UPSC Prelims Practice Questions — What drives corporate investment?

Q1. In India's National Accounts Statistics, gross capital formation is compiled as the aggregate of how many distinct components, and which are they?

  • A. Two — gross additions to fixed assets and the increase in stocks of inventories, valuables being left out of the aggregate altogether
  • B. Four — gross additions to fixed assets, increase in inventories, net acquisition of valuables and durable goods held by households
  • C. Three — gross additions to fixed assets, increase in stocks of inventories and net acquisition of valuables
  • D. Three — gross additions to fixed assets, increase in stocks of inventories and the entire stock of defence equipment purchased

Q2. Consider the following statements regarding the scope and compilation of capital formation estimates in India's National Accounts Statistics: 1. The 'machinery and equipment' category of fixed assets covers transport equipment, software and breeding stock such as draught animals and dairy cattle. 2. Construction undertaken for military purposes, other than construction or alteration of family dwellings for military personnel, is included within the scope of gross capital formation. 3. Durable goods purchased by households are counted as a part of gross capital formation. 4. Independent estimates of gross fixed capital formation are first prepared for the institutional sectors separately and then aggregated at the industry level. Which of the above is/are NOT correct?

  1. The 'machinery and equipment' category of fixed assets covers transport equipment, software and breeding stock such as draught animals and dairy cattle.
  2. Construction undertaken for military purposes, other than construction or alteration of family dwellings for military personnel, is included within the scope of gross capital formation.
  3. Durable goods purchased by households are counted as a part of gross capital formation.
  4. Independent estimates of gross fixed capital formation are first prepared for the institutional sectors separately and then aggregated at the industry level.
  • A. 1 and 4
  • B. 2 and 3
  • C. 1, 2 and 4
  • D. 3 only

Q3. Which one of the following correctly describes the single sharpest one-year rise in corporate investment as a share of India's GDP recorded before the 2008 Global Financial Crisis?

  • A. In 2008, when the ratio rose by nearly four percentage points from about 6.5 per cent to about 10.3 per cent of GDP
  • B. In 2004, when the ratio rose by nearly four percentage points from about 10.3 per cent to about 14.2 per cent of GDP
  • C. In 2004, when the ratio rose by nearly four percentage points from about 6.5 per cent to about 10.3 per cent of GDP
  • D. In 2011, when the ratio rose by nearly four percentage points from about 6.5 per cent to about 10.3 per cent of GDP

Q4. With reference to the trajectory of corporate investment as a share of India's GDP, consider the following: 1. The share rose by nearly four percentage points in 2004, coinciding with a high-growth phase of the Indian economy. 2. The decline around 2008 was associated with an externally driven shock, and was followed by a steady recovery through the early 2010s. 3. The share fell in every single year, without interruption, from 2004 up to 2016. 4. The decline that set in after 2016 has since been reversed, with the share climbing back above its Global Financial Crisis trough. Which of the above is/are correctly identified?

  1. The share rose by nearly four percentage points in 2004, coinciding with a high-growth phase of the Indian economy.
  2. The decline around 2008 was associated with an externally driven shock, and was followed by a steady recovery through the early 2010s.
  3. The share fell in every single year, without interruption, from 2004 up to 2016.
  4. The decline that set in after 2016 has since been reversed, with the share climbing back above its Global Financial Crisis trough.
  • A. 2 and 3
  • B. 1, 3 and 4
  • C. 2 and 4
  • D. 1 and 2

Q5. Consider the following statements comparing the behaviour of corporate investment as a share of India's GDP around the 2008 Global Financial Crisis and around 2016: 1. The dip around 2008 was an externally driven shock followed by recovery, whereas the decline setting in after 2016 has been persistent rather than temporary. 2. The COVID-19 shock of 2020-21 marks the point at which the corporate investment-to-GDP ratio first began to decline. 3. The corporate investment share has not regained even the trough level it touched during the Global Financial Crisis. Which of the statements given above is/are correct?

  1. The dip around 2008 was an externally driven shock followed by recovery, whereas the decline setting in after 2016 has been persistent rather than temporary.
  2. The COVID-19 shock of 2020-21 marks the point at which the corporate investment-to-GDP ratio first began to decline.
  3. The corporate investment share has not regained even the trough level it touched during the Global Financial Crisis.
  • A. 1 and 2 only
  • B. 1 and 3 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q6. In the framework used to explain the trajectory of India's corporate investment-to-GDP ratio, events are classified as either externally driven shocks or domestic policy actions. Consider the following: 1. The Global Financial Crisis of 2008 2. The demonetisation of 2016 3. The COVID-19 pandemic shock of 2020-21 4. The September 2019 reduction in corporate income tax rates Which of the above is/are correctly identified as externally driven shocks?

