UPSC CSE PRELIMS 2025 DETAILED ANALYSIS (ECONOMICS

12 Jun 2025

Table of Contents

Economics has consistently been a subject of great relevance in the UPSC CSE Prelims, with questions covering both current affairs and static concepts. Thus, a clear understanding of economic fundamentals is essential to secure good marks in this section. Additionally, the dynamic nature of the subject also necessitates the coverage of current affairs.

This year, that is in CSE Prelims 2025, the number of questions from Economics was close to the average taken over the last 10 years. The themes were from the expected topics like fiscal policy (Union Budget), agriculture, financial market. Over the years, the topic of the payment ecosystem has been given its due importance. This year also, two questions from digital payment systems found place among the nearly 15 questions from Economics.

Surprisingly, there was no direct question from National Income Accounting and two similar questions with an element of calculation (basic arithmetic) featured from the section Government revenue & expenditure. As mentioned above, the topic of financial markets did get a substantial space, as questions on AIF, stock market featured in this year's CSE.

Given below is the breakdown of the 100 questions asked in CSE Prelims 2025.

The Detailed Analysis of UPSC Prelims 2025 from Economics section are as follows

UPSC Prelims Economics Q Which of the following statements with regard to recommendations of the 15th Finance Commission of India are correct?

I. It has recommended grants of ₹ 4,800 crores from the year 2022-23 to the year 2025-26 for incentivizing States to enhance educational outcomes.

II. 45% of the net proceeds of Union taxes are to be shared with States.

III. ₹ 45,000 crores are to be kept as performance-based incentive for all States for carrying out agricultural reforms.

IV. It reintroduced tax effort criteria to reward fiscal performance.

Select the correct answer using the code given below.

(a) I, II and III

(b) I, II and IV

(d) II, III and IV

Answer: C

Explanation:

Statement I is correct: XVFC has recommended grants of Rs. 4,800 crore (Rs. 1,200 crore each year) from 2022-23 to 2025-26 for incentivising the States to enhance educational outcomes.
Statement II is not correct: In order to maintain predictability and stability of resources, especially during the pandemic, XVFC has recommended maintaining the vertical devolution at 41 per cent – the same as in our report for 2020-21. It is at the same level of 42 per cent of the divisible pool as recommended by FC-XIV. However, it has made the required adjustment of about 1 per cent due to the changed status of the erstwhile State of Jammu and Kashmir into the new Union Territories of Ladakh and Jammu and Kashmir.
Statement III is correct: XVFC has recommended that Rs. 45,000 crore be kept as performance-based incentive for all the States for carrying out agricultural reforms.
Statement IV is correct: XVFC has re-introduced tax effort criteria to reward fiscal performance.

MOTIVATION, SOURCES AND COVERAGE OF PRELIMS QUESTION IN THE VISIONIAS SOURCES

Motivation:

It was in the news and recommendations of FC have been asked in the past as well

Sources:

https://www.pib.gov.in/PressReleasePage.aspx?PRID=1693868

VisionIAS All India Test Series/ Sandhan/Open Test:

Open Test, 2025 - 5238

Consider the following:

1. Tax and fiscal efforts

2. Forest cover

3. Demographic performance

Which of the criteria for horizontal tax devolution given above were introduced exclusively by the 15th Finance Commission and were not part of the 14th Finance Commission’s framework?

(a) 2 and 3 only

(b) 1 and 2 only

(d) 1, 2 and 3

Sandhan Vision IAS Prelims Test Series Initiative

Which of the following criteria are used by the 15th Finance Commission for horizontal devolution and determining the share of states?

(a) Income distance, Population, Demographic performance, Tax effort and Forest & ecology

(b) Income distance, Fiscal discipline, Infrastructure index, Tax effort and Forest & ecology

(d) Fiscal discipline, Population, Demographic performance, Area and Forest & ecology

Explanation: The share of States from the divisible pool (vertical devolution) stands at 41% as per the recommendation of the 15th FC.

VisionIAS Current Affairs Source:

Monthly Current Affairs Jan 2024 – Article 3.8.4 - 16TH FINANCE COMMISSION
https://visionias.in/current-affairs/monthly-magazine/2024-02-15/economics-(indian-economy)/news-in-shorts#16th-finance-commission

UPSC Prelims Economics Q Consider the following statements in respect of the International Bank for Reconstruction and Development (IBRD) :

I. It provides loans and guarantees to middle income countries.

II. It works single-handedly to help developing countries to reduce poverty.

III. It was established to help Europe rebuild after World War II.

Which of the statements given above are correct?

