Explanation:

• The prime minister of India is the chairperson of NITI Aayog. The vice chairperson of NITI aayog is appointed bt the prime minister. So, statement 1 is not correct.
• It was established by an executive resolution of government of India. Hence, it is also neither a constitutional body nor a statutory body. So, statement 2 is correct.
• The governing council comprises the chief minister of all states, chief minister of union territories with legislatures and Lt.Governors of other union territories. So, statement 3 is not correct.

Explanation:

• The Planning Commission (1950–2014) was responsible for preparing Five-Year Plans which set out India’s economic strategies and resource allocation in a centralized manner.
• In 2015, the Planning Commission was replaced by the NITI Aayog (National Institution for Transforming India).
• Assertion (A) is false because NITI Aayog does not prepare Five-Year Plans. The era of Five-Year Plans ended with the 12th Plan (2012–2017). Instead, NITI Aayog formulates long-term and medium-term strategic policy documents such as:
  • 15-Year Vision Document
  • 7-Year Strategy Document
  • 3-Year Action Agenda
• Reason (R) is true but misleading. NITI Aayog was not created to continue planning functions. Instead, it was designed as a policy think tank to provide governments with strategic, directional, and technical advice. Its focus is on:
  • Cooperative Federalism (through the Governing Council where states play a central role)
  • Competitive Federalism (through indices like the Innovation Index, SDG Index, Export Preparedness Index, etc.)
  • Monitoring and implementation of Sustainable Development Goals (SDGs)
  • Encouraging innovation, entrepreneurship, and digital transformation.

Explanation:

1. Law of Demand (Statement-I)
   • It states that there is an inverse relationship between price and quantity demanded, assuming other factors (income, tastes, prices of related goods) remain constant.
   • Example: If the price of onions falls, more people will demand onions because they are cheaper.
   • This is a fundamental principle of microeconomics, except in special cases like Giffen goods or Veblen goods.
2. Law of Supply (Statement-II)
   • It states that there is a direct relationship between price and quantity supplied, holding other factors constant.
   • Example: If the price of wheat rises, farmers are incentivized to produce and sell more wheat to maximize profit.
3. Comparison of the Two Statements
   • Both are correct economic principles, but they deal with different sides of the market:
     • Demand → consumer behavior
     • Supply → producer behavior
   • Hence, Statement-II (supply law) cannot explain Statement-I (demand law).

Extra Insights for UPSC

• Exceptions to Law of Demand: Giffen goods (inferior staple goods consumed more when price rises due to income effect) and Veblen goods (luxury goods where higher price increases demand due to status symbol effect).
• Exceptions to Law of Supply: Backward-bending labor supply curve, fixed supply of land, or artistic works.
• Both concepts are essential in understanding market equilibrium, where demand and supply intersect to determine price.

Explanation:

• The ‘Rolling Plan’ for backward countries was suggested by Gunnar Myrdal in his book ‘Indian Economic Planning in its Broader Setting’.
• The Rolling Plan consists of three different plans. First, a plan for the current year which includes the annual budget and second, a plan fixed for a fixed number of years, which may be 3, 4 or 5 years.
• As per the requirement of the economy, it is revised every year.
• Third, a perspective plan for long terms i.e. 10, 15 or 20 years.
• The main advantage of the Rolling Plans was that they were flexible and were able to overcome the rigidity of fixed Five Year Plans by mending targets, the object of the exercise, projections and allocations as per the changing conditions in the country’s economy.

Explanation:

• The notion of Women’s Component Plan (WCP) had entered the planning process in the Seventh Plan with the initiation of a special mechanism to monitor 27 beneficiary oriented schemes for women. However, the Ninth Five Year Plan (1997- 2002) marked a significant progress in this regard. The notion of WCP, as it was adopted in the Ninth Plan, earmarked a clear, unconditional minimum quantum of funds/ benefits for women in the schemes run by all Ministries/ Departments that were perceived to be ‘women-related’ and thereby recognized empowerment. Under WCP, both Central as well as State Governments were required to ensure that ‘‘not less than 30 percent of the funds/benefits are ear-marked for women under the various schemes of the ‘women-related’ Ministries/Departments’ .

