ECONOMICS PAPER—I
1. Advanced Micro Economics
Exploring price determination, distribution, market structures, and modern welfare criteria.
a Marshallian and Walrasian Approaches to Price determination
Marshallian Approach
Partial equilibrium analysis, focusing on single market price determination with ceteris paribus. Emphasizes demand (utility theory) and supply (cost theory) curves for individual commodities. Time element in price determination (market period, short period, long period). Key concepts: consumer surplus, producer surplus, elasticity.
Walrasian Approach
General equilibrium analysis, considering simultaneous determination of prices and quantities in all markets. Uses system of simultaneous equations. Focuses on interdependence and existence, stability, and uniqueness of equilibrium. Tatonnement process.
b Alternative Distribution Theories
Ricardo
Theory of rent based on differential fertility and scarcity of land. Distribution of national product among rent, wages (subsistence level based on Malthusian population theory, wages fund), and profits (residual share, tendency to fall in long run).
Kaldor
Macroeconomic theory of distribution linking profit share to the investment-to-output ratio (P/Y = (1/(Sc-Sw)) * (I/Y) - Sw/(Sc-Sw)). Assumes different savings propensities of capitalists (Sc) and workers (Sw). Full employment assumed. "Keynesian" theory of distribution.
Kalecki
Distribution determined by the "degree of monopoly" in product markets. Emphasizes markup pricing (price over average prime costs). Profit share depends on market power and ratio of material costs to wage bill. Class conflict implicit.
c Markets Structure
Monopolistic Competition
Duopoly
Oligopoly
d Modern Welfare Criteria
Pareto, Hicks, and Scitovsky
Pareto Optimality: A state where no one can be made better off without making someone else worse off. Conditions: efficiency in exchange, production, and product mix. Limitations: Ignores distribution, assumes no externalities.
Kaldor-Hicks Criterion (Compensation Principle): A change is an improvement if gainers can hypothetically compensate losers and still be better off.
Scitovsky Paradox (Reversal Test): Shows Kaldor-Hicks can lead to contradictions if compensation is not actually paid. Scitovsky Double Criterion requires both Kaldor-Hicks and its reversal to be met.
Arrow’s Impossibility Theorem
Demonstrates the impossibility of aggregating individual preferences into a consistent and rational social welfare function that satisfies a set of minimal reasonable axioms: unrestricted domain, Pareto principle (or weak Pareto), non-dictatorship, and independence of irrelevant alternatives (IIA). Highlights challenges in democratic decision-making.
A. K. Sen’s Social Welfare Function
Critiques welfarism (utility as sole basis of welfare) and Pareto optimality's limitations. Introduces "Capabilities Approach": focus on individuals' effective opportunities (capabilities) to achieve valuable states of being and doing (functionings). Emphasizes justice, freedom, and richer informational basis for welfare judgments, including non-utility information and interpersonal comparisons of well-being. Social Choice theory and its extensions.
2. Advance Macro Economics
Frameworks for understanding employment, income, interest rates, and macroeconomic thought.
Approaches to Employment, Income, and Interest Rate determination
Classical: Assumes full employment due to flexible wages and prices. Say's Law (supply creates its own demand). Dichotomy between real and monetary sectors (money is neutral). Interest rate determined by equality of savings and investment in the loanable funds market.
Keynes (IS-LM): Aggregate demand determines output and employment. Sticky wages and prices lead to possibility of underemployment equilibrium. IS (goods market equilibrium) and LM (money market equilibrium) curves determine equilibrium income and interest rate. Role of fiscal and monetary policy in managing demand. Liquidity trap.
Neo-classical Synthesis: (Hicks, Samuelson, Modigliani) Integrates Keynesian short-run analysis (sticky prices, unemployment) with classical long-run outcomes (flexible prices, full employment). Phillips curve representing trade-off between inflation and unemployment. IS-LM-BP (Mundell-Fleming) model for open economies.
New Classical: (Lucas, Sargent, Wallace, Barro) Emphasizes rational expectations, continuous market clearing. Policy ineffectiveness proposition (anticipated policies have no real effects). Real Business Cycle (RBC) theory (fluctuations due to real shocks like technology changes). Lucas critique of econometric policy evaluation.
Theories of Interest Rate determination and Interest Rate Structure
Interest Rate Determination:
- Classical Theory (Loanable Funds Theory): Interest rate equilibrates supply of loanable funds (savings, dishoarding) and demand for loanable funds (investment, hoarding).
- Keynesian Theory (Liquidity Preference Theory): Interest rate determined by supply of money and demand for money (transactions, precautionary, speculative motives).
