Which of the following activities constitute real sector in the economy?Farmers harvesting their cro

Q: What is UPSC Prelims?

UPSC Prelims is a competitive examination conducted in India. This question is from the 2022 UPSC Prelims Economy paper.

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This UPSC Prelims 2022 Economy question has a easy difficulty level and is marked as an important question.

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Question

Which of the following activities constitute real sector in the economy?Farmers harvesting their cropsTextile mills converting raw cotton into fabricsA commercial bank lending money to a trading companyA corporate body issuing Rupee Denominated Bonds overseasSelect the correct answer using the code given below:

Accepted Answer

Correct Answer: A — 1 and 2 onlyStep-by-step Solution:An economy is broadly divided into two sectors: the real sector (production of goods and services) and the financial sector (financial intermediation and capital allocation).The real sector encompasses all activities that directly contribute to the production of goods and services — activities that create tangible output and add to the GDP of the economy.Activity 1 — Farmers harvesting crops: This is a real sector activity. It directly produces an agricultural commodity (food grain), contributing to the GDP under the agriculture sector. ✓Activity 2 — Textile mills converting cotton into fabrics: This is a real sector activity. It is a manufacturing activity that transforms raw material into a finished product, contributing to industrial GDP. ✓Activity 3 — Commercial bank lending to a trading company: This is a financial sector activity. Banks are financial intermediaries — they mobilise deposits and channel them as loans. Lending is a financial service, not production of a physical good. ✗Activity 4 — Corporate body issuing Rupee Denominated Bonds overseas (Masala Bonds): This is a financial sector activity. Issuing bonds is a capital-raising/financial transaction. It does not create any tangible goods or services directly. ✗Why other options are incorrect:Options B, C, and D: Incorrect because activities 3 and 4 belong to the financial sector, not the real sector.Key Concept: Real sector = production of goods and services (agriculture, manufacturing, services like transport, healthcare, education). Financial sector = financial intermediation (banking, insurance, capital markets, bonds, forex). Real sector growth directly adds to GDP; financial sector facilitates real sector growth by channelling savings to productive uses. Rupee Denominated Bonds (Masala Bonds) are bonds issued in Indian rupees in the overseas market — a financial sector instrument for raising foreign capital.

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