Nature of Indian Economy

1. Which one of the following is an important driver of economic growth w

Which one of the following is an important driver of economic growth which helps in sustaining high growth rate, increasing productivity, a major source of non-debt financial resources, and employment generation ?

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Foreign Direct Investment
Ease of doing business
Make in India
Start-up India
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UPSC SO-Steno – 2018
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Foreign Direct Investment (FDI) is widely recognized as a crucial driver of economic growth. It brings significant capital flows which are typically non-debt creating, unlike external borrowings. FDI often brings advanced technology, management expertise, and access to global markets, which can enhance productivity. It also leads to the establishment of new businesses or expansion of existing ones, creating substantial employment opportunities. Ease of doing business is an enabler, Make in India is a manufacturing promotion initiative, and Start-up India supports entrepreneurship, but FDI is the direct source of non-debt finance and a comprehensive driver across all mentioned aspects.
FDI is a major source of non-debt capital, technological transfer, and management know-how, directly contributing to increased productivity, employment generation, and sustained economic growth.
FDI inflow is influenced by factors like market size, economic stability, policy environment (ease of doing business), availability of skilled labor, and infrastructure. Governments often actively seek to attract FDI through policy reforms, incentives, and promotional activities like Make in India, aiming to leverage its benefits for overall economic development.

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2. Consider the following statements: The major traits of depression coul

Consider the following statements:
The major traits of depression could be as given below:

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  • an extremely low aggregate demand in the economy causes activities to decelerate
  • the inflation being comparatively lower
  • the employment avenues start shrinking forcing unemployment rate to grow fast

Which of the above statements are correct ?

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1 and 2 only
2 and 3 only
1 and 3 only
1, 2 and 3
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Statements 1, 2, and 3 are all correct descriptions of major traits of an economic depression.
An economic depression is characterized by a severe and prolonged decline in economic activity. This involves: 1. A significant drop in aggregate demand, leading to reduced spending and production (deceleration of activities). 2. Low inflation or deflation (falling prices) due to the collapse in demand and economic stagnation. 3. A sharp increase in unemployment as businesses fail and production slows down, leading to widespread job losses.
A depression is a more severe form of a recession. Key indicators include substantial declines in GDP, high unemployment rates, and often deflation.

3. The process of reforms in India has to be completed via which of the f

The process of reforms in India has to be completed via which of the following processes ?

  • 1. Liberalisation
  • 2. Privatisation
  • 3. Globalisation

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1 and 2 only
2 and 3 only
1 and 3 only
1, 2 and 3
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The process of reforms in India includes Liberalisation, Privatisation, and Globalisation.
The major economic reforms initiated in India in 1991 are commonly referred to as the LPG reforms, standing for Liberalisation, Privatisation, and Globalisation. Liberalisation involved removing restrictions on economic activity, Privatisation involved reducing the role of the state in the economy by selling public sector undertakings, and Globalisation involved integrating the Indian economy with the global economy. All three are considered integral components of India’s reform process.
These reforms were undertaken in response to a severe economic crisis and marked a significant shift in India’s economic policy, moving away from a more protectionist and state-controlled model towards a market-oriented economy.

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4. In Economics, which one of the following is not an essential condition

In Economics, which one of the following is not an essential condition for existence of market ?

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Product (goods or service)
Buyers
Sellers
Place
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Place is not always an essential condition for the existence of a market.
A market is essentially a mechanism that brings together buyers and sellers to exchange goods or services. The essential components are: 1) A product or service to be exchanged, 2) Buyers (demand), and 3) Sellers (supply). Traditionally, markets were associated with physical locations (marketplaces), but in the modern economy, especially with the advent of e-commerce and digital platforms, markets can exist without a specific physical ‘place’. Online markets, for instance, facilitate transactions globally without a common physical location for buyers and sellers.
Products, buyers, and sellers are fundamental requirements for any exchange mechanism to function as a market. Without any one of these, a market cannot exist.

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5. Contract is an agreement between two parties which is not

Contract is an agreement between two parties which is not

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voluntary
deliberate
binding
imposed
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The correct answer is D. A contract is based on voluntary agreement, not imposition.
A contract is a legally enforceable agreement between two or more parties. Essential elements of a valid contract include mutual assent (offer and acceptance), consideration, capacity, and legality. Mutual assent implies that the parties enter into the agreement voluntarily (A) and with intent (deliberately – B). Once formed correctly, the agreement is legally binding (C) on the parties. A contract cannot be legally imposed (D) on someone; it requires their free and willing consent.
Agreements entered into under duress, coercion, undue influence, or misrepresentation may be voidable because they lack the element of voluntary and deliberate consent.

