Money, banking & monetary policy

Answer: (a) Aiding the flow of remittances from India and maintaining India's creditworthiness

The Commission fixed the rupee at 1s. 6d., above the pre-war 1s. 4d. The Government of India had to pay large sterling sums in London every year (the Home Charges: interest on debt, pensions, stores), and a dearer rupee meant fewer rupees for each pound remitted while keeping India's sterling credit sound.

• ✓ (a) A high rupee-sterling rate cut the rupee cost of the Home Charges and other remittances to Britain, and a firmly held rate reassured holders of India's sterling debt. The Currency Act of 1927 put 1s. 6d. into law.
• ✗ (b) Cheaper imports were a side-effect that mainly helped British goods; Indian business and later the Congress attacked the ratio for giving imports an unfair edge.
• ✗ (c) An over-valued rupee makes Indian goods dearer abroad, so it discouraged exports such as raw cotton rather than encouraging them.

Remember · Hilton-Young Commission (1926): rupee at 1s. 6d. (Currency Act 1927) to ease sterling Home Charges; also recommended a central bank, leading to the RBI in 1935.

Question and answer: UPSC's provisional GS Paper I (2026, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (c) Access, Usage, and Quality

The RBI’s FI-Index has three sub-indices: Access, Usage and Quality, weighted 35, 45 and 20 per cent. Credit, insurance, pension and financial literacy appear only as dimensions inside these sub-indices.

• ✓ (c) Access reflects the supply side (banking, digital, pension, insurance); Usage the demand side (savings and investments, digital, pension, insurance, credit); Quality has three dimensions: financial literacy, consumer protection and inequality.
• ✗ (a) Credit, insurance and pension are dimensions within Access or Usage, not the three sub-indices.
• ✗ (b) ‘GDP contribution’ is not part of the index, and financial literacy is only one dimension of the Quality sub-index.
• ✗ (d) Affordability and Transparency are not sub-indices of the FI-Index.

Remember · FI-Index (0–100): Access 35%, Usage 45%, Quality 20%. Quality covers financial literacy, consumer protection and inequality.

Question and answer: UPSC's provisional GS Paper I (2026, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (d) In both the cases (UPI and Digital Rupee), the liability lies with the users and their respective banks.

The Digital Rupee is legal tender issued by the RBI and is a direct liability of the central bank, so it is not a liability of users or their banks. Option (d) wrongly says the liability lies with users and banks in both cases.

• ✓ (d) RBI’s concept note says CBDC appears as a liability on the central bank’s balance sheet, and retail CBDC is a direct liability of the Central Bank. So (d) is the statement that is not correct.
• ✗ (a) This is a correct statement, so it is not the answer: the RBI describes the Digital Rupee as akin to sovereign paper currency in a different form, while UPI is a real-time payment system.

Remember · Digital Rupee (e₹) = RBI liability, akin to a digital banknote; UPI = instant payment over bank accounts, where bank deposits are bank liabilities.

Question and answer: UPSC's provisional GS Paper I (2026, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (d) 2 and 4

Rows 2 and 4 are fully matched: SEBI appointed the L.C. Gupta Committee on derivatives, and the RBI constituted the Malegam sub-committee on microfinance. Row 1 fails because the Malhotra Committee (1993) came years before IRDA existed (2000), and row 3 fails because the Urjit Patel Committee dealt with the monetary policy framework, not housing credit.

• ✗ 1. The Malhotra Committee on insurance sector reforms was set up in 1993 and reported in 1994; IRDA was formed only in 2000 after the IRDA Act, 1999, so IRDA could not have formed it.
• ✓ 2. SEBI appointed the L.C. Gupta Committee, which recommended the introduction of derivatives trading.
• ✗ 3. The RBI’s Urjit R. Patel Committee (report January 2014) was set up to revise and strengthen the monetary policy framework, not to reform bank lending to the housing sector.
• ✓ 4. In October 2010 the RBI constituted a sub-committee under Y.H. Malegam to study issues and concerns of the microfinance sector; its 2011 report proposed NBFC-MFIs as a new category.

Remember · Malhotra: insurance reform (1993, before IRDA); L.C. Gupta: derivatives (SEBI); Urjit Patel: monetary policy framework (RBI, 2014); Malegam: microfinance (RBI, 2010).

Question and answer: UPSC's provisional GS Paper I (2026, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (a) 1 and 4

RBI’s FAQ on NBFCs lists three differences from banks: no demand deposits, no place in the payment and settlement system (so no cheques drawn on themselves), and no DICGC deposit insurance. Statement 2 fails because some NBFCs regulated by other regulators are exempt from RBI registration.

• ✓ 1. NBFCs cannot accept demand deposits.
• ✗ 2. To avoid dual regulation, certain categories regulated by other regulators are exempt from registration with the RBI, for example NBFCs such as stock broking companies registered with SEBI, insurance companies, Nidhi companies and chit funds.
• ✗ 3. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on themselves.
• ✓ 4. DICGC deposit insurance is not available to depositors of deposit-taking NBFCs.

Remember · NBFC vs bank: no demand deposits, no cheques drawn on itself, no payment-system membership, no DICGC cover. Not every NBFC needs RBI registration.

Question and answer: UPSC's provisional GS Paper I (2026, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error