(a) I and II only

(b) II and III only

(d) I, II and III

Answer: C

Explanation:

Statement I is correct: The International Bank for Reconstruction and Development (IBRD) is a global development cooperative owned by 189 member countries. As the largest development bank in the world, it supports the World Bank Group’s mission by providing loans, guarantees, risk management products, and advisory services to middle-income and creditworthy low-income countries, as well as by coordinating responses to regional and global challenges
Statement II is not correct: They work closely with all institutions of the World Bank Group and the public and private sectors in developing countries to reduce poverty and build shared prosperity.
Statement III is correct: It was created in 1944 to help Europe rebuild after World War II, IBRD joins with IDA, our fund for the poorest countries, to form the World Bank.

MOTIVATION, SOURCES AND COVERAGE OF PRELIMS QUESTION IN THE VISIONIAS SOURCES

Motivation:

WB and IMF are important bodies.

Sources:

https://www.worldbank.org/en/who-we-are/ibrd

VisionIAS All India Test Series/ Sandhan/Open Test:

Consider the following statements regarding the World Bank Group:

1. International Bank for Reconstruction and Development (IBRD) raises funds in the world's financial markets.

2. Contributions from the richer member countries primarily fund the International Development Association (IDA).

3. The World Bank helps the member countries in tackling the balance of payments crisis.

Which of the statements given above is/are correct?

(a) 1 only

(b) 1 and 2 only

(d) 2 and 3 only

VisionIAS Current Affairs Source:

PT 365 2025 Economy : Article 4.4.2 World Bank

UPSC Prelims Economics Q Consider the following statements in respect of RTGS and NEFT :

I. In RTGS, the settlement time is instantaneous while in case of NEFT, it takes some time to settle payments.

II. In RTGS, the customer is charged for inward transactions while that is not the case for NEFT.

III. Operating hours for RTGS are restricted on certain days while this is not true for NEFT.

Which of the statements given above is/are correct?

(a) I only

(b) I and II

(d) III only

Answer: A

Explanation:

Statement I is correct: The acronym 'RTGS' stands for Real Time Gross Settlement, which can be explained as a system where there is continuous and real-time settlement of fund-transfers, individually on a transaction-by-transaction basis (without netting). NEFT is an electronic fund transfer system in which the transactions received up to a particular time are processed in batches. Contrary to this, in RTGS, the transactions are processed continuously on a transaction-by-transaction basis throughout the day.
Statement II is not correct: With a view to rationalise the service charges levied by banks for offering funds transfer through RTGS system, a broad framework of charges has been mandated as under:
- Inward transactions – Free, no charge to be levied.
- Outward transactions – ₹ 2,00,000/- to 5,00,000/-: not exceeding ₹ 25/- (exclusive of tax, if any)
- Above ₹ 5,00,000/-: not exceeding ₹ 50 (exclusive of tax, if any)
Statement III is not correct: RTGS is available 24x7x365 with effect from December 14, 2020.

MOTIVATION, SOURCES AND COVERAGE OF PRELIMS QUESTION IN THE VISIONIAS SOURCES

Motivation:

Digital Payment Ecosystems are important. Previously, many questions from this section were asked.

Sources:

https://www.rbi.org.in/commonman/english/Scripts/FAQs.aspx?Id=275
https://www.thehindu.com/business/banks-to-provide-beneficiary-account-name-look-up-facility-in-neft-rtgs-by-april-1/article69044676.ece

VisionIAS All India Test Series/ Sandhan/Open Test:

Consider the following statements regarding National Electronic Funds Transfer (NEFT):

1. It is a centralised payment system owned and operated by the Reserve Bank of India (RBI).

2. There is no levy of charges by RBI from banks for funds transfer or receipt.

3. There is no limit imposed by the RBI for funds transfer through the NEFT system.

4. It can be used to transfer funds from/to Non-Resident External (NRE) and Non-Resident Ordinary (NRO) accounts in the country.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 4 only

(d) 1, 2, 3 and 4

Sandhan Vision IAS Prelims Test Series Initiative

Which of the following are classified as the Centralised Payment Systems (CPS)?

1. Real Time Gross Settlement (RTGS)

2. Immediate Payment Service (IMPS)

3. National Electronic Fund Transfer (NEFT)

4. Cheque Truncation System (CTS)

Select the correct answer using the code given below.

(a) 1, 2 and 3 only

(b) 2 and 4 only

(d) 1, 2, 3 and 4

UPSC Prelims Economics Q Consider the following countries :

I. United Arab Emirates

III. France

III. Germany

IV. Singapore

V. Bangladesh

How many countries amongst the above are there other than India where international merchant payments are accepted under UPI?