- Hicksian IS-LM Synthesis: Simultaneous determination in goods and money markets.
- Expectations Hypothesis (Pure, Biased): Long-term rates are an average of current and expected future short-term rates.
- Liquidity Premium Theory: Long-term rates include a premium to compensate for higher risk/lower liquidity of longer maturities. Yield curve typically upward sloping.
- Market Segmentation Theory / Preferred Habitat Theory: Markets for different maturities are segmented due to investor preferences. Rates determined by supply/demand in each segment.
3. Money-Banking and Finance
Understanding money, banking, monetary policy, and public finance.
a Demand for and Supply of Money
Money Multiplier & Quantity Theory of Money
Money Multiplier: Process by which commercial banks create credit. High-powered money (H) and total money supply (M). M = m * H, where 'm' is the money multiplier (depends on reserve ratio 'r' and currency-deposit ratio 'c').
Quantity Theory of Money (QTM):
- Fisher (Transactions Approach): Equation of Exchange (MV = PT). M=Money, V=Velocity, P=Price Level, T=Transactions. Assumes V and T are stable in short run, so P is proportional to M.
- Pigou (Cambridge Cash-Balance Approach): M = kPY. k is fraction of nominal income (PY) people want to hold as cash. Focuses on money as a store of value.
- Friedman (Modern QTM/Restatement): Demand for real money balances is a stable function of few variables (permanent income/wealth, expected returns on alternative assets, expected inflation). Money supply changes cause price level changes in long run.
Keynes’ Theory on Demand for Money
Liquidity Preference Theory: Three motives for holding money:
- Transactions Motive (LT): For day-to-day purchases. Positively related to income (LT = f(Y)).
- Precautionary Motive (LP): For unforeseen contingencies. Positively related to income (LP = f(Y)).
- Speculative Motive (LS): To profit from expected changes in interest rates/bond prices. Inversely related to interest rate (LS = f(i)). Liquidity Trap concept: at very low interest rates, demand for money becomes perfectly elastic.
Monetary Management in Closed and Open Economies
Goals: Price stability (inflation control/targeting), full employment, economic growth, exchange rate stability, financial stability. Potential conflicts between goals.
Instruments (Monetary Policy Tools):
- Quantitative/General: Bank Rate (discount rate), Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Open Market Operations (OMO - outright purchase/sale of securities, repos, reverse repos), Liquidity Adjustment Facility (LAF), Marginal Standing Facility (MSF).
- Qualitative/Selective: Credit rationing, moral suasion, margin requirements, direct action.
Open Economies: Constraints due to Impossible Trinity (fixed exchange rate, free capital mobility, independent monetary policy - can only have two). Mundell-Fleming model implications for policy effectiveness under different exchange rate regimes and capital mobility.
Relation between Central Bank and Treasury
Issues of central bank independence (goal independence vs. instrument independence). Coordination of monetary and fiscal policy for macroeconomic stability. Management of public debt by central bank. Deficit financing (monetization of deficit) and its inflationary implications. Modern trends towards greater central bank autonomy.
Proposal for ceiling on money growth rate
Monetarist proposal (e.g., Friedman's k-percent rule) advocating a constant, pre-announced growth rate of money supply to control inflation and provide macroeconomic stability. Rationale: belief in stable money demand function and QTM. Critiques: instability of money demand (velocity changes), difficulty in defining and controlling money supply, need for flexibility in response to shocks.
b Public Finance and its Role in market economy
Role in Market Economy (Musgrave's Functions)
- Allocation Function: Correction of market failures. Provision of public goods (non-rival, non-excludable), correction of externalities (Pigouvian taxes/subsidies), regulation of monopolies.
- Distribution Function: Achieving equitable distribution of income and wealth. Progressive taxation, transfer payments (social security, welfare programs), subsidies for merit goods.
- Stabilization Function: Maintaining macroeconomic stability (full employment, price stability, economic growth). Counter-cyclical fiscal policy (adjusting government spending and taxes). Automatic stabilizers (e.g., progressive income tax, unemployment benefits).
Sources of Government revenue
Tax Revenue: Direct taxes (income tax, corporate tax, wealth tax, capital gains tax), Indirect taxes (GST, customs duty, excise duty - largely subsumed under GST).
Non-Tax Revenue: Interest receipts on loans, dividends and profits from Public Sector Undertakings (PSUs), fees, fines, escheats, grants-in-aid (from foreign govts/international bodies).
Capital Receipts: Borrowings (internal and external), recovery of loans, disinvestment proceeds.
