2022

151. With reference to the expenditure made by an organisation or a company

With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct?

  • 1. Acquiring new technology is capital expenditure.
  • 2. Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure.

Select the correct answer using the code given below:

[amp_mcq option1=”1 only” option2=”2 only” option3=”Both 1 and 2″ option4=”Neither 1 nor 2″ correct=”option1″]

This question was previously asked in
UPSC IAS – 2022
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Option A is correct.
Capital expenditure (Capex) is an investment in assets that will provide long-term benefits to an organization, typically for more than one accounting period. Revenue expenditure provides benefits only in the current period.
Statement 1 is correct. Acquiring new technology, such as purchasing machinery, software, or investing in R&D that leads to patents or processes, is considered capital expenditure because it creates a long-term asset or enhances future productivity and efficiency for the organization beyond the current financial year.
Statement 2 is incorrect. Debt financing (taking loans) and equity financing (issuing shares) are methods of raising funds for a company. They are balance sheet transactions (affecting liabilities and equity). The funds raised might be used for either capital expenditure (buying assets) or revenue expenditure (paying salaries, rent, etc.). The financing method itself (debt or equity) is not classified as capital or revenue *expenditure*.

152. Which one of the following situations best reflects “Indirect Transfer

Which one of the following situations best reflects “Indirect Transfers” often talked about in media recently with reference to India?

[amp_mcq option1=”An Indian company investing in a foreign enterprise and paying taxes to the foreign country arising out of its investment” option2=”A foreign company investing in India and paying taxes to the country of its base on the profits arising out of its investment” option3=”An Indian company purchases tangible assets in a foreign country and sells such assets after their value increases and transfers the proceeds to India” option4=”A foreign company transfers shares and their substantial value derive from assets located in India” correct=”option4″]

This question was previously asked in
UPSC IAS – 2022
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Option D is correct.
“Indirect Transfer” refers to the transfer of ownership of shares or interests in a foreign entity, where the value of that foreign entity is primarily derived from assets located in India. This allows for taxing gains arising from such transfers within India.
This concept became prominent in India, particularly in the context of the Vodafone tax dispute. In that case, a foreign company (Vodafone) acquired shares of another foreign company (Hutchison), which indirectly controlled an Indian telecommunications company. The Indian government amended tax laws to clarify that gains from the transfer of shares of a foreign company would be taxable in India if those shares derived their value substantially from assets located in India.
Options A, B, and C describe direct investments or transfers of tangible assets or profits in a straightforward manner, which are taxed based on source rules or residency rules but do not fit the definition of an ‘indirect transfer’ involving a foreign entity whose value is intrinsically linked to underlying Indian assets.

153. Which of the following activities constitute real sector in the econom

Which of the following activities constitute real sector in the economy?

  • 1. Farmers harvesting their crops
  • 2. Textile mills converting raw cotton into fabrics
  • 3. A commercial bank lending money to a trading company
  • 4. A corporate body issuing Rupee Denominated Bonds overseas

Select the correct answer using the code given below:

[amp_mcq option1=”1 and 2 only” option2=”2, 3 and 4 only” option3=”1, 3 and 4 only” option4=”1, 2, 3 and 4″ correct=”option1″]

This question was previously asked in
UPSC IAS – 2022
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Option A is correct.
The real sector of the economy is involved in the production, distribution, and consumption of goods and services, while the financial sector deals with financial assets, intermediaries, and transactions. Activities that directly result in the creation or transformation of physical goods are part of the real sector.
1. Farmers harvesting their crops: This is a primary production activity resulting in tangible goods (agricultural output). It falls under the real sector.
2. Textile mills converting raw cotton into fabrics: This is a manufacturing process involving the transformation of raw materials into finished goods. It is part of the real sector.
3. A commercial bank lending money: This is a financial intermediation activity, facilitating the flow of funds. It belongs to the financial sector.
4. A corporate body issuing Rupee Denominated Bonds overseas: This is a fundraising activity involving the creation and issuance of financial instruments. It belongs to the financial sector.
Therefore, only activities 1 and 2 constitute the real sector among the options provided.

154. With reference to foreign-owned e-commerce firms operating in India, w

With reference to foreign-owned e-commerce firms operating in India, which of the following statements is/are correct ?

