UPSC Editorials Quiz : 7 October 2025

Solution: B

• Articles 315–323 in Part XIV deal with Public Service Commissions, giving them constitutional backing. The UPSC primarily functions as an advisory body and its recommendations, though carrying great weight, are not legally binding on the Government.
• However, statement 3 is incorrect: the Chairman and members of the UPSC are appointed by the President, but their removal is not through a Parliamentary resolution; instead, it requires a reference to the Supreme Court on grounds of misbehavior, and the President acts on such recommendations (Article 317).

Solution: B

3. Industrial Policy Resolution, 1948: This was the first industrial policy of independent India. It set the stage for a ‘mixed economy’ where both public and private sectors would coexist. It classified industries into four broad categories: (i) exclusive state monopoly (strategic industries like atomic energy), (ii) state-led development where private sector could supplement (key industries), (iii) private sector under government regulation, and (iv) purely private and cooperative sector. This correctly matches with description 3.

1. Industrial Policy Resolution, 1956: This policy was a much more definitive step towards a socialist pattern of society. It was heavily influenced by the Second Five-Year Plan and the Mahalanobis model, which prioritized investment in heavy and capital goods industries. It famously classified industries into three schedules (A, B, and C), significantly expanding the scope of the public sector and strengthening the licensing regime. This correctly matches with description 1.

2. New Industrial Policy, 1991: This policy represented a paradigm shift. In response to a severe economic crisis, it dismantled the control-based regime. Its main planks were the abolition of industrial licensing for almost all industries, a drastic reduction in the number of industries reserved for the public sector, and opening up the economy to foreign investment and technology. It is synonymous with the beginning of the Liberalisation, Privatisation, and Globalisation (LPG) era in India. This correctly matches with description 2.

Solution: D

• Statement I is incorrect. The EPC model is a procurement contract, not a long-term risk-sharing partnership. In this model, the government bears the entire financial risk. The government funds the project completely. The private contractor is paid a fixed, lump-sum amount to design and build the project. The contractor’s risk is largely limited to completing the construction on time and within budget. The long-term operational and revenue risks remain with the government, which owns and operates the asset after construction.
• Statement II is correct. The Hybrid Annuity Model (HAM) was designed specifically to rebalance the risk-sharing matrix in highway projects. In a traditional BOT (Toll) model, the private developer bears the entire financial burden and the traffic revenue risk. HAM mitigates this in two ways: first, the government pays 40% of the project cost during the construction phase, reducing the developer’s upfront capital requirement. Second, the developer receives the remaining 60% as fixed annuity payments over the concession period, insulating it from the uncertainty of toll collections (traffic risk). This sharing of financial risk makes such projects more viable and attractive for private investors, especially in cases of uncertain traffic flow.

Solution: C

• Statement 1 is incorrect. The PLI scheme does not provide subsidies on capital investment (input-based incentive). Instead, it is an output-oriented scheme. The financial incentive is calculated as a percentage of the incremental sales of manufactured goods. This design encourages production and scale, rather than just the initial capital expenditure.
• Statement 2 is incorrect. The PLI scheme represents a strategic shift away from the pre-1991 model of import substitution that relied on high tariff walls for protection. The PLI scheme aims to make domestic manufacturing globally competitive by creating economies of scale and encouraging efficiency. It is an export-promotion oriented policy that seeks to integrate Indian manufacturing into global supply chains, not to isolate it through protectionism.
• Statement 3 is correct. This statement accurately describes the core mechanism of the PLI scheme. Companies are required to meet certain investment and production thresholds, and the incentive they receive is directly linked to the increase in their sales of domestically manufactured products compared to a pre-defined base year. This performance-based structure is a key feature of the scheme.
• Statement 4 is incorrect. The scheme is not exclusive to domestic companies. It is open to both domestic and foreign companies that set up manufacturing facilities in India. The goal is to attract global manufacturing giants to establish production bases in the country, bringing in capital, technology, and access to global markets. This is crucial for integrating India into global value chains.

Solution: C

• (a) is incorrect. While poor agricultural performance can strain the economy, a severe drought was not the primary immediate cause of the 1991 external crisis. The crisis was fundamentally rooted in the external account.
• (b) is incorrect. The collapse of the Soviet Union did impact India’s trade, particularly rupee-denominated trade, but this was a contributing factor that unfolded over time rather than the single, acute trigger that precipitated the crisis in mid-1991.
• (c) is correct. The Gulf War (following Iraq’s invasion of Kuwait in August 1990) acted as the immediate, severe external shock that pushed the already vulnerable Indian economy over the edge. The crisis had three direct and severe impacts:
  • Spike in Oil Prices: Global oil prices surged, dramatically increasing India’s import bill, as India was heavily dependent on imported crude oil.
  • Fall in Remittances: A large number of Indian expatriates working in the Gulf region had to return, leading to a sudden stop in the flow of private remittances, which were a crucial source of foreign exchange.
  • Credit Crunch: The crisis heightened the risk perception of the Indian economy, leading to a downgrade by credit rating agencies and making it extremely difficult to secure fresh international loans. This combination led to a rapid depletion of India’s foreign exchange reserves, which fell to a level barely sufficient to cover a few weeks of imports, creating a sovereign default scare.
• (d) is incorrect. The IMF did not stop lending; on the contrary, India had to approach the IMF and the World Bank for an emergency bailout loan to avert the crisis. The acceptance of the conditionalities attached to this loan paved the way for the comprehensive economic reforms.