Forms of Taxes and Subsidies
Taxes: Types (Progressive, Regressive, Proportional; Direct vs. Indirect; Ad valorem vs. Specific). Canons of taxation (Adam Smith). Taxable capacity.
Incidence: Statutory (legal) vs. Economic (actual burden). Depends on elasticities of demand and supply. Effects on resource allocation, work effort (Laffer curve), savings, investment, income distribution. Deadweight loss of taxation.
Subsidies: Types (production, consumption, export). Economic effects, burden, targeting issues (leakages, inclusion/exclusion errors). Fiscal cost.
Limits to taxation, loans, crowding-out
Limits to Taxation: Laffer curve (revenue initially rises then falls with tax rate), taxable capacity, disincentive effects on work and investment, tax evasion/avoidance.
Limits to Loans/Borrowings: Sustainability of public debt (debt-to-GDP ratio). Burden of public debt (internal vs. external). Ricardian equivalence proposition (debt financing equivalent to tax financing if individuals are rational and forward-looking).
Crowding-out Effects: Government borrowing increasing interest rates, thereby reducing (crowding out) private investment.
Public expenditure and its effects
Classification: Revenue vs. Capital expenditure; Developmental vs. Non-developmental; Plan vs. Non-plan (pre-NITI Aayog). Canons of public expenditure. Effects on production, distribution, economic stability. Multiplier effects (Keynesian). Theories of public expenditure growth: Wagner's Law of increasing state activity, Peacock-Wiseman hypothesis (displacement effect due to social disturbances). Social cost-benefit analysis for public projects.
Public Finance Insights: Governments use fiscal tools not just for revenue, but to steer the economy, redistribute wealth, and provide essential public services where markets may fail.
4. International Economics
Theories of trade, protectionism, BOP, exchange rates, and global institutions.
a Old and New theories of International Trade
(i) Comparative advantage
Comparative Advantage (Ricardo): Countries specialize based on lower opportunity costs, even if one is absolutely more efficient in all goods. Gains from trade for all.
Heckscher-Ohlin Theorem (Factor Proportions Theory): Countries export goods intensive in their abundant factors. Leontief Paradox (US exports were labor-intensive, not capital-intensive, contrary to H-O).
(ii) Terms of Trade and offer curve
Offer Curves (Reciprocal Demand Curves - Marshall, Edgeworth): Show a country's willingness to import and export at various ToT. Equilibrium ToT and trade volume determined by intersection of offer curves.
(iii) Product cycle and Strategic trade theories
Strategic Trade Theories (Krugman, Brander-Spencer): Focus on imperfect competition, economies of scale, R&D. Role for government intervention (subsidies) to shift profits from foreign to domestic firms in oligopolistic industries ("profit-shifting" argument).
(iv) Trade as an engine of growth and theories of underdevelopment
Theories of Underdevelopment: Prebisch-Singer Hypothesis (secular decline in ToT for primary commodity exporters). Dependency Theory (core-periphery relations perpetuate underdevelopment). Unequal Exchange (Emmanuel). Vent for Surplus (Myint).
b Forms of protection : Tariff and quota
Tariff
A tax imposed on imported goods. Types: Specific, Ad valorem, Compound. Effects: Price effect (domestic price rises), consumption effect (falls), production effect (rises), trade effect (imports fall), revenue effect (govt gains), redistribution effect (from consumers to producers/govt). Deadweight loss (production and consumption distortions). Optimum tariff (for large country that can influence world prices). Effective rate of protection (protection to value added).
Quota
A quantitative limit on the amount of a good that can be imported. Effects similar to tariffs on price, production, consumption, trade. Difference: quota rent (extra profit due to scarcity) accrues to import license holders (domestic or foreign) or foreign exporters, not government (unless licenses are auctioned). Tariff-quota equivalence and non-equivalence. Voluntary Export Restraints (VERs).
c Balance of Payments Adjustments : Alternative Approaches
(i) Price versus income adjustments under fixed exchange rates
Income Adjustments (Keynesian Multiplier): Changes in autonomous exports/imports affect income via foreign trade multiplier, which in turn affects induced imports, leading to BOP adjustment.
Absorption Approach (Alexander): BOP (B) = Income (Y) - Absorption (A - domestic spending). Devaluation improves BOP if it increases Y relative to A, or reduces A relative to Y. Depends on resource availability and marginal propensity to absorb.
(ii) Theories of Policy mix
(iii) Exchange rate adjustments under capital mobility
Fixed ER: Monetary policy ineffective with perfect capital mobility (becomes endogenous). Fiscal policy highly effective.
