Paper I — Q8
(a) Explain the structure of Indian financial system. Discuss the emerging role of RBI in the changing global scenario in this…
(a) Explain the structure of Indian financial system. Discuss the emerging role of RBI in the changing global scenario in this 21st century. (15 marks) (b) A plant with a life of 3 years has the following projected cash flows : | Year | Cash Flows (₹) | |------|-------------| | 0 | (-) 20,00,000 | | 1 | 8,00,000 | | 2 | 8,00,000 | | 3 | 9,00,000 | There is no residual value at the end of the life of the plant. Calculate the— (i) Internal Rate of Return (IRR); (ii) discounted payback period. Applicable discounting rate is 10% p.a. Present values of ₹ 1 at the discounting rate of 10% and 12% are given below for 3 years : Year : 0 1 2 3 PV at 10% : 1 0·909 0·826 0·751 PV at 12% : 1 0·892 0·797 0·712 (20 marks) (c) Discuss the role of insurance industry and IRDA in the economic development of the country. (15 marks)
हिंदी में प्रश्न पढ़ें
(a) भारतीय वित्तीय प्रणाली की संरचना को समझाइए। 21वीं सदी में, बदलते वैश्विक परिदृश्य में, आर० बी० आई० की उभरती भूमिका की विवेचना कीजिए। (15 अंक) (b) 3 वर्ष के जीवन वाले एक संयंत्र में निम्नलिखित अनुमानित नकदी प्रवाह है : संयंत्र के जीवन के अंत में कोई अवशिष्ट मूल्य नहीं बचा है। गणना कीजिए— (i) प्रतिफल की आंतरिक दर (आई० आर० आर०); (ii) बहुगत निवेश वापसी अवधि। यहाँ लागू बहुगत दर 10% वार्षिक है। 10% और 12% की बहुगत दर पर ₹1 का वर्तमान मूल्य 3 वर्ष के लिए नीचे दिया गया है : वर्ष : 0 1 2 3 10% पर वर्तमान मूल्य : 1 0·909 0·826 0·751 12% पर वर्तमान मूल्य : 1 0·892 0·797 0·712 (20 अंक) (c) देश के आर्थिक विकास में बीमा उद्योग एवं आई० आर० डी० ए० की भूमिका की विवेचना कीजिए। (15 अंक)
Directive word: Discuss
This question asks you to discuss. The directive word signals the depth of analysis expected, the structure of your answer, and the weight of evidence you must bring.
See our UPSC directive words guide for a full breakdown of how to respond to each command word.
How this answer will be evaluated
Approach
The directive 'discuss' requires balanced exposition and critical analysis across all three parts. Allocate approximately 30% time to part (a) on Indian financial system and RBI's evolving role, 40% to part (b) numerical calculations (IRR and discounted payback period), and 30% to part (c) on insurance sector and IRDA. Structure with a brief introduction, then address each part sequentially with clear headings, showing calculations step-by-step for part (b), and conclude with integrated insights on financial sector development.
Key points expected
- Part (a): Structure of Indian financial system covering financial institutions, markets, instruments, and services; RBI's transformed role post-1991 reforms, post-2008 crisis, digital payments revolution (UPI), inflation targeting framework, and global coordination through FSB, BIS
- Part (b)(i): IRR calculation using interpolation between 10% and 12% discount rates, showing NPV at both rates and deriving exact IRR percentage
- Part (b)(ii): Discounted payback period calculation using 10% PV factors, cumulative discounted cash flows, and interpolation for exact period between Year 2 and Year 3
- Part (c): Insurance industry's role in mobilizing savings, providing risk cover, enabling long-term infrastructure financing, promoting financial inclusion; IRDA's regulatory functions, consumer protection, solvency norms, and contribution to economic stability
- Integrated understanding: Link between RBI's monetary policy, insurance sector's investment flows, and capital budgeting decisions in corporate sector
Evaluation rubric
| Dimension | Weight | Max marks | Excellent | Average | Poor |
|---|---|---|---|---|---|
| Demand-directive understanding | 15% | 7.5 | For (a), explains AND critically discusses RBI's evolving role with global context; for (b), correctly interprets 'calculate' directive with full working; for (c), discusses (not merely describes) insurance-IRDA-development nexus with evaluative stance | Addresses all parts but treats (a) and (c) descriptively rather than discursively; completes (b) calculations with minor errors or missing steps | Misinterprets directives—describes when discussion needed, or calculates without showing methodology; misses global dimension in (a) or regulatory depth in (c) |
| Content depth & accuracy | 30% | 15 | Precise IRR calculation (~14.5% with interpolation), accurate discounted payback (~2.4 years); comprehensive coverage of RBI's post-2016 MPC framework, digital currency developments, IRDA's 2023 consolidated regulations; no computational errors | Correct methodology in (b) with minor arithmetic errors; adequate coverage of financial system components and insurance functions but dated or incomplete on recent RBI/IRDA developments | Wrong IRR formula or payback method; significant gaps in financial system structure; confuses IRDA with other regulators; computational errors affecting final answers |
| Structure & flow | 20% | 10 | Clear tripartite structure with visible headings; logical progression from institutions to markets to regulation; calculations in (b) presented in tabular format with NPV workings at both rates shown explicitly; seamless transitions between parts | All parts addressed with basic headings; calculations readable but not optimally formatted; some abrupt shifts between theoretical and numerical sections | Poorly demarcated parts; calculations scattered without tabulation; missing headings make evaluation difficult; illogical sequencing (e.g., starting with calculations) |
| Examples / case-law / data | 20% | 10 | Cites specific RBI initiatives (UPI 2016, CBDC pilot 2022-23, inflation targeting since 2016); references IRDAI's Bima Sugam, Saral Jeevan Bima; uses actual PV factors provided correctly; mentions IL&FS crisis or Yes Bank resolution for financial stability context | General references to RBI's monetary policy and insurance penetration data; uses given PV tables correctly; mentions financial inclusion without specific schemes | No contemporary examples; fails to use provided PV factors; generic statements without institutional specifics; no data points on insurance sector contribution to GDP or savings |
| Conclusion & analytical edge | 15% | 7.5 | Synthesizes all three parts into coherent view on Indian financial sector development—linking RBI's regulatory modernization, corporate investment decisions (IRR/payback), and insurance sector's long-term financing role; critically evaluates challenges like financial stability vs. growth trade-off | Brief concluding paragraph summarizing main points; limited integration between theoretical and numerical components; standard observations on future prospects | No conclusion or abrupt ending; purely descriptive summary without analytical integration; fails to connect capital budgeting decisions with broader financial system context |
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