  • They can sell their own goods in addition to offering their platforms as market-places.
  • The degree to which they can own big sellers on their platforms is limited.

Select the correct answer using the code given below :

[amp_mcq option1=”1 only” option2=”2 only” option3=”Both 1 and 2″ option4=”Neither 1 nor 2″ correct=”option2″]

This question was previously asked in
UPSC IAS – 2022
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Option B is correct.
Foreign-owned e-commerce marketplace firms operating in India are primarily allowed to act as platforms connecting buyers and sellers. Indian regulations restrict them from selling their own goods on the platform and also limit their ownership stakes in any single seller on the platform.
Statement 1 is incorrect. According to India’s Foreign Direct Investment (FDI) policy for e-commerce, especially for the ‘marketplace’ model (which large foreign firms like Amazon and Flipkart use), these entities are not permitted to sell goods owned by them directly or indirectly on their platforms. They must operate solely as a marketplace connecting buyers and sellers.
Statement 2 is correct. The FDI policy for e-commerce marketplace limits the equity participation of the marketplace entity or its group companies in any seller on the marketplace to 10%. It also restricts the total sales from a single vendor (or its group companies) on the marketplace to 25% of the marketplace’s total sales. These limitations are intended to prevent the marketplace operator from unduly influencing prices or controlling inventory, thereby promoting fair competition.

155. With reference to the Indian economy, what are the advantages of “Infl

With reference to the Indian economy, what are the advantages of “Inflation-Indexed Bonds (IIBs)” ?

  • Government can reduce the coupon rates on its borrowing by way of IIBs.
  • IIBs provide protection to the investors from uncertainty regarding inflation.
  • The interest received as well as capital gains on IIBs are not taxable.

Which of the statements given above are correct ?

[amp_mcq option1=”1 and 2 only” option2=”2 and 3 only” option3=”1 and 3 only” option4=”1, 2 and 3″ correct=”option1″]

This question was previously asked in
UPSC IAS – 2022
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Statement 1 is correct. Inflation-Indexed Bonds (IIBs) protect the investor’s principal and/or interest against inflation. By offering this protection, the government reduces the inflation risk for the investor. Consequently, the government can typically issue these bonds at a lower real interest rate (coupon rate) compared to conventional nominal bonds, where investors demand a higher nominal yield to compensate for expected inflation.
Statement 2 is correct. IIBs provide a hedge against inflation risk. The payments received by the investor are adjusted based on changes in a specified inflation index (like the Consumer Price Index), ensuring that the real value of their investment is preserved. This protects investors from the uncertainty of future inflation rates eroding their returns.
Statement 3 is incorrect. Both the periodic interest payments (coupon) received on IIBs and the increase in the principal amount due to inflation indexation are generally taxable under Indian income tax laws. The interest is taxed as income from other sources, and the capital appreciation due to indexation is taxed as capital gains (short-term or long-term depending on the holding period).
Inflation-Indexed Bonds are debt instruments where principal and/or interest payments are linked to an inflation index, protecting investors’ purchasing power. They are a tool for governments to borrow at potentially lower real costs and offer investors inflation protection.
In India, the RBI has issued Inflation-Indexed Bonds on behalf of the government. For retail investors, sovereign gold bonds are also sometimes considered an inflation hedge, though they are linked to gold prices, not a general price index.

156. With reference to the “G20 Common Framework”, consider the following s

With reference to the “G20 Common Framework”, consider the following statements:

  • It is an initiative endorsed by the G20 together with the Paris Club.
  • It is an initiative to support Low Income Countries with unsustainable debt.

Which of the statements given above is/are correct ?

[amp_mcq option1=”1 only” option2=”2 only” option3=”Both 1 and 2″ option4=”Neither 1 nor 2″ correct=”option3″]

This question was previously asked in
UPSC IAS – 2022
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Statement 1 is correct. The G20 Common Framework for Debt Treatments beyond the DSSI was agreed upon by the G20 and the Paris Club (an informal group of official creditors, mostly high-income countries) in November 2020. It provides a structure for coordinated debt restructuring for eligible countries.
Statement 2 is correct. The Common Framework is specifically designed to help Low-Income Countries (LICs) that are eligible for the World Bank-IMF’s Debt Service Suspension Initiative (DSSI) and have unsustainable debt burdens. It aims to provide debt relief beyond temporary suspension, on a case-by-case basis, in a coordinated manner involving both official and private creditors.
The G20 Common Framework is an international initiative to address the debt vulnerability of low-income countries exacerbated by global shocks like the COVID-19 pandemic. It involves key creditors like G20 and Paris Club members.
The framework encourages comparable treatment from private creditors to ensure fair burden sharing. Implementation has faced challenges, including delays in setting up creditor committees and coordinating diverse creditor bases.

