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UPSC ECONOMICS (PAPER II) 2023 Complete solution




1(a) Land system during the British rule was responsible for sustained poverty and stagnant growth in India. Comment


ANS: The British implemented the Permanent Settlement in 1793, fixing land revenue permanently. This system led to exorbitant taxes, impoverishing farmers and hindering economic growth.

  1. Zamindari System: The introduction of intermediaries, or zamindars, exacerbated the exploitation of peasants. They extracted high rents, leaving farmers in perpetual poverty.

  2. Commercialization of Agriculture: The focus on cash crops for export led to the neglect of food crops, causing famines and food insecurity. The economy became vulnerable to global market fluctuations.

  3. Limited Landownership: Landownership was concentrated in the hands of a few, depriving the majority of farmers of property rights. This lack of security stifled agricultural innovation and investment.

  4. Lack of Infrastructure: The British neglected infrastructure development in rural areas, impeding transportation and market access for agricultural produce.

  5. Indebtedness: Farmers often fell into debt due to high taxes and economic policies favouring British interests, perpetuating a cycle of poverty.

In summary, the British land system contributed significantly to sustained poverty and stagnant growth in India by exploiting farmers, hindering agricultural development, and prioritizing colonial interests over the welfare of the population.


(b) How did V. K. R. V. Rao improve upon the earlier national income estimates of India?


ANS: V. K. R. V. Rao significantly advanced India's national income estimates through several key improvements:

  1. Sectoral Breakdown: Rao introduced a more detailed sectoral breakdown, distinguishing between agriculture, industry, and services. This granularity allowed for a more accurate representation of the economy.

  2. Base Year Revision: He updated the base year, ensuring that the calculations reflected the contemporary economic structure. This adjustment increased the relevance and reliability of the national income estimates.

  3. Inclusion of Non-Market Activities: Unlike earlier estimates, Rao incorporated non-market activities, such as household production and the informal sector, providing a more comprehensive view of economic activities.

  4. Factor Cost Calculation: Rao focused on factor cost rather than market prices, offering a clearer picture of income distribution among factors of production.

  5. Improved Data Sources: Rao emphasized the use of more reliable and extensive data sources, enhancing the accuracy of the estimates and making them more reflective of the dynamic economic landscape.

Overall, V. K. R. V. Rao's refinements resulted in more nuanced and accurate national income estimates for India.


(c) Examine the impact of Green Revolution on production and productivity in the agriculture sector


ANS: The Green Revolution, initiated in the 1960s, introduced high-yielding varieties of crops, significantly boosting agricultural production.

  1. Technological Advancements: Adoption of modern farming techniques, like mechanization and improved irrigation, led to increased efficiency and productivity in the agriculture sector.

  2. Food Security: The Green Revolution played a pivotal role in addressing food scarcity by enhancing the production of staple crops, ensuring greater food availability.

  3. Income Generation: Higher yields translated to increased income for farmers, stimulating economic growth in rural areas and reducing poverty.

  4. Global Impact: The Green Revolution had a global reach, influencing farming practices in various countries, especially in Asia and Latin America.

  5. Environmental Concerns: However, the increased use of fertilizers and pesticides raised environmental issues, impacting soil health and water quality.

  6. Social Disparities: The benefits of the Green Revolution were not uniformly distributed, leading to social and economic disparities among farmers.

  7. Sustainable Agriculture: In recent years, there has been a shift towards sustainable agriculture to address environmental concerns and promote long-term food security.

In summary, while the Green Revolution significantly increased agricultural production and productivity, its impact also brought about environmental and social challenges, necessitating a balanced approach for future agricultural development.


(d) Deceleration and structural retrogression have been the key features of industrial sector in India during 1965-80. Give reasons.


ANS: During the period of 1965-80, the industrial sector in India witnessed deceleration and structural retrogression for several reasons. One prominent factor was the prevailing regulatory framework, characterized by extensive government control and licensing, which impeded entrepreneurial initiatives and innovation. The License Raj, a system of bureaucratic permits, led to inefficiencies and stifled competition.

Moreover, the emphasis on import substitution industrialization (ISI) during this period meant that industries focused on producing goods domestically that were previously imported. While this strategy initially aimed at achieving self-sufficiency, it often resulted in the development of inefficient and uncompetitive industries.

Additionally, there was a lack of technological advancements and inadequate infrastructure, hindering the growth and modernization of industries. The absence of market-oriented policies and limited exposure to global markets further constrained the industrial sector's ability to adapt to changing economic dynamics.

In summary, the combination of restrictive regulations, ISI policies, technological stagnation, and insufficient infrastructure contributed to the deceleration and structural retrogression of the industrial sector in India from 1965 to 1980.