  1. The Global Financial Crisis of 2008
  2. The demonetisation of 2016
  3. The COVID-19 pandemic shock of 2020-21
  4. The September 2019 reduction in corporate income tax rates
  • A. 1 and 2
  • B. 2 and 4
  • C. 1 and 3
  • D. 1, 3 and 4

Q7. Consider the following statements about the standard economic theory of what determines investment: 1. The accelerator principle holds that investment demand can fluctuate severely when fluctuations in consumer demand exhaust existing productive capacity. 2. Keynes's concept of the marginal efficiency of capital asserts that the rate of interest, rather than expected profitability, is the decisive determinant of the level of investment. 3. 'Animal spirits' denotes a spontaneous urge to action underlying investment decisions rather than action based on mathematical expectation. 4. Under the accelerator principle, an increase in national income leaves the level of investment unaffected. Which of the above is/are NOT correct?

  1. The accelerator principle holds that investment demand can fluctuate severely when fluctuations in consumer demand exhaust existing productive capacity.
  2. Keynes's concept of the marginal efficiency of capital asserts that the rate of interest, rather than expected profitability, is the decisive determinant of the level of investment.
  3. 'Animal spirits' denotes a spontaneous urge to action underlying investment decisions rather than action based on mathematical expectation.
  4. Under the accelerator principle, an increase in national income leaves the level of investment unaffected.
  • A. 1 and 3
  • B. 3 only
  • C. 1, 2 and 4
  • D. 2 and 4

Q8. Consider the following factors that a firm weighs while deciding whether to build additional productive capacity: 1. The demand expected for the output of the new capacity and the profitability it is likely to yield 2. The cost of capital, on which the prevailing policy interest rate exerts an important influence 3. The degree of policy and regulatory certainty facing the investing firm 4. The exchange rate at which the domestic currency is pegged, which by itself settles the capacity-creation decision Which of the above is/are correctly identified as determinants of corporate investment in the standard framework?

  1. The demand expected for the output of the new capacity and the profitability it is likely to yield
  2. The cost of capital, on which the prevailing policy interest rate exerts an important influence
  3. The degree of policy and regulatory certainty facing the investing firm
  4. The exchange rate at which the domestic currency is pegged, which by itself settles the capacity-creation decision
  • A. 1, 2 and 3
  • B. 2, 3 and 4
  • C. 1 and 4
  • D. 1, 2, 3 and 4

Q9. The leading indicator of private corporate capital expenditure intentions used to gauge near-term investment momentum in India is compiled by which institution, and from what underlying data?

  • A. The Securities and Exchange Board of India, from the offer documents in which every listed company must disclose its entire proposed capital outlay
  • B. The Department for Promotion of Industry and Internal Trade, from the industrial entrepreneur memoranda filed by all manufacturing units in the country
  • C. The Reserve Bank of India, from the envisaged cost of projects sanctioned by banks and financial institutions, external commercial borrowings and domestic equity issues
  • D. The National Statistical Office, from the audited annual accounts submitted without exception by every registered company in the corporate sector

Q10. The estimate that private corporate investment intentions rose to ₹2,45,212 crore in 2024-25 from ₹1,59,221 crore in 2023-24 carries the authority of which one of the following?

  • A. The National Accounts Statistics 2025 of the Ministry of Statistics and Programme Implementation, the only official source of forward-looking corporate capex figures
  • B. The Economic Survey presented by the Ministry of Finance, which alone consolidates every measure of intended corporate capital expenditure in the economy
  • C. A NITI Aayog investment monitoring report, which compiles the complete universe of announced private sector projects across all states
  • D. An article in the Reserve Bank of India Bulletin of October 2025, drawing on the central bank's project-financing data

Q11. Estimates of capital formation disaggregated across households, the corporate sector and government — from which the corporate sector's share in overall capital formation is worked out — are compiled and released by which body?

  • A. The Reserve Bank of India, in its Handbook of Statistics on the Indian Economy, which is the sole official source of sector-wise capital formation estimates
  • B. The Ministry of Statistics and Programme Implementation, in its National Accounts Statistics publication
  • C. The Department for Promotion of Industry and Internal Trade, in its annual compilation of industrial and foreign investment statistics
  • D. The Comptroller and Auditor General of India, in the Union Government Finance Accounts covering all capital outlays

Q12. Consider the following statements comparing the two concessional corporate income tax regimes introduced in India in 2019: 1. A domestic company opting for the 22 per cent rate must forgo the specified exemptions and incentives, and is not required to pay Minimum Alternate Tax. 2. The 15 per cent concessional rate is available to any domestic company set up and registered on or after 1 October 2019, irrespective of the nature of the business it carries on. 3. A company availing the 15 per cent regime was required to commence manufacturing or production on or before 31 March 2024. Which of the statements given above is/are correct?

  1. A domestic company opting for the 22 per cent rate must forgo the specified exemptions and incentives, and is not required to pay Minimum Alternate Tax.
  2. The 15 per cent concessional rate is available to any domestic company set up and registered on or after 1 October 2019, irrespective of the nature of the business it carries on.
  3. A company availing the 15 per cent regime was required to commence manufacturing or production on or before 31 March 2024.
  • A. 1 only
  • B. 1 and 3 only
  • C. 2 and 3 only
  • D. 1, 2 and 3