UPSC Prelims Practice Questions — The Manufacturing Transformation Powered by PLI

Q1. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. As of mid-2026, the cumulative incentive paid out under India's PLI schemes was only a small fraction of their total approved outlay.
  2. Under PLI, incentives are released only after a beneficiary's production or sales performance against set thresholds has been verified.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q2. NITI Aayog presented the PLI scheme as a tool to overcome the 'barrier of scale' in Indian manufacturing. With reference to the economic reasoning behind this, consider the following statements: Which of the statements given above is/are correct?

  1. When output expands, fixed costs are spread over more units, which lowers the average cost of production.
  2. Tying an incentive to incremental output gives firms a reason to expand production towards minimum efficient scale, not merely to install capacity.
  3. Buying inputs in bulk at larger volumes can lower per-unit costs, which is another source of economies of scale.
  • A. 1, 2 and 3
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1 only

Q3. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. Where economies of scale are significant, a small manufacturing plant can generally produce at a lower average cost than a large plant making the same product.
  2. Spreading fixed costs over a larger volume of output lowers the average cost of each unit produced.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q4. Consider the following facts reported in a 2026 review of India's PLI framework: nearly all mobile phones used in India are now made in India; India has turned from a net importer of mobile phones into a net exporter; and the government says the next phase will move from building capacity to building component and supplier ecosystems to deepen domestic value chains. Which of the following inferences can be drawn from the above?

  1. India has become self-reliant in the semiconductor chips and display modules used in the phones it makes.
  2. The gross value of India's phone exports may overstate the value actually added within India.
  3. Localising components and sub-assemblies would raise the domestic share of value in each phone made in India.
  • A. 1, 2 and 3
  • B. 2 and 3 only
  • C. 1 and 2 only
  • D. 3 only

Q5. Suppose a country replaces imports of a finished electronic product with domestic assembly, but the assembled product relies heavily on imported components. Consider the following likely outcomes: Which of the statements given above is/are correct?

  1. Imports of the finished product fall.
  2. Imports of the components used in assembly rise, offsetting part of the gain to the trade balance.
  3. The current account improves by the full value of the finished-product imports that are displaced.
  • A. 1 and 3 only
  • B. 1 only
  • C. 2 and 3 only
  • D. 1 and 2 only

Q6. With reference to India's PLI scheme for Advanced Chemistry Cell (ACC) Battery Storage, consider the following statements: Which of the statements given above are correct?

  1. Selected manufacturers must achieve a minimum level of domestic value addition at the project level within a specified period.
  2. The cells it promotes are useful both for electric vehicles and for stationary storage that supports the power grid.
  3. The incentive is paid on the capacity awarded to a firm, whether or not the firm produces and sells cells.
  4. Capacity awarded to firms under the scheme is the same as capacity commissioned and producing cells.
  • A. 2, 3 and 4 only
  • B. 1, 3 and 4 only
  • C. 1 and 2 only
  • D. 2 and 3 only

Q7. With reference to the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement), consider the following statements: Which of the statements given above are correct?

  1. A subsidy that depends on using domestic goods over imported goods is actionable, so it can be challenged only if the complainant proves adverse effects.
  2. A subsidy that depends on export performance is prohibited, without any need to show adverse effects.
  3. If a subsidised import injures the domestic industry of an importing member, that member may impose countervailing duties.
  4. Least-developed countries are exempted from the disciplines on prohibited export subsidies.
  • A. 1, 2 and 4 only
  • B. 1 and 3 only
  • C. 2 and 4 only
  • D. 2, 3 and 4 only

Q8. A WTO member pays manufacturers in a few selected sectors a cash incentive equal to a percentage of their incremental sales. The payment is the same whether the goods are sold at home or abroad, and there is no condition on using domestic inputs. Under the SCM Agreement, such a scheme is best characterised as:

  • A. a prohibited subsidy, since any cash payment linked to sales is treated as an export subsidy
  • B. a measure outside the agreement, since a performance-based payment is not a financial contribution
  • C. an actionable subsidy, open to challenge or countervailing duties only if it causes adverse effects
  • D. a non-actionable subsidy, immune from countervailing duties because domestic sales also qualify