, walls, and bark, often requiring moisture but little or no soil. They can survive on thin layers of accumulated organic matter or damp surfaces.
– Ferns are vascular plants that typically require soil for their roots. While some ferns can grow epiphytically on trees, they generally require some form of accumulated organic matter or moisture-retaining substrate, not just a bare surface without soil.
– Mushrooms are the fruiting bodies of fungi. Fungi are heterotrophic and obtain nutrients by decomposing organic matter or through parasitic/symbiotic relationships. While some fungi grow on wood (which isn’t soil but is an organic substrate they consume), they are not typically found *surviving* on bare inorganic surfaces like rock or concrete without any organic matter present.

Lichens and mosses are often among the first organisms to colonize new or barren surfaces, making them ideal examples of life surviving without soil.

19. What is blue carbon?

What is blue carbon?

Carbon captured by oceans and coastal ecosystems

Carbon sequestered in forest biomass and agricultural soils

Carbon contained in petroleum and natural gas

Carbon present in atmosphere

This question was previously asked in

UPSC IAS – 2021

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The correct option is A. Blue carbon refers to the carbon captured and stored by the world’s coastal and marine ecosystems.

– These ecosystems include tidal marshes, mangroves, and seagrasses.
– They are highly effective at sequestering carbon, often storing it in their soils and biomass for millennia.
– Protecting and restoring blue carbon ecosystems is considered a crucial strategy for climate change mitigation.

Carbon stored in forests and terrestrial vegetation is often referred to as green carbon. Fossil carbon is the carbon contained in fossil fuels like coal, oil, and natural gas. Atmospheric carbon is primarily in the form of carbon dioxide (CO2) in the atmosphere.

20. With reference to furnace oil, consider the following statements : 1

With reference to furnace oil, consider the following statements :

1. It is a product of oil refineries.
2. Some industries use it to generate power.
3. Its use causes sulphur emissions into environment.

Which of the statements given above are correct?

1 and 2 only

2 and 3 only

1 and 3 only

1, 2 and 3

This question was previously asked in

UPSC IAS – 2021

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The correct option is D. All three statements about furnace oil are correct.

– Furnace oil is a residual fuel obtained during the refining of crude petroleum. It is the heaviest commercial fuel oil. Statement 1 is correct.
– Industries, including power plants, factories, and ships, use furnace oil as fuel in boilers and furnaces to generate heat and power. Statement 2 is correct.
– Furnace oil typically has a high sulfur content (residual fuel oils contain the sulfur that was not removed during refining). Burning furnace oil releases significant amounts of sulfur dioxide (SO2) into the atmosphere, contributing to air pollution and acid rain. Statement 3 is correct.

Due to its high sulfur content and resulting pollution, regulations around the use of furnace oil have become stricter globally, leading to a shift towards low-sulfur fuels or alternative energy sources in many sectors.