Paper III - Economy Questions and Model Answers

by

VIVEK SINGH

Telegram Channel https://t.me/VivekSingh_Economy

1. Explain the difference between computing methodology of India’s Gross

Domestic Product (GDP) before the year 2015 and after the year 2015. [10 Marks]

Answer:
Gross Domestic Product (GDP) is the final value of goods and services produced within
the domestic territory of an economy in a particular financial year. In India, economic
growth is measured as change in GDP at constant prices.

Central Statistical Office (CSO), in 2015, changed its methodology to calculate GDP as
recommended by the United Nations System of National Accounts. The following were
the major changes introduced in 2015:

 Sector-wise wise estimates of Gross Value Added (GVA) would be provided

at basic prices from 2015 onwards instead of factor cost which was the earlier
norm.

GVA at basic prices = GVA at factor cost + (Production Taxes – Production Subsidies)

 The GDP figures will be reported at Market Price rather than Factor Cost

GDP at Market Price = GVA at basic Price + (Product Taxes – Product Subsidies)

 A new series of data from MCA-21 database would be used which included the
data of all the companies registered with the ministry of corporate affairs.

 Base year changed from 2004-05 to 2011-12

By adopting these changes, India moved to the international standards of publishing

GDP figures. Although some doubts were raised regarding the calculation of the GDP
but as such nothing wrong has been detected in the GDP figures.
2. Distinguish between capital budget and Revenue Budget. Explain the
component of both these budgets. [10 Marks]

Answer:
As per article 112 of the Constitution, the budget must distinguish the expenditures on
revenue account from other expenditures (capital account). Therefore, the budget of Govt. of
India is divided into Revenue Budget and Capital Budget, which are further divided into
receipts budget and expenditure budget.

The following are major differences between revenue budget and capital budget.

Revenue Budget Capital Budget

Revenue Receipts: Those receipts of the Capital Receipts: Those receipts of the
government which neither creates a liability government which either creates liability or
nor reduces the assets (physical or financial) reduces the assets (physical or financial) of
of the government. the Government.

Example: Various direct and indirect tax Example: Disinvestment, Loans and Various
receipts and interest, fee, dividend from PSUs Public A/c receipts

Revenue Expenditure: Those expenses of the Capital Expenditure: Those expenses of the
government which neither creates any asset government which either creates assets
(physical or financial) nor reduces any (physical or financial) or reduces liabilities of
liabilities of the Government. the Government

Example: Salary, pension, subsidy, interest Example: Infrastructure spending,

payment etc. establishment of new PSUs, debt repayment

BUDGET

Revenue Capital
Budget Budget

Revenue Revenue Capital Capital

Receipts Exp. Receipts Exp.

Tax Non-Tax
Revenue Revenue

The budgeted figure of Govt. of India for the present fiscal year (2021-22) is Rs. 35
lakh crore out of which Rs. 5.5 lakh crore is capital expenditure and around Rs. 29.5
lakh crore is revenue expenditure.
3. How did land reforms in some parts of the country help to improve the socio
economic conditions of marginal and small farmers? [10 Marks]

Answer:
Land reform usually refers to redistribution of land from rich to poor. More broadly, it
includes regulation of ownership, operation, leasing, sales and inheritance of land.

Land reforms have been considered as important tools of socio-economic change in

India. They constituted an important component of the strategy of agrarian reform
that was designed to transform and modernize Indian agriculture.

As land is state subject, the various reforms like abolition of zamindari, tenancy
reforms and ceiling on size of landholdings and its distribution were implemented by
the states which helped the marginal and small farmers in the following ways:

 Tenancy reforms, in total, led to more than one crore tenants getting ownership
right in Assam, West Bengal, Kerala, Tamil Nadu and Gujarat.

 More than 10 lakh individuals became beneficiary (surplus land distributed to

them) from the ceiling laws implemented in West Bengal.

 The landlords had no personal interest in the lands they owned and also did
not take interest in investing on land improvement. But when the same land
went into the hands of actual cultivators, they invested and multiplied the
gains.

 Distribution of land to the actual cultivators provided an intangible incentive ‘to

convert the land into gold’ which ultimately improved productivity of
agriculture.

Although these reforms helped the actual cultivators, but, with time, fragmentation of
landholdings has led to decline in productivity of agriculture. Govt. of India has
recently circulated the ‘Model Agriculture Land Leasing Act 2016’ to the States which
holds the key to improve the socio economic conditions of poor farmers, as it will help
in land leasing and consolidation.
4. How and to what extent would micro-irrigation help in solving India’s water
crisis? [10 Marks]

Answer:
India is facing a harsh water crisis due to inefficient utilization in agriculture sector,
industrial and human waste and lack of proper government planning.

Due to the lack of laws and measures to regulate water usage, and in many cases,
unrestricted access of electricity by the government to farmers, water is pumped
around the clock; most farmers rely on traditional methods of flood irrigation to grow
their crops.