Explanation

1. Creeping Inflation (Mild) → 2
   • Price rise <3% annually.
   • Considered manageable, may stimulate demand & investment.
2. Walking Inflation (Trotting) → 4
   • Price rise 3%–10% annually.
   • If unchecked, may cause overheating of the economy.
3. Galloping Inflation (Running) → 3
   • Prices rise 10%–50% annually.
   • Rapid erosion of purchasing power, disrupts stability.
4. Hyperinflation → 1
   • Prices rise >50% per month.
   • Currency loses value drastically (e.g., Zimbabwe, Weimar Germany).

Explanation:

• The 8th Five Year Plan recognized ‘human development’ as the core of all developmental efforts. Human development, in all its many facets, was the ultimate goal of the Eighth Plan. It was towards fulfilling this goal that the Eighth Plan accorded priority to the generation of adequate employment opportunities to achieve near-full employment by the turn of the century, building up of people’s institutions, control of population growth, universalization of elementary education, eradication of illiteracy, provision of safe drinking water and primary health facilities to all, growth and diversification of agriculture to achieve self-sufficiency in foodgrains and generate surpluses for exports.

Explanation:

• Amartya Sen is associated with welfare economics. According to him the main objective of economic development is human development. Due to this perception Amartya Sen has suggested the statement 2, 3 and 4 mentioned in the question for the Indian economy.

Explanation:

• The criticism of New Economic Policy adopted by India in the year 1991, which is based on liberalization, privatization and globalization, is continued till now. The developed economies of the world are criticising on the ground that the new economic policy was not adopted at right time whereas within the country it is criticised on the ground that it is adopting capitalism and deviating from the path of socialism mentioned in the Constitution. These criticisms are largely based on ideological differences. Hence, both A and R are true and R is the correct explanation of A

Explanation:

• Economic liberalization in India started with substantial changes in industrial licensing policy. Economic liberalization was introduced in India on 24 July 1991 by the Narsimha Rao government after its formation in June 1991. New Industrial policy was declared on 24 July 1991. In this policy all the industries except 18 prominent industries were made free from licence

Explanation:

Pair 1: WPI – Petrol, Diesel, LPG ✔️ Correct

• • WPI measures price changes at the wholesale level.
  • It includes a fuel & power category, covering petrol, diesel, LPG, kerosene, coal, etc.

Pair 2: CPI – Published by CSO (MoSPI) ❌ Incorrect

• • CPI is indeed released by MoSPI, but since 2019, the Central Statistics Office (CSO) and National Sample Survey Office (NSSO) have been merged into the National Statistical Office (NSO).
  • So, saying CSO is outdated → pair is incorrect.

Pair 3: PPI – Perspective of industry/business ✔️ Correct

• • The Producer Price Index (PPI) looks at inflation from the point of view of producers, i.e., the prices they receive before retail/consumer level.
  • It is not officially in use in India yet, but globally it is a standard index.

👉 Thus, only one pair (2) is incorrect.

Explanation:

• Though the planned economic development in India began in 1951 (1st April, 1951) with the inception of First Five Year Plan, theoretical efforts had begun much earlier, even prior to the independence. Setting up of National Planning Committee by Indian National Congress in 1938, The Bombay Plan and Gandhian Plan in 1944, People’s Plan in 1945 (by post war reconstruction committee of Indian Trade Union), Sarvodaya Plan in 1950 by Jaiprakash Narayan were steps in this direction

Explanation:

Chronological order of the given statements is as follows :

1. India became member of IMF. (1945)

2. First devaluation of Indian currency after independence took place. (1949)

3. First Five Year Plan was submitted to Parliament. (8 Dec. 1951)

4. National Development Council was set-up. (6 Aug. 1952)

Explanation:

• A falling rate of inflation means that prices are increasing more slowly than before. The common measure of inflation is the inflation rate, the annualized percentage change in a general price index (e.g. consumer price index). If inflation rate is 5% in any month of the last year and it is 4% in same month this year, that means prices are increasing in both years in comparison to their previous years, but prices are increasing more slowly this year than the last year. Deflation, or negative inflation on the otherhand, happens when prices generally fall in a economy in comparison to the prices of same period of the previous year. Increased food supply affects prices, but it is not a definite implication of a fall in inflation rate.

Explanation:

Statement 1 – Correct ✔️

• • CPI gives more weight to food & beverages because it reflects the retail/consumer side of inflation and households spend a big portion of their income on food. WPI, which measures wholesale prices of goods, has relatively lower weight for food

Statement 2 – Correct ✔️

• • WPI focuses on prices of goods at wholesale level, and does not include services. CPI includes goods and services, since consumers buy services too (e.g. rent, transport, education).