Flexible ER: Monetary policy highly effective with perfect capital mobility. Fiscal policy ineffective (crowding out via exchange rate appreciation).
(iv) Floating Rates, implications for LDCs & Currency Boards
Implications for LDCs: Thin forex markets, vulnerability to speculation, difficulty in maintaining policy independence if capital flows are large.
Currency Boards: A hard peg regime where domestic currency is fully backed by foreign reserves at a fixed rate. Pros (credibility, low inflation, fiscal discipline). Cons (loss of monetary policy autonomy, no lender of last resort function for central bank, vulnerability to asymmetric shocks).
(v) Trade Policy and Developing Countries
(vi) BOP adjustments & Policy Coordination in open economy
(vii) Speculative attacks
First-generation (Krugman, 1979): Caused by inconsistent macroeconomic fundamentals (e.g., persistent fiscal deficits financed by money creation) under a fixed exchange rate regime. Attack occurs when reserves fall to a critical level.
Second-generation (Obstfeld, 1994): Self-fulfilling crises. Attack can occur even if fundamentals are not clearly unsustainable, if speculators believe others will attack. Government's decision to defend peg depends on costs/benefits. Multiple equilibria.
Third-generation (Asian Crisis inspired): Focus on financial sector fragility, moral hazard (due to implicit guarantees), crony capitalism, and balance sheet mismatches (currency, maturity).
(viii) Trade Blocks and Monetary Unions
Monetary Unions: Adoption of a single currency (e.g., Eurozone) or irrevocably fixed exchange rates. Optimum Currency Area (OCA) theory (Mundell, McKinnon, Kenen): criteria for successful monetary union (labor mobility, wage/price flexibility, fiscal integration, similarity of shocks).
(ix) WTO : Trims, TRIPS, Domestic Measures, WTO Rounds
TRIMS (Trade-Related Investment Measures): Prohibits investment measures that distort trade (e.g., local content requirements).
TRIPS (Trade-Related Aspects of Intellectual Property Rights): Minimum standards for IPR protection (patents, copyrights, trademarks). Implications for LDCs (access to medicines, technology).
Domestic Measures: Agreement on Subsidies and Countervailing Measures (ASCM - defines prohibited/actionable subsidies). Agreement on Agriculture (AoA - pillars: market access, domestic support, export subsidies). Sanitary and Phytosanitary (SPS) Measures. Technical Barriers to Trade (TBT).
Rounds: Uruguay Round (1986-94, established WTO, covered agriculture, services, TRIPS). Doha Development Agenda (DDA, 2001-present, focus on developing country concerns, largely stalled). Ministerial Conferences.
5. Growth and Development
Theories of growth, development processes, global interactions, planning, welfare, and sustainability.
a Theories of growth
Harrod’s model
Part of Harrod-Domar model. Focuses on conditions for steady-state growth. Actual growth rate (G), Warranted growth rate (Gw = s/v, where s=savings ratio, v=capital-output ratio), Natural growth rate (Gn = sum of labor force growth and labor productivity growth). "Knife-edge" problem: instability if G ≠ Gw. Long-run growth constrained by Gn.
Lewis model of development
Arthur Lewis's dual-sector model. Economy divided into traditional (agriculture, surplus labor, zero marginal productivity) and modern (industry) sectors. Transfer of surplus labor from traditional to modern sector at a constant subsistence wage. Capital accumulation in modern sector (reinvestment of profits) drives growth and labor absorption. Turning point when surplus labor is exhausted.
Balanced Unbalanced Growth
Debate on development strategies for LDCs.
Balanced Growth (Nurkse, Rosenstein-Rodan): Advocates for simultaneous investment in multiple complementary industries to create mutual demand ("Big Push" theory) and overcome indivisibilities and externalities.
Unbalanced Growth (Hirschman): Advocates for strategic investment in key sectors with strong forward and backward linkages to induce investment in other sectors. Deliberate creation of disequilibria to stimulate growth.
Human capital & Growth
Recognizes education, health, skills, and training as forms of capital. Enhances labor productivity and innovation. Endogenous growth models (e.g., Lucas model) incorporate human capital accumulation as a key driver of sustained economic growth, overcoming diminishing returns to physical capital.