157. With reference to the Indian economy, consider the following statement

With reference to the Indian economy, consider the following statements:

  • If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities.
  • If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market.
  • If interest rates in the USA or European Union were to fall, that is likely to induce RBI to buy dollars.

Which of the statements given above are correct ?

[amp_mcq option1=”1 and 2 only” option2=”2 and 3 only” option3=”1 and 3 only” option4=”1, 2 and 3″ correct=”option2″]

This question was previously asked in
UPSC IAS – 2022
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Statement 1 is incorrect. If inflation is too high, the Reserve Bank of India (RBI) uses monetary policy tools to reduce liquidity and curb aggregate demand. Buying government securities (Open Market Operations – OMO purchase) injects liquidity into the market. To control inflation, RBI would *sell* government securities (OMO sale) to absorb liquidity.
Statement 2 is correct. If the rupee is rapidly depreciating, it means its value is falling relative to foreign currencies (like the US dollar). This is often due to high demand for foreign currency or low supply. To counter this, RBI can intervene in the foreign exchange market by selling dollars from its foreign exchange reserves. This increases the supply of dollars, which helps to stabilize the rupee’s value or reduce the rate of depreciation.
Statement 3 is correct. If interest rates in the USA or European Union fall, financial investments in those regions may become less attractive compared to India, assuming India offers relatively better returns. This encourages foreign investors to move capital to India, increasing capital inflows (e.g., FII/FPI investments). These inflows are often denominated in foreign currency (like USD) and converted to rupees, leading to increased supply of foreign currency in the domestic market. This would put pressure on the rupee to appreciate. To prevent excessive or rapid appreciation and maintain exchange rate stability, RBI may buy dollars (and sell rupees) from the market, thereby absorbing the excess foreign currency supply.
RBI uses Open Market Operations (buying/selling government securities) to manage domestic liquidity and influence interest rates. RBI intervenes in the foreign exchange market (buying/selling foreign currency) to manage the value of the rupee and control volatility.
RBI’s monetary policy decisions are guided by the objectives of price stability while keeping in mind the objective of growth. Exchange rate management is also a crucial function to ensure external sector stability, although India follows a managed float system, not a fixed exchange rate.

158. With reference to the Indian economy, consider the following statement

With reference to the Indian economy, consider the following statements:

  • 1. An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee.
  • 2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness.
  • 3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and REER.

Which of the above statements are correct ?

[amp_mcq option1=”1 and 2 only” option2=”2 and 3 only” option3=”1 and 3 only” option4=”1, 2 and 3″ correct=”option3″]

This question was previously asked in
UPSC IAS – 2022
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Statement 1 is correct. Nominal Effective Exchange Rate (NEER) is a weighted average of bilateral nominal exchange rates of the domestic currency against the currencies of its trading partners. An increase in NEER means that, on average, the domestic currency is appreciating against the currencies of its trading partners.
Statement 2 is incorrect. Real Effective Exchange Rate (REER) is NEER adjusted for the inflation differential between the domestic economy and its trading partners. REER = NEER * (Domestic Price Index / Foreign Price Index). An increase in REER means that the domestic country’s goods and services are becoming relatively more expensive compared to those of its trading partners. This makes exports less competitive and imports more attractive, thus indicating a *decrease* (or worsening) in trade competitiveness.
Statement 3 is correct. The formula for REER shows its relationship with NEER and inflation differentials. REER = NEER * (Domestic Price Index / Foreign Price Index). If domestic inflation increases significantly relative to foreign inflation, the term (Domestic Price Index / Foreign Price Index) increases. This will cause the REER to rise relative to the NEER. For instance, if NEER remains constant, an increase in domestic inflation relative to foreign inflation will cause REER to increase, creating a divergence. Similarly, if NEER depreciates, but domestic inflation is much higher, REER might depreciate less or even appreciate, again creating divergence.
NEER reflects the nominal value of a currency against a basket, while REER reflects the real value (purchasing power) against a basket, adjusted for relative inflation. REER is a key indicator of a country’s external competitiveness.
Policymakers monitor both NEER and REER to understand the impact of exchange rate movements on trade and the economy. A higher REER often signals a potential challenge for export growth due to reduced competitiveness.

