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UPSC CSE CSAT 2020 · Question 61 · Reading comprehension

Which one of the following is the most logical and rational inference that can be made from the…

Directions for the following 6 (six) items: Read the following five passages and answer the items that follow. Your answers to these items should be based on the passages only.

Passage—1

Bank credit to the industrial sector has started shrinking. Its decline has been a serious concern as credit growth is essential to revive investment. The problem’s origins lie in the incomplete reforms of the last 25 years. An institutional change that should have followed the 1991 reforms should have been setting up of a resolution corporation for banks. In a market economy with booms and busts, banks should be allowed to be set up and to fail. Today, we cannot shut down banks because there is no proper system to shut them down. Weak loss-making banks continue to need more capital.

CSAT 2020 · Q61

Reading comprehension Easy

Which one of the following is the most logical and rational inference that can be made from the above passage?

Answer & explanation

Answer: (c) India lacks the institutional mechanism to deal with the failure of banks.

The author traces shrinking industrial credit to one missing reform: a resolution corporation for banks. Because there is 'no proper system to shut them down', weak banks keep needing capital. The direct inference is that India lacks a mechanism to handle bank failure.

  • ✗ (a) Too sweeping: the passage flags shrinking credit to industry, not a banking system unable to support growth at all.
  • ✗ (b) The reforms are called 'incomplete' in one specific respect; the passage does not judge the whole economy against expectations.
  • ✓ (c) A 'resolution corporation for banks' was never set up, and 'there is no proper system to shut them down'.
  • ✗ (d) Foreign investment as a substitute for bank credit is never discussed.

Remember · Pick the inference that states the passage's own diagnosis; reject sweeping verdicts built from one problem.

Question and answer: UPSC's official GS Paper II (2020, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). ·

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