(a) Only two

(b) Only three

(d) All the five

Answer: B

Explanation:

UPI stands for Unified Payments Interface, a system developed by the National Payments Corporation of India (NPCI) that enables instant money transfers between any two bank accounts using a smartphone.
List of countries where international merchant payments are accepted at select merchant outlets: Bhutan, France, Mauritius, Nepal, Singapore, Sri Lanka, United Arab Emirates. Hence option (b) is the correct answer.

MOTIVATION, SOURCES AND COVERAGE OF PRELIMS QUESTION IN THE VISIONIAS SOURCES

Motivation:

It was in the news.

Sources:

https://www.npci.org.in/what-we-do/upi-global/upi-global-acceptance/live-members
https://indianexpress.com/article/technology/tech-news-technology/paytm-international-upi-feature-nepal-mauritius-uae-france-singapore-bhutan-9677800/

VisionIAS All India Test Series/ Sandhan/Open Test:

(Abhyaas 2- 2025 - Test 6591)

As of March 2025, Unified Payments Interface (UPI) from India has been officially accepted or operationalized for use in which of the following countries?

1. France

2. Singapore

3. United Arab Emirates (UAE)

4. United Kingdom

Select the correct answer using the code given below.

(a) 2, 3 and 4 only

(b) 1, 2 and 3 only

(d) 1, 2 and 4 only

VisionIAS Current Affairs Source:

PT 365 (Economy): Article 3.2 - Unified Payment Interface (UPI)
Monthly Current Affairs, SEPT, 2024: India-Singapore Relations
News today (05 Feb 2025): Unified Payments Interface (UPI) launched at the iconic Eiffel Tower in France

UPSC Prelims Economics Q Consider the following activities :

I. Production of crude oil

II. Refining, storage and distribution of petroleum

III. Marketing and sale of petroleum products

IV. Productions of natural gas

How many of the above activities are regulated by the Petroleum and Natural Gas Regulatory Board in our country?

(a) Only one

(b) Only two

(d) All the four

Answer: B

Explanation:

The Petroleum and Natural Gas Regulatory Board (PNGRB) was constituted under The Petroleum and Natural Gas Regulatory Board Act, 2006, notified via Gazette Notification dated 31st March 2006.
The Act provides for the establishment of Petroleum and Natural Gas Regulatory Board to protect the interests of consumers and entities engaged in specified activities relating to petroleum, petroleum products and natural gas and to promote competitive markets and for matters connected therewith or incidental thereto.
Further as enshrined in the act, the board has also been mandated to regulate the refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas excluding production of crude oil and natural gas so as and to ensure uninterrupted and adequate supply of petroleum, petroleum products and natural gas in all parts of the country.
Hence option (b) is the correct answer.

MOTIVATION, SOURCES AND COVERAGE OF PRELIMS QUESTION IN THE VISIONIAS SOURCES

Motivation:

A few years ago, the UPSC had used a statement about PNGRB in one of the questions. This question proves the importance of PYQs.

Sources:

https://pngrb.gov.in/eng-web/story.html
https://www.thehindu.com/business/Economy/regulator-proposes-tweak-in-pipeline-tariffs-cng-and-piped-gas-to-be-charged-lowest-rate/article69395735.ece

VisionIAS All India Test Series/ Sandhan/Open Test:

Consider the following statements regarding the Petroleum and Natural Gas Regulatory Board (PNGRB):

1. It is a statutory body established under the Petroleum Act, 1934.

2. It is mandated to regulate the production, refining, and distribution of crude oil and natural gas in India.

Which of the statements given above is/are correct?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

VisionIAS Current Affairs Source:

News Today (04 December 2024): Oilfields (Regulation and Development) Amendment Bill, 2024 passed in Rajya Sabha
https://visionias.in/current-affairs/news-today/2024-12-04/economics-(indian-economy)/oilfields-regulation-and-development-amendment-bill-2024-passed-in-rajya-sabha

As can be seen from the above analysis, questions from Economics in CSE Prelims 2025, were a mix of conceptual and factual type. Most of the themes were drawn from the VisionIAS Sandhan Initiative, All India Test Series 2025 and the various components of VisionIAS Current Affairs.

As the importance of the Previous Year Questions (PYQs) cannot be overstated, it is always an indispensable source for every serious aspirant to go ahead with a well–guided strategy.

The VisionIAS 10-year strategy document for Economics is a sought-after source for the PYQ analysis.

DOWNLOAD THE VISIONIAS 10-YEAR PYQ ANALYSIS DOCUMENT FOR ECONOMICS