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6. Auction is a market where price is

Auction is a market where price is

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set by negotiation between buyer and seller
arrived at by a bidding process
notified by Government
declared by auctioneer
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The correct answer is B. In an auction, the price is determined by a bidding process.
An auction is a type of sale in which goods or services are sold to the highest bidder. The price is not fixed beforehand but is arrived at dynamically through competitive bidding by potential buyers. Options A, C, and D do not accurately describe the primary mechanism of price discovery in an auction. Negotiation might follow in some cases, but the core price setting is via bids. Government notification or auctioneer declaration are not the fundamental price-setting mechanisms.
There are various types of auctions, such as English auctions (ascending price), Dutch auctions (descending price), sealed-bid auctions, etc., but all involve a process where participants make offers (bids) that determine the final price.

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7. Competitive advantage of a firm does not imply

Competitive advantage of a firm does not imply

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lower price for same value
same price for higher value
same price and same value
matching core competencies to the opportunities
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The correct answer is C. Competitive advantage implies offering something better than rivals, not the same price and same value.
Competitive advantage is achieved when a firm offers superior value to its customers compared to its rivals. This can be done in two primary ways:
A) Offering the same value (same quality/features) at a lower price (cost leadership).
B) Offering higher value (better quality/features) at the same price (differentiation).
C) Offering the same price and same value relative to competitors implies parity, not competitive advantage.
D) Matching core competencies to opportunities is a strategic process or strategy formulation that *leads* to competitive advantage, but it is not the definition of the advantage itself. The advantage is the *result* of this matching process.
The question asks what competitive advantage *does not imply*.
Michael Porter’s framework on competitive strategy identifies two basic types of competitive advantage: cost leadership and differentiation. Both involve providing superior value compared to competitors, either through lower cost or unique benefits.

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8. Which one is not a necessary condition for competitiveness of a firm ?

Which one is not a necessary condition for competitiveness of a firm ?

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Comparable quality of the product with that of rivals
Competitive price with rivals
Adequate returns to the firm
Economical use of resources by the firm
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The correct answer is C. Adequate returns are a result, not a necessary condition, of competitiveness.
Competitiveness of a firm means its ability to perform successfully in the market against rivals. Necessary conditions for this often include offering comparable or superior quality (A), competitive pricing (B), and efficient use of resources (D) to control costs and improve quality. Adequate returns (profitability) are typically an outcome or consequence of being competitive, rather than a prerequisite for competing. A firm might be highly competitive (e.g., gaining market share) even while making low or negative returns initially due to strategic pricing or heavy investment.
Competitiveness is about a firm’s ability to deliver value to customers more effectively or efficiently than rivals. This value can be delivered through lower costs (cost leadership) or superior product/service differentiation. Resources (like capital, labour, technology) must be used economically to achieve either of these. Quality and price are key aspects of the product/service offering relative to competitors.

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9. What is the impact on the “Social overhead capital requirements” of an

What is the impact on the “Social overhead capital requirements” of an economy, if the population increases ?

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Social overhead capital requirements fall.
Social overhead capital requirements remain unchanged.
Social overhead capital requirements increase.
Social overhead capital requirements fall drastically.
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The correct answer is Social overhead capital requirements increase (C).
Social overhead capital refers to the basic infrastructure and services necessary for economic development and social well-being, such as roads, railways, ports, communication systems, power grids, water supply, sanitation, schools, and hospitals. An increase in population directly leads to a greater demand for these facilities and services, thereby increasing the requirement for social overhead capital to maintain or improve living standards and support economic activity.
A growing population needs more housing, transportation, energy, education, healthcare, and civic amenities. Without a corresponding increase in social overhead capital, existing infrastructure becomes strained, leading to congestion, reduced quality of services, and potential bottlenecks for economic growth. Therefore, population growth necessitates significant investment in expanding and upgrading social infrastructure.

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10. How does agriculture fuel Indian industrial development ? By opening

How does agriculture fuel Indian industrial development ?

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  • By opening up market for industrial products
  • By providing food and clothing to labourers
  • By supplying raw materials

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1 only
2 and 3 only
3 only
1, 2 and 3
This question was previously asked in
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Agriculture fuels Indian industrial development in multiple ways:
1. **Market for industrial products:** A prosperous agricultural sector increases the income of the rural population, creating a demand for industrial goods such as textiles, consumer goods, fertilizers, pesticides, machinery, and tools.
2. **Food and clothing for laborers:** Agriculture provides essential food grains, vegetables, fruits, and raw materials like cotton and jute for clothing, which are necessary to sustain the labor force engaged in industries.
3. **Supply of raw materials:** Many key industries are agro-based, relying heavily on agricultural produce as raw materials, such as the textile industry (cotton, jute, silk), sugar industry (sugarcane), food processing industry (grains, fruits, vegetables), and vegetable oil industry (oilseeds).
All three statements correctly describe how agriculture supports industrial growth.
– Linkage between agriculture and industry: Demand, Supply of inputs (labor sustenance, raw materials), Capital formation (agricultural savings can be invested in industry).
– Agro-based industries are a significant part of the industrial sector in India.
This interdependency highlights the importance of balanced development between the agricultural and industrial sectors for overall economic growth in a country like India.

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