R&D and Economic Growth
R&D leads to innovation and technological progress, which are crucial for long-run economic growth. Endogenous growth models (e.g., Romer's model of expanding variety of intermediate goods, Aghion-Howitt model of creative destruction) explicitly model R&D activities and their impact on productivity growth. Role of patents and intellectual property rights in incentivizing R&D.
b Process of Economic Development of LDCs
Myrdal and Kuznets on development & structural change
Gunnar Myrdal: Theory of "Cumulative Causation." Market forces tend to increase inequalities between regions/countries. "Backwash effects" (negative impacts on lagging regions, e.g., brain drain, capital flight) vs. "Spread effects" (positive spillovers from growing regions). Emphasized role of institutions and need for state intervention.
Simon Kuznets: Empirical analysis of "Modern Economic Growth." Identified structural changes during development: shift of labor and output from agriculture to industry and then to services; urbanization; changes in firm size; changes in income distribution. Kuznets Curve: hypothesized inverted U-shape relationship between income inequality and per capita income during development.
Role of Agriculture in Economic Development
Contributions: provides food supply for growing population; releases labor for industrial sector; serves as a market for industrial goods; generates savings/capital for investment; earns foreign exchange through exports. Challenges: low productivity, disguised unemployment, land tenure issues, price volatility, lack of infrastructure and credit. Strategies: land reforms, technological upgradation (Green Revolution), irrigation, rural credit, marketing infrastructure.
c Economic Development, Int'l Trade & Investment, Role of Multinationals
Trade: Impact of international trade (export promotion vs. import substitution strategies) on economic development. Issues of terms of trade, market access for LDC exports.
Investment (FDI): Role of Foreign Direct Investment in providing capital, technology, management skills, market access.
Role of Multinationals (MNCs): Benefits (as above, employment generation, linkage effects). Costs/Concerns (profit repatriation, transfer pricing, stifling local enterprise, inappropriate technology, market power, socio-cultural impacts, political influence). Bargaining power of LDCs with MNCs. Need for appropriate regulatory framework.
d Planning, Markets, and Private-Public Partnership
Evolution of development planning: from comprehensive central planning (command economy) to indicative planning and market-based approaches. Rationale for planning (market failures - externalities, public goods, imperfect information; coordination; mobilization of resources).
Changing Role: Shift towards greater reliance on markets, deregulation, liberalization, privatization. State's role evolving from direct producer to facilitator and regulator.
Private-Public Partnership (PPP): Collaboration between government and private sector for infrastructure and social sector projects. Models (BOT, BOOT, etc.). Benefits (efficiency, finance, innovation). Challenges (risk sharing, regulation, transparency, accountability).
e Welfare indicators, HDI, Basic Needs Approach
Human Development Indices (HDI)
Critique of GDP/GNP as sole measure of development. HDI (developed by UNDP - Mahbub ul Haq) as a composite measure of average achievement in three key dimensions: a long and healthy life (life expectancy at birth), being knowledgeable (mean years of schooling and expected years of schooling), and a decent standard of living (GNI per capita). Other indices: Gender Development Index (GDI), Gender Inequality Index (GII), Multidimensional Poverty Index (MPI), Physical Quality of Life Index (PQLI - Morris D. Morris).
The Basic Needs Approach
Focuses on direct provision of essential goods and services required for a minimum standard of living (food, shelter, clothing, healthcare, education, sanitation, clean water). Emphasizes eradication of absolute poverty and deprivation. Complements income-based approaches to poverty reduction by ensuring access to essential services irrespective of income. Popularized by ILO in 1970s.
f Development and Environmental Sustainability
- Renewable & Non-Renewable Resources: Sustainable management of natural resources. Common property resource issues (Tragedy of the Commons). Optimal depletion theory (Hotelling's rule).
- Environmental Degradation: Causes (pollution, deforestation, biodiversity loss) and consequences. Market failures (externalities, public goods nature of environment). Environmental Kuznets Curve.
- Intergenerational Equity: Balancing present needs with future generations' needs. Sustainable Development Goals (SDGs). Green accounting. Climate change economics.
Sustainability Imperative: True development balances economic progress with environmental stewardship and social equity for current and future generations.
ECONOMICS PAPER—II : Indian Economy
Indian Economy in Pre-Independence Era
Examining the colonial impact on India's economic structure and trajectory.
Land System and its changes
Pre-colonial systems. British introduced: Zamindari System (Permanent Settlement in Bengal, Bihar, Orissa - fixed land revenue for zamindars, led to peasant exploitation, absentee landlordism), Ryotwari System (Madras, Bombay - direct settlement with cultivators (ryots), high revenue demands), Mahalwari System (NW Provinces, Punjab - settlement with village community (mahal)). Impact: increased land alienation, rural indebtedness, fragmentation of holdings, stagnation in agriculture.