(e) Examine the factors responsible for acceleration in the growth of national income in the decade of 1980s as against 1960s and 1970


ANS: The 1980s saw a shift towards market-oriented economic policies, with many countries adopting liberalization measures that encouraged private enterprise and reduced government intervention. Here are some of the factors responsible for the growth of NI during the period.

  1. Technological Advancements: Rapid advancements in technology during the 1980s, particularly in information technology, boosted productivity and efficiency across various sectors, contributing to economic growth.

  2. Globalization: Increased integration of economies through globalization facilitated the flow of goods, services, and capital, creating new opportunities for growth and expanding markets for businesses.

  3. Entrepreneurship and Innovation: The entrepreneurial spirit flourished in the 1980s, leading to the establishment of new businesses and the introduction of innovative technologies and management practices.

  4. Fiscal Policies: Pro-growth fiscal policies, including tax reforms and infrastructure investments, were implemented in many countries during the 1980s to stimulate economic activity.

  5. Financial Sector Reforms: Reforms in the financial sector, such as deregulation and liberalization, facilitated easier access to capital and improved the efficiency of financial markets.

  6. Demographic Dividend: Favorable demographic trends, such as a growing working-age population, contributed to increased productivity and economic growth during the 1980s.

  7. Trade Liberalization: Reduction of trade barriers and the promotion of free trade policies enhanced international trade, fostering economic growth through increased exports and imports.

  8. Macroeconomic Stability: Many countries adopted policies to control inflation and maintain macroeconomic stability, creating a conducive environment for sustained economic growth.

  9. Shift in Economic Focus: The 1980s marked a departure from import-substitution strategies of the 1960s and 1970s, with a greater emphasis on export-oriented growth strategies that aligned with global market trends.












2(a) Explain the main features of money and credit policies in India during the pre-Independence era


ANS: Following are the features of money and credit policies in Indian during the pre-independence era

  1. Gold Standard: India followed the gold standard, linking its currency to a fixed quantity of gold. This provided stability to the monetary system.

  2. Note Issuing Banks: Presidency Banks and later the Imperial Bank of India had the authority to issue currency notes. This helped in regulating the money supply.

  3. Limited Role of Credit: Credit facilities were mainly provided by indigenous bankers and moneylenders. Formal banking institutions had a limited role in extending credit.

  4. Agricultural Focus: Credit policies were geared towards agriculture, with the establishment of Agricultural Credit Societies and Cooperative Credit Societies to support farmers.

  5. Role of the RBI: The Reserve Bank of India (RBI) was established in 1935 but its influence was limited before Independence. It played a crucial role in regulating and controlling the monetary and credit policies post-Independence.

  6. Dependence on Cash: The economy had a strong reliance on cash transactions, with limited use of banking instruments.

  7. Influence of British Policies: Monetary and credit policies were influenced by British colonial interests, with a focus on maintaining control over India's economic resources.

  8. Limited Financial Inclusion: The reach of formal financial institutions was restricted, leading to limited financial inclusion in the economy.





(b). What are the factors contributing towards shift in sectoral composition in Gross National Product (GNP) in India during the pre-economic reform period? Discuss.


ANS: The pre-economic reform period in India witnessed a significant reliance on agriculture, with a large percentage of the population engaged in farming. This dominance in the agricultural sector naturally influenced the sectoral composition of the Gross National Product (GNP).

  1. Population Pressure: The high population pressure, especially in rural areas, led to a substantial workforce engaged in agriculture. Limited opportunities in other sectors, coupled with traditional agricultural practices, contributed to the sector's prominence.

  2. Limited Industrialization: Industrialization was relatively slow during this period, resulting in a lower contribution from the industrial sector to the GNP. The lack of technological advancements and capital investment hindered the growth of industries.

  3. Service Sector Development: While the service sector was not as dominant as today, there was a gradual shift towards services, including trade and transport, contributing to the changing sectoral dynamics in the GNP.

  4. Policy Emphasis: Government policies during this period often prioritized agriculture, contributing to its prominence in the GNP. Emphasis on self-sufficiency in food production further reinforced this trend.

  5. Infrastructure Constraints: Limited infrastructure development posed challenges for industrial and service sector growth, constraining their contributions to the GNP.

In summary, the pre-reform era in India was characterized by an agrarian economy, driven by factors such as population pressure, limited industrialization, and policy emphasis on agriculture. The subsequent economic reforms aimed at addressing these imbalances and fostering a more diverse and dynamic economy.










(c). Explain the main reasons for deceleration in agricultural growth in India during the post-economic reform period.


ANS: The deceleration in agricultural growth in India during the post-economic reform period can be attributed to several key factors.


  1. Input Constraints: Inadequate access to modern technology, high-quality seeds, and efficient irrigation systems limited productivity gains.

  2. Land Fragmentation: Subdivision of land holdings led to reduced economies of scale, hindering the adoption of advanced farming practices.

