UPSC Prelims 2022 Q7: Indian Economy – National Income & Economic Growth
Which of the following activities constitute real sector in the economy?
1. Farmers harvesting their crops
2. Textile mills converting raw cotton into fabrics
3. A commercial bank lending money to a trading company
4. A corporate body issuing Rupee Denominated Bonds overseas
Select the correct answer using the code given below:
- (a) 1 and 2 only
- (b) 2, 3 and 4 only
- (c) 1, 3 and 4 only
- (d) 1, 2, 3 and 4
Answer: (a) 1 and 2 only
Explanation
Real sector vs financial sector
| Sector | What it covers |
|---|---|
| Real sector | Production of actual goods and services — farming, manufacturing, construction |
| Financial sector | Movement of money and financial claims — lending, bonds, shares |
Checking the activities:
| Activity | Sector |
|---|---|
| 1. Farmers harvesting crops | Real — produces goods |
| 2. Textile mills turning cotton into fabric | Real — manufacturing |
| 3. Bank lending to a trading company | Financial |
| 4. Company issuing Rupee bonds (Masala bonds) abroad | Financial |
Answer: (a) 1 and 2 only.
Why each option is right or wrong
- (a) CORRECT. Harvesting and textile manufacturing create real goods; lending and bond issues are financial.
- (b) Incorrect. Bank lending and bond issues belong to the financial sector.
- (c) Incorrect. It leaves out textile mills and wrongly includes two financial activities.
- (d) Incorrect. Activities 3 and 4 are financial, not real-sector activities.
Key point
Real sector = making goods and services (farms, factories). Financial sector = money flows (loans, bonds, shares).
Remember
The real sector produces goods and services; lending and bond issues are financial.
Common mistakes
- Treating bank lending as real because it supports trade; it is a financial activity.
- Forgetting that Masala bonds (rupee bonds abroad) are financial instruments.
- Thinking only manufacturing is real; agriculture is real too.
Exam tip
Can you touch the output? Crops and cloth — real; loans and bonds — financial.
Sources
- RBI — Annual Report (real economy chapter)
- NCERT Class XII — Introductory Macroeconomics, Ch 2