Indian Economy: UPSC Previous Year Questions (Prelims)

Explanation

Disguised unemployment occurs when more workers are employed than necessary, contributing little to no additional output. In such cases, removing some workers would not impact overall productivity. This condition is commonly observed in the agricultural sector of developing countries, where labor redundancy is prevalent. The defining characteristic of disguised unemployment is zero marginal productivity of labor, meaning additional workers do not increase output.

Explanation

Economic growth refers to an increase in a country’s output of goods and services over time, typically measured by the rise in Gross Domestic Product (GDP). Capital formation, also known as investment, is a crucial driver of economic growth. It involves increasing the stock of capital goods (machinery, equipment, infrastructure) that are used to produce other goods and services. Capital formation necessarily leads to economic growth as:

Increased Productivity: Capital goods enhance the productivity of labor. For example, a worker with a machine can produce more than a worker without one. Increased capital stock enables workers to produce more output, leading to economic growth. Expansion of Production Capacity: Investment in capital goods expands the economy’s ability to produce goods and services. New factories, equipment, and infrastructure allow for greater output, contributing to economic growth. Technological Progress: Capital formation is often associated with technological progress. New capital goods often embody newer, more efficient technologies, which further boost productivity and growth.

Explanation

National income is a comprehensive measure of a country’s economic performance over a specific period, typically a year. It encompasses the total monetary value of all final goods and services produced within a nation’s economy. This measure ensures that only the value of end products is counted, avoiding double counting of intermediate goods.

Option (a), (b) and (c) are incorrect:

Gross National Product (GNP) includes the total value of goods and services produced by a country’s residents, both domestically and abroad. Gross Domestic Product (GDP) under the expenditure approach includes consumption, investment, government spending, and net exports. However, national income is more accurately captured by the income approach, which sums up wages, rents, interest, and profits. Personal income includes all income received by individuals, including transfer payments, and is not limited to income generated from production activities. Therefore, it doesn’t fully represent national income.

Explanation

The balance of payments (BoP) records the transactions in goods, services and assets between residents of a coun-try with the rest of the world for a specified time period typically a year. The balance of payments (BOP) also known as balance of international payments, summarises all transactions that a country’s individuals, companies, and government bodies complete with individuals, companies, and government bodies outside the country. These transactions consist of imports and ex-ports of goods, services, and capital, as well as transfer payments, such as foreign aid and remittances.

Explanation

Bank rate refers to the rate at which the Reserve Bank of India (RBI) gives loans to banks. An increase in this rate means that RBI is following a tight monetary policy as an increase in rates will lead to decrease in money circulation leading to a decrease in inflation.

Option (a), (b) and (c) are incorrect:

Market interest rates usually rise, not fall, when the bank rate is increased. The Central Bank continues to provide loans, albeit at a higher interest rate. An easy money policy involves lowering the bank rate to encourage borrowing and investment.

Explanation

Deficit financing refers to the practice of funding government expenditure by borrowing or creating money, usually by printing currency. It involves a budget deficit, where expenditure exceeds revenue. In a developing country like India, there is a need for heavy public investment in infrastructure, social welfare schemes, and industrial devel-opment. Deficit financing helps the government to mobilize additional resources for large-scale development projects such as roads, dams, power plants, and education systems when tax revenues fall short. During periods of recession, deficit financing can stimulate demand in the economy by increasing public expenditure.

Explanation

Statement 1 is incorrect: Permitting Non-Banking Financial Companies (NBFCs) to engage in banking cannot be considered a part of Inclusive Governance. The primary objective of NBFCs changing into banks is to earn profits, which may not align with the principles of inclusivity. For Inclusive Governance to be successful, the government must focus on ensuring support for all citizens, regardless of their economic and social status. Instead of allowing financial entities to prioritize profit-making, the government should emphasize equitable access to financial services for all.

Statement 2 is correct: Article 243ZD of the Indian Constitution mandates the establishment of District Planning Committees (DPCs) at the district level to oversee planning at the district and sub-district levels. This aligns with the principles of Inclusive Governance, as strengthening local governance ensures better representation and promotes equitable development.

Statement 3 is correct: Increasing government spending or Investing in public health ensures that healthcare services are accessible and affordable, especially for vulnerable populations. Health plays a crucial role in promoting social justice and inclusive growth. For instance, establishing hospitals at the block and village levels ensures that even remote populations have access to necessary healthcare services.

Statement 4 is correct: The Mid-Day Meal Program (MDMP), also known as the Nutrition Support to Primary Education, aims who are enrolled in schools. It is designed to enhance enrollment, attendance, and retention rates, while also improving the nutritional status of students in primary education. Clearly, this initiative is an integral part of inclusive governance.

Explanation

Statement 1 is correct: National Investment and Manufacturing Zones(NIMZs) are large areas of land developed as industrial townships with state-of-the-art infrastructure and facilities. They are designed to promote manufacturing investments and boost industrial growth. The Na-tional Manufacturing Policy (2011) proposed the establishment of NIMZs to make India a global manufacturing hub.

Statement 2 is correct: The government has introduced a single window clearance system to simplify and expedite the process of obtaining approvals and clearances for setting up and operating manufacturing units. This reduces bureaucratic delays and improves the ease of doing business.

Statement 3 is correct: The Technology Acquisition and Development Fund (TADF) was established to support the acquisition and development of advanced technologies for the manufacturing sector. It aims to enhance the competitiveness of Indian industries by promoting innovation and technology adoption.

Explanation

Eight Core Industries measures combined and individual performance of production in selected eight core industries viz. Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity. As of 2024 Eight Core Industries comprise 40.27% of the weight of items included in the Index of Industrial Production (IIP). These industries have a major impact on general economic activities and also industrial activities. They significantly impact most other industries as well. The capital basis of the economy is represented by the core sector. The IIP provides the economic growth rates for various industrial categories over a certain time period.

Explanation

Statement 1 is incorrect: India does not have a policy to save coal reserves for the future. Coal imports are driven by domestic supply shortages and the need for high-quality coking coal, not strategic conservation.

Statement 2 is correct: A significant portion of India’s power plants are coal-based, and domestic coal production often falls short of demand. This forces power plants to rely on coal imports to meet their requirements.

Statement 3 is correct: India has limited reserves of high-quality coking coal, which is essential for steel production. Most of the coking coal used by steel companies is imported from countries like Australia, as domestic production is insufficient and often of lower quality.