  3. Credit and Insurance Challenges: Limited availability of affordable credit and inadequate insurance coverage left farmers vulnerable to risks, discouraging investment in modern inputs.

  4. Market Imperfections: Inefficient marketing systems and lack of price predictability deterred farmers from embracing high-risk, high-reward crops.

  5. Infrastructure Gaps: Insufficient rural infrastructure, including transportation and storage facilities, contributed to post-harvest losses and discouraged agricultural investments.

  6. Policy Issues: Ambiguities in agricultural policies, including trade restrictions and procurement mechanisms, created uncertainty and hindered the sector's growth.

  7. Climate Change Impact: Increasing climate variability and unpredictable weather patterns posed new challenges, affecting crop yields and farm incomes.

  8. Skill Gaps: Limited access to education and training in modern agricultural practices hindered the adoption of innovative techniques, perpetuating traditional, less productive methods.


3(a). Discuss the role of D.R. Gadgil in economic planning and development in India


ANS: D. R. Gadgil played a pivotal role in shaping India's economic planning and development during the post-independence period. As the key architect of the Gadgil formula, he contributed significantly to the allocation of resources between the center and states, ensuring a balanced approach to regional development. Serving as the Planning Commission's Deputy Chairman from 1952 to 1957, Gadgil emphasized decentralized planning and advocated for cooperative federalism.

  1. Architect of Planning Commission: D. R. Gadgil played a pivotal role in the establishment of the Planning Commission of India in 1950, which became the central agency for formulating and implementing economic plans.

  2. Five-Year Plans: As the Deputy Chairman of the Planning Commission, Gadgil actively contributed to the formulation and execution of India's early Five-Year Plans, crucial for economic development.

  3. Regional Planning: Gadgil emphasized the importance of regional planning, advocating for balanced development across states and regions to reduce economic disparities.

  4. Community Development: He championed the Community Development Program, aiming to uplift rural areas by integrating economic and social development initiatives at the grassroots level.

  5. Land Reforms: Gadgil's advocacy for land reforms aimed at addressing agrarian issues and promoting equitable distribution of land, contributing to social justice and rural development.

  6. Policy Advocacy: Beyond his formal roles, Gadgil continued to influence economic policies, emphasizing the need for a comprehensive and inclusive approach to development.

D. R. Gadgil's multifaceted contributions significantly shaped India's early economic planning, fostering a foundation for subsequent developmental initiatives.


(b). Explain the role of public sector in the Indian economy. Also point out its main problems faced during the period between 1970 to 1960.


ANS: The public sector plays a crucial role in the Indian economy by contributing to infrastructure development, social welfare, and economic stability. In the period between 1970 and 1960 (assuming a typographical error and considering the intended time frame), the public sector in India faced several challenges.

Role of Public Sector in the Indian Economy:

  1. Infrastructure Development: Played a crucial role in building key infrastructure like railways, power, and telecommunications.

  2. Social Welfare: Undertook initiatives in education, healthcare, and poverty alleviation for inclusive growth.

  3. Strategic Industries: Managed key strategic sectors such as defense, atomic energy, and heavy industries to ensure sovereignty.

Main Problems Faced (1970-1960):

  1. Inefficiency: Bureaucratic inefficiencies led to slow project execution and cost overruns.

  2. Lack of Autonomy: Excessive government control hindered decision-making and innovation.

  3. Resource Misallocation: Poor resource allocation led to financial burdens and underutilization of assets.

  4. Corruption: Rampant corruption in public sector enterprises hampered economic growth.

  5. Monopoly: Monopolistic tendencies stifled competition and innovation.

These challenges underscored the need for economic reforms in subsequent decades to enhance efficiency and competitiveness in the Indian economy.


(c).  Explain the concept of ceiling on agricultural landholding in India. Examine its rationality with respect to equity and efficiency.


ANS: The concept of ceiling on agricultural landholding in India refers to the legal limits imposed on the maximum amount of agricultural land that an individual or entity can own. This policy aims to promote equity by preventing the concentration of land in the hands of a few, thereby ensuring that land is distributed more evenly among farmers. It also seeks to address social justice concerns by preventing the exploitation of landless farmers.

The rationale behind the ceiling is rooted in the idea that a more equitable distribution of land will contribute to social welfare and reduce rural poverty. However, the effectiveness of land ceilings in promoting equity and efficiency has been debated. While they may address issues of social justice, critics argue that they can lead to suboptimal land use and reduced agricultural productivity. Striking a balance between equitable land distribution and efficient agricultural practices is essential for the success of land ceiling policies. Policymakers need to carefully design and implement such measures to ensure that they achieve their intended goals without compromising overall agricultural productivity.



4(a). Explain the main causes of inequality in income distribution in India and examine how it affects welfare of the society.