Commercialization of agriculture
Shift from subsistence farming to production of cash crops (cotton, jute, indigo, opium, sugarcane, tea, coffee) for market (domestic and international). Causes: colonial policies (revenue demands in cash), market forces (demand from Britain), development of transport (railways). Consequences: increased peasant indebtedness, vulnerability to price fluctuations, famines (due to neglect of food crops), linkage with world market, regional specialization, but limited benefits to cultivators.
Drain theory
Propounded by Dadabhai Naoroji, R.C. Dutt, G.V. Joshi. Concept of unilateral transfer of wealth/resources from India to Britain for which India received no corresponding economic or material return. Components: "Home Charges" (salaries, pensions of British officials, military expenses, interest on public debt), profits of British capitalists, remittances. Impact: depletion of India's capital, hindered domestic investment and industrialization, contributed to poverty.
Laissez faire theory and critique
British claimed to follow laissez-faire (free trade, minimal state intervention) in India. Critique by Indian nationalists: Argued that it was selectively applied to benefit British interests (e.g., free import of British goods, but restrictions on Indian industries). Led to de-industrialization (ruin of handicrafts), arrested indigenous capitalist development, and made India a market for British manufactures and supplier of raw materials.
Manufacture and Transport
Manufacture: Decline of traditional handicraft industries (textiles, shipbuilding) due to competition from machine-made British goods, discriminatory policies. Slow and lopsided growth of modern factory industries (cotton textiles, jute, coal mining, some engineering). Predominantly British-owned, limited Indian entrepreneurship.
Transport (Railways): Developed primarily for administrative, military, and commercial (raw material extraction, market penetration) interests of Britain. Impact: facilitated trade (internal and external), market integration, famine relief, but also aided drain of wealth and harmed local industries by exposing them to wider competition.
Money and Credit
Evolution of modern banking: Presidency Banks (Bengal, Bombay, Madras) later amalgamated into Imperial Bank of India. Emergence of joint-stock banks (largely European controlled). Limited reach, especially in rural areas. Dominance of unorganized sector: indigenous bankers (shroffs, chettiars) and village moneylenders. High interest rates, exploitative practices, widespread rural indebtedness. Lack of institutional credit for agriculture and small industries.
Indian Economy after Independence
A. The Pre-Liberalization Era (Upto 1991)
(i) Contribution of Vakil, Gadgil and V.K.R.V. Rao
C.N. Vakil: Advocated "wage goods model" for planning (emphasizing agriculture and consumer goods to control inflation), critiqued Mahalanobis model's heavy industry bias. Early work on poverty, inflation (PLANFRED - Planning for a Shortage Economy).
D.R. Gadgil: Emphasized decentralized planning, cooperative movement, rural development, regional balance. "Gadgil Formula" for central assistance to states. Architect of district planning.
V.K.R.V. Rao: Pioneering work on national income estimation methodology for India. Studies on poverty, employment, food policy. Concept of "deficit financing for economic development". Founder of Delhi School of Economics, Institute of Economic Growth.
(ii) Agriculture: Land Reforms, Green Revolution, Capital Formation
Land Reforms: Objectives: abolition of intermediaries, tenancy reforms (security of tenure, rent regulation, ownership rights for tenants), ceilings on land holdings, consolidation of holdings. Successes: Zamindari abolition largely successful. Failures: Benami transfers, ineffective ceiling implementation, poor record on tenancy reforms in many states.
Land Tenure System: Post-reform patterns, persistence of tenancy, issues of land records.
Green Revolution (mid-1960s onwards): Introduction of High Yielding Variety (HYV) seeds (wheat, rice), increased use of fertilizers, pesticides, irrigation, credit. Phases. Impact: significant increase in foodgrain production (food security achieved), regional disparities (benefited irrigated areas like Punjab, Haryana, Western UP), inter-personal inequalities (benefited larger farmers more initially), ecological concerns (soil degradation, water depletion).
Capital Formation: Public investment (irrigation, research, infrastructure), private investment (tractors, pumpsets, wells). Trends and issues like declining public investment in later phase.
(iii) Industry: Trends, Public/Private Sector, SSIs
Trends: Industrial Policy Resolutions (1948, 1956) emphasized state role. Mahalanobis model (Second Plan) focused on heavy industries (capital goods) under import substitution strategy. Growth rates varied, diversification of industrial base. Issues: inefficiency, low productivity, underutilization of capacity, technological backwardness in some sectors.
Public Sector (PSUs): Rationale: "commanding heights" of economy, infrastructure development, basic industries, social justice, regional balance. Achievements: established diverse industrial base. Problems: low profitability, overstaffing, bureaucratic hurdles, political interference, lack of autonomy.
