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Daily Prelims MCQs - Economy - 28th August 2025

  • Writer: TPP
    TPP
  • 4 days ago
  • 7 min read
Daily Prelims MCQs - Economy - 28th August 2025

Welcome to this daily set of UPSC Prelims Economy Current Affairs MCQs (28th August 2025). This quiz features 5 carefully designed multiple-choice questions with in-depth explanations, drawn from the most significant updates in India’s economy, trade, and financial sector.

These economy-focused MCQs are designed to help UPSC aspirants:

  • Revise dynamic economic issues relevant for UPSC Prelims 2026.

  • Understand how static concepts link with current developments (the UPSC way of asking).

  • Build strong conceptual clarity through enriched explanations, inline definitions, and contextual notes.

This set covers critical topics such as:

  • India’s coffee exports and the role of Brazil & Vietnam crop shortfalls

  • MCLR (Marginal Cost of Funds based Lending Rate) and its link with RBI’s policy transmission

  • Sustainable Aviation Fuel (SAF) and India’s commitments under the CORSIA framework

  • India’s removal of import duty on cotton and its impact on textiles amid high US tariffs

  • RBI’s survey on foreign holdings in domestic mutual funds and changing foreign liability patterns

Together, these MCQs will sharpen your ability to connect current affairs with core economy concepts—a key skill for clearing UPSC Prelims.

Click Here to read the Monthly Current Affairs Pointers (CAP).

QUESTION 1

Consider the following statements about India’s coffee exports:

  1. Indian coffee exporters have gained in 2024-25 because of reduced global stocks caused by weak harvests in Brazil and Vietnam.

  2. The majority of India’s exports are of arabica beans (a premium coffee variety).

  3. In India, Kerala is the leading state in coffee production.

How many of the above statements are correct?

(a) Only one

(b) Only two

(c) All three

(d) None

Answer (a)

Explanation:

  • Statement 1 is correct: In the financial year 2024-25, global ending stocks of coffee (unsold inventory left after meeting demand) fell to their lowest since 1999-2000.

    ✦ This was primarily due to subpar harvests in Brazil and Vietnam, the world’s top producers of arabica (Brazil) and robusta (Vietnam).

    ✦ As a result, Indian coffee exporters benefited, since reduced global supply pushed demand for Indian exports.

  • Statement 2 is incorrect: India mainly exports robusta beans, not arabica.

    ✦ Robusta beans are stronger, more bitter, and commonly used in instant coffee and espresso blends.

    ✦ By contrast, arabica beans are smoother, less bitter, and fetch a premium in international markets.

    ✦ Hence, India’s comparative advantage lies in robusta exports.

  • Statement 3 is incorrect: The leading coffee-producing state in India is Karnataka, not Kerala.

    ✦ Karnataka contributes the largest share of India’s production, followed by Kerala and Tamil Nadu.

    ✦ This ranking is important because Karnataka alone accounts for over one-third of national output.


QUESTION 2

MCLR (Marginal Cost of Funds based Lending Rate) refers to which of the following?

(a) A benchmark interest rate notified by the Reserve Bank of India (RBI) that banks use to decide the minimum interest rate chargeable on loans.

(b) The fixed rate at which the RBI lends money to commercial banks.

(c) The interest rate the Government of India pays on its public borrowings.

(d) The benchmark rate at which Indian banks borrow from international financial institutions.

Answer (a)

Explanation:

  • What is MCLR?

    The Marginal Cost of Funds based Lending Rate (MCLR) is a benchmark lending rate introduced by the RBI in April 2016, replacing the earlier Base Rate system.

    ✦ It is the minimum rate of interest below which a bank cannot lend, except in certain cases allowed by RBI (like loans under government schemes).

    ✦ In simple terms, MCLR is the floor rate that ensures banks cannot give loans at arbitrary or excessively low interest rates.


  • Why “Marginal Cost”?

    ✦ It reflects the incremental cost of arranging funds for banks (i.e., the cost of fresh deposits and borrowings).

    ✦ Thus, MCLR is more responsive to changes in the RBI’s policy rates compared to the older base rate.

  • Recent Context:

    ✦ Public sector banks like State Bank of India (SBI), Bank of Baroda (BoB), and Indian Overseas Bank (IOB) recently cut their MCLR by up to 35 basis points (bps).

    ✦ A basis point (bp) is equal to 0.01%; therefore, 100 bps = 1%.

    ✦This reduction followed the RBI’s Monetary Policy Committee (MPC) cutting the repo rate (the rate at which RBI lends to banks) cumulatively by 100 bps, bringing it down to 5.5% between February and June.

    ✦ In the August MPC meeting, the repo rate was kept unchanged.

 

QUESTION 3

With reference to Sustainable Aviation Fuel (SAF), consider the following statements:

  1. SAF is a type of biofuel (fuel derived from plant/organic material) produced from sustainable feedstocks, and its chemical composition is almost identical to conventional Aviation Turbine Fuel (ATF) used in jet engines.

  2. As per the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) framework of the International Civil Aviation Organization (ICAO), India’s National Biofuel Coordination Committee (NBCC) has fixed initial blending targets of SAF with jet fuel for domestic flights starting from 2025.