ANS: In India, the main causes of income inequality stem from a combination of historical, economic, and social factors. Firstly, the historical legacy of caste-based discrimination has led to unequal access to education and employment opportunities. Additionally, rapid economic growth has disproportionately benefited certain sectors, contributing to a widening income gap. Structural issues such as unequal land distribution and limited access to credit further exacerbate disparities.

Income inequality adversely affects societal welfare in various ways. Limited access to education and healthcare for the lower-income groups perpetuates a cycle of poverty. Unequal distribution of resources hampers social mobility, leading to a fragmented society. Moreover, it can fuel social unrest and hinder economic development by limiting the potential contributions of a significant portion of the population. Addressing income inequality in India necessitates comprehensive policy measures focusing on education, healthcare, and equitable economic opportunities to enhance overall societal well-being.



(b) Describe the pattern and trends in national income in India during the pre-economic reform period.


ANS: During the pre-economic reform period in India (prior to the early 1990s), the pattern and trends in national income were characterized by a mixed bag of challenges and modest growth. The economy operated under a predominantly state-controlled model, with the public sector playing a dominant role. While there were periods of positive growth, the overall trajectory was marked by slower economic expansion, bureaucratic inefficiencies, and policy constraints.

Agriculture was a significant contributor to the national income, employing a large portion of the population. However, the sector faced issues such as low productivity, inadequate infrastructure, and outdated farming practices. Industrialization was constrained by a heavily regulated environment, hindering the growth of the manufacturing sector.

Overall, the pre-reform era witnessed a sluggish pace of economic development, with limited integration into the global economy. The subsequent economic reforms aimed to address these challenges by liberalizing policies, fostering private sector participation, and encouraging foreign investment to spur economic growth.





C). Explain the development of cotton industry in India during pre-independence era. Also point out its growth constraints.


ANS: The cotton industry in pre-independence India witnessed significant development due to a confluence of factors. British colonial policies, such as the Permanent Settlement of 1793 and the introduction of new technology, played pivotal roles. The British encouraged the cultivation of raw cotton to meet the demand of their textile mills, leading to an expansion of cotton farming. The introduction of the spinning jenny and power loom mechanized the production process, fostering the growth of the cotton textile industry.

1. Historical Background:

  • Early Cotton Cultivation: Cotton cultivation in India has ancient roots, and the country was known for producing high-quality cotton fabrics. Indian textiles were highly sought after in international trade.

  • Impact of British Rule: The British East India Company, and later the British Crown, played a pivotal role in transforming the Indian textile industry to serve their economic interests. This transformation was part of the larger process of industrialization in Britain.

2. Factors Contributing to the Growth:

  • Introduction of Modern Machinery: The British introduced modern machinery in the form of spinning and weaving mills, which replaced traditional handloom practices.

  • Expansion of Cotton Cultivation: The British encouraged the cultivation of cotton on a larger scale to meet the increasing demand for raw material in their textile mills.

  • Railway Connectivity: The development of railways facilitated the transportation of raw cotton from the cotton-growing regions to the mills, promoting the growth of the industry.

3. Growth Constraints:

  • Economic Exploitation: The British colonial rule was characterized by economic exploitation. Indian raw materials were exported to Britain, where they were processed and finished goods were sold back to India. This one-sided economic relationship hampered the growth of indigenous industries.

  • Unequal Trade Policies: The British implemented policies that favored British goods over Indian products. Import duties and tariffs were structured in a way that made it difficult for Indian textiles to compete in the global market.

  • Labor Exploitation: The labor force in the cotton mills often faced harsh working conditions and low wages. This exploitation contributed to social unrest and the rise of the labor movement in India.

4. Impact on Society:

  • Transformation of Agrarian Economy: The emphasis on cotton cultivation led to changes in the agrarian economy. Many farmers shifted from traditional crops to cash crops like cotton, impacting local food security.

  • Social Changes: The growth of the cotton industry led to the rise of industrial towns and a changing social fabric. Urbanization and the influx of people into industrial centers brought about social transformations.

5. Nationalist Movements and Economic Struggles:

  • Impact on Nationalism: The exploitative economic policies fueled nationalist sentiments. Indian leaders like Mahatma Gandhi advocated for the promotion of indigenous industries, including hand-spun cotton, as part of the Swadeshi movement.

  • Role in Independence Movement: The cotton industry and its challenges became integral to the larger independence movement, as economic exploitation by the British was one of the grievances that fueled the struggle for independence.

In summary, while the pre-independence era saw significant growth in the cotton industry in India, it was marked by a complex interplay of economic exploitation, social changes, and the eventual role of the industry in the nationalist movement. The growth of the cotton industry had both positive and negative consequences, shaping the economic and social landscape of colonial India.

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