Private Sector: Regulated growth under licensing regime (Industries (Development and Regulation) Act, 1951 - "License Raj"), MRTP Act (Monopolies and Restrictive Trade Practices Act, 1969) to check concentration of economic power.
Small Scale & Cottage Industries (SSIs): Promoted for employment generation, equity, decentralization. Policies: reservations of items for exclusive SSI production, fiscal concessions, technical assistance, credit facilities. Problems: access to credit, marketing, technology, competition from large scale.
(iv) National & Per Capita Income: Patterns, Trends, Composition
Patterns & Trends: Slow growth in initial decades ("Hindu rate of growth" - approx 3.5% annual GDP growth from 1950s to 1970s). Some acceleration in 1980s. Per capita income growth was even slower due to high population growth.
Sectoral Composition (GDP): Share of agriculture declined significantly (from over 50% to around 30% by 1990). Share of industry increased moderately. Share of services sector grew steadily, becoming largest contributor by late 1980s.
Sectoral Composition (Employment): Agriculture remained largest employer, with slow shift of workforce to other sectors, indicating structural rigidities.
(v) Factors of National Income, Poverty & Inequality Measures
Factors Determining National Income: Savings rate, investment rate (ICOR - Incremental Capital Output Ratio), technological progress, human capital (education, health), institutional framework (property rights, governance), infrastructure.
Distribution: Income and wealth inequality. Measurement: Lorenz curve, Gini coefficient. Factors influencing distribution: asset ownership patterns, employment structure, fiscal policy (taxation, subsidies).
Poverty Measures: Poverty line defined by Planning Commission based on minimum calorie intake (earlier expert groups: Dandekar & Rath, Alagh Committee, Lakdawala Committee). Poverty estimation methods: Headcount Ratio (HCR), Poverty Gap Index, Squared Poverty Gap Index.
Trends: Poverty declined over time, but debates on the extent and pace of reduction. Inequality trends varied, with concerns about rising inequality in some periods/aspects.
B. The Post Liberalization Era (Post 1991)
(i) New Economic Reform & Agriculture
Agriculture & WTO: Agreement on Agriculture (AoA) – pillars: Market Access (tariffication, reduction), Domestic Support (Aggregate Measurement of Support - AMS; Amber, Blue, Green Box subsidies), Export Subsidies (reduction commitments). Implications for India: food security, farmers' livelihoods, input subsidies.
Food Processing: Potential for value addition, employment, reducing wastage. Government initiatives (e.g., PMKSY), challenges (supply chain, infrastructure, credit).
Subsidies: Input subsidies (fertilizer, power, irrigation) vs. output subsidies (MSP). Issues: fiscal burden, equity, environmental impact (e.g., urea overuse, water depletion). Debates on rationalization, direct benefit transfer (DBT).
Agricultural Prices & PDS: Minimum Support Price (MSP) policy - objectives, coverage, effectiveness. Public Distribution System (PDS) – objectives (food security, price stabilization), functioning, reforms (Targeted PDS, National Food Security Act 2013).
Public Expenditure: Impact of investment in irrigation, R&D, rural infrastructure on agricultural growth. Trends and concerns about declining share of public investment.
(ii) New Economic Policy & Industry
Strategy of Industrialization: Shift from import substitution to greater outward orientation. New Industrial Policy 1991: De-licensing (abolition of industrial licensing for most industries), De-reservation (reduction in items reserved for public sector and SSIs), Abolition of MRTP limits on asset size, promotion of competition.
Privatization & Disinvestment: Rationale (efficiency, revenue generation, reducing fiscal burden). Methods (strategic sale, minority stake sale, IPOs). Proceeds utilization. Issues and debates (valuation, job losses, crony capitalism concerns).
FDI & MNCs: Liberalized FDI policy, automatic approval route for many sectors. Impact on investment, technology transfer, competition, employment, export promotion. Sectoral caps, performance requirements. Make in India initiative.
(iii) New Economic Policy & Trade
Intellectual Property Rights (IPRs): Implications of TRIPS Agreement. India amended its patent law (e.g., Patents Act, 2005) to comply with TRIPS (product patents for pharmaceuticals, agrochemicals). Impact on access to medicines, R&D, agriculture (seeds).
TRIMS (Trade-Related Investment Measures): India phased out TRIMS-inconsistent measures (e.g., local content requirements).
GATS (General Agreement on Trade in Services): Liberalization of trade in services. India's offensive interests (Mode 4 - movement of natural persons, Mode 1 - cross-border supply) and defensive interests.
