​Base and framework: On the latest Index of Industrial Production

The Labour Bureau, attached to the Ministry of Labour and Employment, is responsible for compiling and publishing the Consumer Price Index Number for Industrial Workers (CPI-IW) in India. This index tracks changes in the retail prices of a basket of goods and services consumed by industrial workers. It serves as a crucial indicator of inflation faced by this specific segment of the population. The Labour Bureau is responsible for maintaining:
- CPI (Industrial Workers) - CPI (Rural Labourers) - CPI (Agricultural Labourers)

About Eight Core Sectors: These comprise 40.27% of the weight of items included in the Index of Industrial Production (IIP). The eight core sector industries in decreasing order of their weightage:
Refinery Products> Electricity> Steel> Coal> Crude Oil> Natural Gas> Cement> Fertilizers.

Statement 1 is incorrect. Typically, the RBI uses open market operations to sell government securities to drain money from the system and control inflation. Buying government securities would inject money into the system, potentially fueling inflation further. Statement 2 is correct. Selling dollars in the market - If the rupee is rapidly depreciating, the RBI might intervene in the foreign exchange market by selling dollars from its reserves. This increased supply of dollars in the market can help stabilize the exchange rate and slow down the depreciation of the rupee. Statement 3 is correct. Lower interest rates in the US/EU make India a more attractive destination for foreign investment, leading to a large inflow of dollars. This causes the rupee to strengthen (appreciate). To prevent the rupee from appreciating too rapidly and hurting exporters, the RBI buys the excess dollars from the market.

Option A and B are incorrect: RBI plays a key/primary role in controlling inflation through its monetary policy. Option C is correct: Decreased money circulation can help control inflation, while increased circulation can contribute to it. Option D is incorrect: Increased money supply shall only increase inflation.

* Statement I- correct: In the aftermath of the COVID-19 pandemic, many central banks around the world observed rising inflation. To combat this inflation, they resorted to raising interest rates. This is a well-established monetary policy tool to curb inflation by making borrowing more expensive and encouraging saving, thereby reducing the money supply in circulation.  * Statement II- correct: Central banks are entrusted with maintaining price stability and managing inflation. Raising interest rates is one of the primary instruments they use to achieve this objective. While other factors can influence inflation, central banks do have the ability to significantly impact it through monetary policy measures. Therefore, both statements accurately reflect the role of central banks and their use of interest rates to manage inflation and statement 2 is the correct explanation for statement 1.

Statement 1 is correct. As per the data given in the Economic Survey 2019-2020, the weightage of food in the Consumer Price Index (CPI) Combined is 45.9% as compared to 24.4% in Wholesale Price Index (WPI). Statement 2 is correct. The CPI measures the average change in prices over time that consumers pay for a basket of goods and services, commonly known as inflation, whereas WPI does not measure the average change in prices. Statement 3 is incorrect. In April 2014, the RBI adopted the Consumer Price Index (CPI) as its key measure of inflation. Hence, option A is the correct answer.

Statement 1 is correct: Purchasing Power Parity (PPP) exchange rates are calculated by comparing the prices of the same basket of goods and services in different countries. Statement 2 is incorrect: India is not the sixth-largest economy in the world in terms of PPP dollars. It is currently the third largest economy in terms of PPP dollars, after China and the United States.

National income refers to the aggregate monetary value of all final goods and services produced in a country during a given period, usually one year. The term “final goods and services” is important because it excludes intermediate goods in order to avoid double counting in national income estimation. From the expenditure approach, the total value of final goods and services produced in an economy is measured as:
National Income = C + I + G + (X – M)
where C is consumption expenditure, I is investment expenditure, G is government expenditure, and (X – M) represents net exports. Evaluating the options:
- Option (a) is not correct because it refers to production by nationals, which corresponds more closely to Gross National Product (GNP) rather than the general production within the country. - Option (b) is incorrect because consumption + investment alone does not represent the full value of output, as it excludes government expenditure and net exports. - Option (c) is incorrect because national income is not simply the sum of personal incomes, since it includes all factor incomes generated in production, including corporate and undistributed incomes. - Option (d) correctly reflects the money value of final goods and services produced, which aligns with the broad definition used in national income accounting. Therefore, the correct answer is (d) Money value of final goods and services produced.

Statement 1 is incorrect: Tax revenue as a percent of GDP in India has not steadily increased over the last decade. It has fluctuated — for instance, it rose during periods of strong economic growth but fell during years like 2019–20 and 2020–21 (due to slowdown and the pandemic). Hence, the trend is not steadily upward. Statement 2 is incorrect: Fiscal deficit as a percent of GDP has also not steadily increased. It narrowed from around 4.5% in 2013–14 to about 3.4% in 2018–19, then spiked during the COVID-19 years (to around 9.2% in 2020–21) and has gradually declined since. Thus, there has been no steady increase over the decade.

The real sector of the economy includes: Farmers harvesting their crops: This is a primary sector activity where raw materials are produced. Agriculture forms a crucial part of the real sector. Textile mills converting raw cotton into fabrics: This is a secondary sector activity where raw materials are processed into finished goods. Manufacturing industries are considered part of the real sector. The other two options are part of the financial sector: Commercial bank lending money (Financial sector): Banks and other financial institutions provide financial services like lending, borrowing, and investing. These activities facilitate transactions in the real sector but don't directly produce goods or services themselves. Issuing rupee-denominated bonds overseas (Financial sector): This is a financial instrument where a company raises funds by issuing bonds. While it can indirectly support real sector activities by providing capital, it's not directly involved in production. Therefore, the correct code is 1 and 2 only.