159. “Rapid Financing Instrument” and “Rapid Credit Facility” are related t

“Rapid Financing Instrument” and “Rapid Credit Facility” are related to the provisions of lending by which one of the following ?

[amp_mcq option1=”Asian Development Bank” option2=”International Monetary Fund” option3=”United Nations Environment Programme Finance Initiative” option4=”World Bank” correct=”option2″]

This question was previously asked in
UPSC IAS – 2022
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The “Rapid Financing Instrument” (RFI) and “Rapid Credit Facility” (RCF) are lending instruments provided by the International Monetary Fund (IMF). The RFI provides rapid financial assistance, with limited conditionality, to all member countries facing an urgent balance of payments need. The RCF provides similar assistance to low-income countries. These facilities are designed for situations where a full-fledged IMF program with detailed conditionality is not necessary or feasible.
The IMF provides financial assistance to member countries experiencing actual or potential balance of payments problems. RFI and RCF are part of the IMF’s toolkit for rapid disbursal of funds in emergencies.
Other key lending instruments of the IMF include Stand-By Arrangements (SBAs), Extended Fund Facility (EFF), Poverty Reduction and Growth Trust (PRGT) facilities (like ECF, SCF, RSF), etc., which typically involve more extensive conditionality and structural reforms.

160. With reference to Deputy Speaker of Lok Sabha, consider the following

With reference to Deputy Speaker of Lok Sabha, consider the following statements:

  • 1. As per the Rules of Procedure and Conduct of Business in Lok Sabha, the election of Deputy Speaker shall be held on such date as the Speaker may fix.
  • 2. There is a mandatory provision that the election of a candidate as Deputy Speaker of Lok Sabha shall be from either the principal opposition party or the ruling party.
  • 3. The Deputy Speaker has the same power as of the Speaker when presiding over the sitting of the House and no appeal lies against his rulings.
  • 4. The well established parliamentary practice regarding the appointment of Deputy Speaker is that the motion is moved by the Speaker and duly seconded by the Prime Minister.

Which of the statements given above are correct ?

[amp_mcq option1=”1 and 3 only” option2=”1, 2 and 3″ option3=”3 and 4 only” option4=”2 and 4 only” correct=”option1″]

This question was previously asked in
UPSC IAS – 2022
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Statement 1 is correct. Rule 8(1) of the Rules of Procedure and Conduct of Business in Lok Sabha states: “The election of a Deputy Speaker shall be held on such date as the Speaker may fix, and the Secretary-General shall send to every member notice of the date so fixed.”
Statement 2 is incorrect. There is no mandatory constitutional or statutory provision, nor is it a rule of the Lok Sabha, that the Deputy Speaker must belong to either the principal opposition party or the ruling party. While there has been a convention since the 11th Lok Sabha (1996) to offer the post to a member of the opposition party, this is a parliamentary practice and not a mandatory rule.
Statement 3 is correct. Article 95(1) of the Constitution states that while performing the duties of the Speaker, the Deputy Speaker has all the powers of the Speaker. Rule 10 of the Rules of Procedure explicitly states that the Deputy Speaker has the same powers as the Speaker when presiding over a sitting of the House. The rulings of the presiding officer (Speaker or Deputy Speaker) in the Chair cannot be appealed against in the House.
Statement 4 is incorrect. The motion for the election of the Deputy Speaker is moved by a member of the House and seconded by another member. While the ruling party usually fields the candidate and ensures the motion is moved and seconded, the formal procedure is initiated by a member, not the Speaker or the Prime Minister directly in their official capacity as such.
The Deputy Speaker is elected by the Lok Sabha from amongst its members. They preside over the House in the absence of the Speaker and have the same powers as the Speaker when presiding.
The Deputy Speaker is subordinate not to the Speaker, but to the House. They receive a salary and allowances fixed by Parliament. The office of Deputy Speaker falls vacant when they cease to be a member of the Lok Sabha, or if they resign to the Speaker, or if they are removed by a resolution passed by a majority of all the then members of the House.
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