New EXIM Policy: Focus on export promotion, simplification of procedures, diversification of export basket and markets. Schemes like SEZs (Special Economic Zones), EPCG (Export Promotion Capital Goods).
(iv) New Exchange Rate Regime
Shift from pegged system to market-determined exchange rate. Liberalized Exchange Rate Management System (LERMS) in 1992 (dual exchange rate). Full convertibility on current account achieved in August 1994.
Capital Account Convertibility (CAC): Meaning (freedom to convert local financial assets into foreign financial assets and vice versa at market determined rates). Benefits (access to larger capital pool, efficiency). Risks (volatility, contagion). Tarapore Committee Reports (I in 1997, II in 2006) on roadmap and preconditions for CAC. India has adopted a gradual approach towards CAC.
(v) NEP & Public Finance
Fiscal Responsibility and Budget Management (FRBM) Act, 2003: Objectives: ensure inter-generational equity in fiscal management and long-term macroeconomic stability. Set targets for eliminating revenue deficit and reducing fiscal deficit. Amendments and escape clauses. NK Singh Committee review.
Twelfth Finance Commission (2005-10): Key recommendations: vertical tax devolution (share of states in central taxes), horizontal distribution criteria, grants-in-aid (revenue deficit, sector-specific, disaster relief), debt relief and restructuring for states.
Fiscal Federalism: Centre-State financial relations. Issues of vertical and horizontal imbalances. Impact of GST (Goods and Services Tax) on fiscal federalism (GST Council, compensation to states).
Fiscal Consolidation: Efforts to reduce fiscal deficit and public debt-to-GDP ratio through expenditure rationalization and revenue augmentation measures.
(vi) NEP & Monetary system
Role of RBI under the new regime: Shift from direct instruments (CRR, SLR changes) to indirect instruments (repo rate, OMOs) of monetary control. Focus on price stability (flexible inflation targeting framework adopted formally in 2016, Monetary Policy Committee - MPC). Financial stability as a key objective. Regulation and supervision of banks & NBFCs. Management of government debt and foreign exchange reserves. Development of financial markets (money, government securities, forex markets).
(vii) Planning: Central to Indicative
Shift from centralized, comprehensive Five-Year Plans (Planning Commission) to indicative planning and strategic policy vision. Abolition of Planning Commission in 2014, establishment of NITI Aayog (National Institution for Transforming India) in 2015 as a policy think tank, promoting cooperative federalism.
Relation between planning and markets: Recognition of markets' role in resource allocation, state intervention focused on correcting market failures, providing public goods, and ensuring equity.
Decentralized Planning: 73rd Constitutional Amendment Act (1992) for Panchayati Raj Institutions (PRIs) and 74th Amendment Act (1992) for Urban Local Bodies (ULBs). Aims: empower local bodies, promote grassroots democracy, facilitate local-level planning and implementation. Devolution of funds, functions, and functionaries (3Fs). Challenges: capacity building, financial autonomy, political will.
(viii) NEP & Employment
Employment and Poverty: Impact of economic reforms on employment growth ("jobless growth" debate in some phases). Nature of employment (shift from agriculture, growth in services, formal vs. informal sector employment, gig economy). Link between economic growth, employment generation, and poverty reduction.
Rural Wages: Trends in real wages for agricultural and non-agricultural workers in rural areas.
Employment Generation: Government schemes and initiatives (e.g., Make in India, Skill India Mission, Pradhan Mantri Kaushal Vikas Yojana - PMKVY, Start-up India, Stand-Up India).
Poverty Alleviation Schemes: Self-employment programs (e.g., National Rural Livelihoods Mission - NRLM/SRLM, National Urban Livelihoods Mission - NULM), wage employment programs (MGNREGA), food security (National Food Security Act - NFSA, PDS), social security schemes (pensions, insurance).
New Rural Employment Guarantee Scheme (MGNREGA - Mahatma Gandhi National Rural Employment Guarantee Act, 2005): Objectives (provide 100 days of guaranteed wage employment in a financial year to every rural household whose adult members volunteer to do unskilled manual work). Features, impact on rural livelihoods, poverty reduction, women empowerment, creation of durable assets. Challenges (timely payment, quality of assets, corruption).
Post-Reform Trajectory: India's economy transformed post-1991, embracing market-oriented reforms leading to higher growth and global integration, while navigating challenges of inclusive development and structural transformation.
"Government strives to have a workforce which reflects gender balance and women candidates are encouraged to apply."
(As noted in the original syllabus document - promoting inclusivity in learning and application.)