Statement 3 – Incorrect

• • RBI has not adopted WPI as its key measure of inflation. In fact, in April 2014, RBI adopted CPI (combined) as the primary indicator for inflation and for guiding monetary policy (like setting policy rates). WPI was used earlier, but since 2014 CPI has taken over that role.

Explanation:

• Inflation occurs when there is a general increase in the price of goods and services and a fall in purchasing value of money. Inflation allows debtors (borrowers) to pay credtitors (lenders) back with money worth less than when it was originally borrowed, which benefits debtors. Thus, inflation brings about a redistribution of real wealth in favour of debtors at the cost of creditors. Investors in bonds and securities with fixed interest rates, consumers, pensioners etc. also lose in real terms during inflation.

Explanation:

• If there is a 5 percent inflation in a particular week of a month in a year, it means that in comparison to same week of the same month in previous year, the prices of goods have increased by 5 percent. It means inflation is measured on the basis of week by week. Hence, it is clear that to get a zero rate of inflation, the annual rate of inflation in every week of the year should be zero.

Explanation:

• Bottleneck inflation is the inflation that takes place when supply falls drastically while demand remains at the same level. This creates excess demand in the economy as the supply cannot match it and thus results in rising of prices. Such situations arise due to supply-side accidents, hazards, mismanagement or inefficient distribution. The government faces a tough time in this situation of inflation. Hence, both Assertion and Reason are true and Reason is the correct explanation of Assertion.

Explanation:

• Statement 1: Correct
• Headline inflation for August 2025 (YoY, over August 2024) is 2.07%.
• Statement 2: Correct
• CPI in India is currently calculated with 2012 as the base year (2012=100).
• Statement 3: Incorrect
• CPI is not released by RBI. It is released every month by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI).
• RBI uses CPI (Combined) as the main measure of inflation to set its Monetary Policy under the Flexible Inflation Targeting (FIT) framework.

👉 Thus, the correct answer is (a) 1 and 2 only.

Explanation:

• At present, RBI uses Consumer Price Index (CPI) (Combined) to measure headline inflation and its base year is 2011-12 (since April, 2017). The Wholesale Price Index (WPI) was main index of inflation in India till April 2014, when RBI adopted new CPI (combined) as the key measure of inflation..

Explanation:

• Cost push inflation is caused by shift or decrease in aggregate supply curve while increase in wages is the reason for shift (left side) or decrease in aggregate supply curve. Hence, both assertion and reason are true and reason is the correct explanation of assertion.

Explanation:

1. 1. • Inflation is the sustained rise in the general price level of goods and services. It can be controlled mainly through contractionary monetary policy and fiscal policy.
      • Reducing the rate of interest makes borrowing cheaper, encouraging people and businesses to take more loans and spend more.
        • This is called expansionary monetary policy.
        • It increases demand and therefore fuels inflation further.
        • Hence, it is not a method to control inflation.

Correct methods to control inflation:

1. 1. Monetary Measures: Aim to reduce money supply and credit.
      • Raising interest rates (not reducing them)
      • Credit control (tight monetary policy)
      • Demonetisation of high-value currency
      • Issue of new, tighter currency
   2. Fiscal Measures: Reduce unnecessary spending and increase savings.
      • Cut down wasteful government expenditure
      • Increase in direct and indirect taxes
      • Surplus budget policy
      • Public borrowing (to absorb excess liquidity)
   3. Other Measures:
      • Increasing production of essential goods
      • Rational wage policy
      • Price control mechanisms
      • Rationing of essential commodities

Explanation:

• Price Elasticity of Demand (PED): It measures the responsiveness of quantity demanded of a good to a change in its price.
• Zero Price Elasticity (Perfectly Inelastic Demand):
  • The demand curve is vertical.
  • Consumers purchase the same quantity regardless of any increase or decrease in price.
  • Example: Essential, life-saving goods like insulin, heart medicines, or oxygen cylinders, where people must buy irrespective of cost.
• Comparison with other elasticities:
  • Elastic demand: Small price change → big change in demand.
  • Inelastic demand (but not zero): Price changes → slight change in demand.
  • Perfectly elastic demand: Even a tiny price rise → demand falls to zero.

Thus, zero elasticity means demand never changes with price.