  3. Hindustan Petroleum Corporation Limited (HPCL) was the first Indian company to receive ISCC CORSIA certification (International Sustainability and Carbon Certification under the CORSIA framework) for SAF production.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(c) All three

(d) None

Answer (a)

Explanation:

  • Statement 1 is correct: Sustainable Aviation Fuel (SAF) is a biofuel (fuel derived from organic/sustainable feedstocks such as agricultural residue, forestry waste, or used cooking oil). Its chemical properties are nearly identical to conventional Aviation Turbine Fuel (ATF), which is derived from crude oil.

    • Because of this similarity, SAF can be blended with ATF and used in existing aircraft engines without modification.

    • For example, Airbus has confirmed that all of its aircraft can operate on up to a 50% blend of SAF and conventional jet fuel.

    • Aviation experts estimate that SAF alone could contribute over 60% of the global aviation sector’s decarbonisation efforts in the future.

  • Statement 2 is incorrect: Under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), airlines must offset emissions above 2020 levels starting from the mandatory phase in 2027.

    • India’s National Biofuel Coordination Committee (NBCC) has accordingly set blending targets beginning 2027, not 2025.

    • The indicative targets are 1% blending in 2027 and 2% blending in 2028, starting with international flights.

    • Domestic flights may be brought under blending mandates only after implementation begins for international flights.

  • Statement 3 is incorrect: The first Indian company to obtain ISCC CORSIA certification (International Sustainability and Carbon Certification under CORSIA) was not HPCL but Indian Oil Corporation (IOC) at its Panipat Refinery, Haryana.

    • This certification ensures that SAF production complies with CORSIA’s global sustainability requirements and is mandatory for its commercial use.

    • The IOC milestone is expected to provide a benchmark for other domestic refiners to expand SAF production.

 

QUESTION 4

Consider the following statements regarding India’s decision to remove import duty on cotton:

  1. Abolishing the import duty on cotton can reduce the adverse impact of high US tariffs on India’s labour-intensive textile sector.

  2. The primary objective of this move is to address the difficulties currently faced by the domestic textile industry.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer (c)

Explanation:

  • Statement 1 is correct: The government has removed the 11% duty on cotton imports to cushion the blow for India’s labour-intensive textile sector.

    • This move comes in response to the 50% tariff imposed by the United States on Indian textile exports.

    • Since textiles are one of the largest employers in India (especially in states like Tamil Nadu, Gujarat, and Maharashtra), eliminating duty on imported cotton will help lower raw material costs and soften the impact of these high US tariffs.

  • Statement 2 is correct: The main intent of eliminating cotton import duty is to address industry challenges.

    •  These challenges include:

      • High cotton prices in the domestic market,

      • Steep US tariffs on Indian exports,

      • And the need for stable input supply to keep textile exports competitive.

    • At the same time, the measure also serves as a diplomatic signal to Washington that India is willing to allow greater market access for US cotton during ongoing trade negotiations.

  • Additional Context:

    • The duty-free window has been allowed until September 30 as a calibrated relief measure.

    • The Global Trade Research Initiative (GTRI) noted that nearly all of India’s $1.2 billion cotton imports in FY2025 were of staple length 28 mm or above (longer fibre cotton used in quality textiles).

    • Under the India-Australia Economic Cooperation and Trade Agreement (ECTA), 51,000 MT of such cotton already enters duty-free.

    • Therefore, the biggest beneficiary of India’s new zero-duty policy is expected to be the United States, which is the world’s second-largest cotton exporter.

 

QUESTION 5

Consider the following countries:

  1. United Arab Emirates (UAE)

  2. United Kingdom (UK)

  3. United States of America (USA)

  4. Singapore

What is the correct descending order (from high to low) of non-residents holding domestic mutual fund (MF) units in terms of face value?

(a) 3—2—1—4

(b) 3—4—1—2

(c) 1—3—4—2

(d) 1—3—2—4

Answer (d)

Explanation:

  • According to the Reserve Bank of India’s survey on foreign liabilities of mutual funds, the domestic mutual fund industry’s foreign liabilities rose by 19.9% to USD 30.5 billion (in market value terms) during FY 2025.

  • Foreign liabilities here means the value of units of Indian mutual funds held by non-residents (foreign investors).

  • United Arab Emirates (UAE) — Rank 1

    • Non-residents from the UAE were the largest holders of Indian MF units.

    • They accounted for 21.2% in face value terms and 20.2% in market value terms.

    • In face value terms, the holdings increased by 32.8% to ₹3,305 crore in FY25.

  • In market value terms, they rose by 28% to ₹11,508 crore.

  • United States of America (USA) — Rank 2

    • USA non-residents held 11.2% of MF units (face value terms).

    • This makes them the second-largest group of foreign investors in Indian mutual funds.

  • United Kingdom (UK) — Rank 3

    • UK non-residents accounted for 10.8% (face value terms).

    • Slightly below USA, but still a significant foreign holder.

  • Singapore — Rank 4

    • Singapore-based investors held 6.6% in face value terms.

    • This places them fourth in the hierarchy.

    Additional detail: The survey also showed that overseas assets of Indian mutual funds (i.e., investments made by Indian MFs in foreign markets) declined by 5.6% to USD 8.3 billion (March 2025) due to lower holdings of foreign equities.

 

Previous Daily UPSC Prelims MCQs Set

Previous Week Current Affairs MCQs Set


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