✅ So the correct interpretation is Option (a)

Statement 1 is correct.

• The 15th Finance Commission (FC) introduced fiscal effort as a new criterion for horizontal devolution. Fiscal effort measures the tax revenue of a state relative to its Gross State Domestic Product (GSDP). The 14th FC did not use this parameter—it relied more on income distance, population, and area. Hence, this is a distinguishing feature of the 15th FC.

Statement 2 is incorrect.

• The 14th FC used the 1971 population data (pre-2011) as a demographic variable to balance incentives for states that had controlled population growth.
• The 15th FC, however, shifted to using the 2011 population data, reflecting the need to update demographic realities. It did not use pre-2011 data.

Explanation:

Meaning of Disinvestment (Statement-I)

• • Disinvestment is the process of selling government-owned shares in PSUs (Public Sector Undertakings) to individuals, institutions, or private companies.
  • It provides the government with capital receipts, which are used for financing budgetary needs, reducing fiscal deficit, or restructuring PSUs.
  • Hence, Statement-I is correct.

Historical Context (Statement-II)

• • Before 1991, the Government of India owned 100% stake in PSUs; they were considered the backbone of the planned economy.
  • With the Liberalization, Privatization, and Globalization (LPG) reforms of 1991, the government introduced privatization and disinvestment policies to reduce the financial burden, increase efficiency, and mobilize resources.
  • Hence, Statement-II is correct.

Relationship Between the Two

• • The explanation of Statement-I lies in Statement-II: Disinvestment became a policy tool only after 1991 reforms, when the government decided to sell PSU shares.
  • Thus, Statement-II correctly explains Statement-I.

Extra UPSC-Relevant Insights

• Strategic Disinvestment: Sale of a substantial portion (often majority stake) of government holding in a PSU, e.g., Air India to Tata Group (2021).
• Minority Stake Sale: Government sells small shareholding (less than 50%) but retains management control.
• National Investment Fund (NIF): Created in 2005 to channel disinvestment proceeds for social sector schemes and capital investment.

Explanation:

• The FRBM Act 2003 was enacted to promote fiscal discipline, limit deficits and borrowing, and ensure macroeconomic stability.
• It aims to reduce fiscal deficits, control public debt, and maintain inter-generational equity.

Explanation:

• The capital account in the Balance of Payments (BoP) includes capital inflows and outflows, which can be classified as debt liabilities and non-debt liabilities.
• Non-debt liabilities refer to investments that do not require repayment or periodic servicing of debt. They include:
  • Foreign Direct Investment (FDI) (long-term investment in businesses)
  • Foreign Institutional Investors (FII) investments (portfolio investments in stocks, bonds, etc.)
• Debt liabilities, on the other hand, include loans and financial obligations that must be repaid. These include:
  • Non-Resident Indian (NRI) deposits (since they are fixed-term deposits in Indian banks, they are considered borrowings)
  • External Commercial Borrowings (ECBs) (foreign loans taken by Indian entities, classified as external debt)

Explanation:

• Capital Receipts → C (Correct): These include borrowings, recovery of loans, and other liabilities that create debt.
• Revenue Expenditure → A (Correct): This includes day-to-day government expenses like salaries, pensions, and interest payments.
• Fiscal Deficit → D (Correct): Fiscal Deficit is the gap between total expenditure and total revenue (excluding borrowings).
• Grants-in-aid → B (Incorrect): Grants-in-aid are financial transfers given to states/local bodies to support specific projects and are not always “non-liability funds.”

Explanation:

• There is a strong connection between the government’s tax revenue earnings and economic growth.
• Tax buoyancy explains this relationship. It is the ratio between the changes in government’s tax revenue growth and the changes in GDP.
• It refers to the responsiveness of tax revenue growth to changes in GDP.
• When a tax is buoyant, its revenue increases with increase in GDP without increasing the tax rate.

Explanation:

• Statement 1 is correct: GST has subsumed 17 Central and State indirect taxes, including Excise Duty, Service Tax, VAT, Luxury Tax, and Entertainment Tax.
• Statement 2 is incorrect: GST eliminates the cascading effect of taxation through the Input Tax Credit (ITC) mechanism, ensuring tax is paid only on value addition at each stage.
• Statement 3 is incorrect: Certain goods and services are exempted from GST, such as alcohol for human consumption and petroleum products, which remain under State taxation.