The adoption of micro-irrigation by farmers provides a clear solution that not only
drastically curbs water usage, but also delivers other benefits to farmers like improved
yields, cost savings, and higher profits.

Micro-irrigation is a process of slow water application via discrete or continuous drips,

tiny streams, or miniature sprays on, above, or below the soil by surface drip,
subsurface drip, bubbler, or micro-sprinkler systems.

The government of India launched a program called, ‘Pradhan Mantri Krishi Sinchai
Yojana’ more specifically, the ‘Per Drop More Crop’ component of the scheme focuses
on micro-irrigation systems that promote precision farming by making water available
in a targeted manner to the root zone of crops.

Flood irrigation delivers only 35-40 percent water use efficiency, as opposed to micro-
irrigation which has up to 90 percent efficiency. Unfortunately, the coverage of micro
irrigation is just 2.13 percent which is meager as compared to their total potential in
India.

Micro-irrigation technique has been successful in developed countries like Israel in

turning around their national water crisis. So, no doubt India can do it too but as
micro-irrigation requires initial investments and most of our farmers are small and
marginal, so we require a multipronged approach and support from the Government to
resolve the looming water crisis in India.
11. Do you agree that the Indian economy has recently experienced V-shaped
recovery? Give reasons in support of your answer. [15 Marks]

Answer:
In the very start of 2020, the whole world faced once in a century crisis in the form of
Covid-19 outbreak. It plunged most of the economies into recession and there was a
major impact on Indian economy too.

In Q1 of 2020-21, economy contracted by 24% and other macro-economic parameters

also showed negative growth. All this led to the Indian economy moving into recession.

Although after contracting for two consecutive quarters in 2020-21, the economy
turned around and moved into positive territory in the third quarter.

The Economic Survey of 2020-21 and Ministry of Finance reiterated several times that
the recovery of the Indian economy is V shaped although certain critics have termed
the recovery as W shaped and K shaped also. In my view, the recovery of the Indian
economy is V shaped due to the following reasons:

 If we see the annual GDP growth data (Y-o-Y) in the below graph, it clearly
represents V shape recovery.

 Even if we faced a severe 2 ndCovid wave in the first quarter of 2021-22, we achieved
a high GDP growth of 20% in the first quarter indicating a sharp V shape recovery.
 The other high frequency indicators like core industries, IIP, GST, Tax collections,
rail freight etc. all have showed a V shape recovery.
 These indicators have not only reached pre pandemic level but have surpassed the
previous levels

Although some of the sectors like MSMEs and informal sectors have not been able to
recover much and a lot of poor people mostly in the informal sector have lost jobs in
this pandemic and their incomes have also declined. And when we see high tech
companies and the rich class, then they have been able to increase their wealth in this
pandemic, because of which some economists terming it a K shape recovery.

But if we see the overall economy, we can say that the recovery has been V shape. And
this was made possible because of the Govt.’s bold ‘Aatma Nirbhar Bharat’ reforms
combined with huge liquidity pumped by RBI in the economy.
12. “Investment in Infrastructure is essential for more rapid and inclusive
economic growth.” Discuss in the light of India’s experience. [15 Marks]

Answer:
Infrastructure has been recognized as one of the most important enabler of economic growth.
The significance of infrastructure creation has all the more increased in the current context of
post covid19 scenario when we have experienced a negative growth of GDP in the last financial
year.

Infrastructure spending leads to rapid and inclusive economic growth as it possess strong
forward and backward linkages and a very high multiplier effect.

Increase in infrastructure investment like railway, roads, ports, airport affects the economy in
two ways:

 In the short run, it boosts aggregate demand and crowds in (pulls in) private investment
due to the complementary nature of infrastructure services.

 In the long run, a supply side effect also kicks in as the infrastructure-built feeds into
the productive capacity of the economy.

Infrastructure is considered as the backbone of the country’s economy. It leads to

inclusive growth in the following ways:

 Spending in transportation infrastructure connects the rural areas with growth

centers, driving income of the rural and poor people.

 Infrastructure spending absorbs lot of unskilled labour leading to productive

employment of the poor and excluded sections of the society.

 Spending in rural infrastructure provides job opportunities to the poor and

illiterate people driving the growth in the rural economy.

 It’s a fact that when Govt. built the Golden Quadrilateral highway project
connecting the four metros, it resulted in higher growth in the 2000 decade.

Realizing the role of infrastructure in inclusive and rapid economic growth,

Government has launched National Infrastructure Pipeline (NIP) worth Rs. 102 lakh
crore. Govt. has also launched National Monetization Pipeline (NMP), to raise financial
resources for the NIP. Govt. has also partnered with private sector for infrastructure
development through PPP model.
13. What are the salient features of the National Food Security Act, 2013? How
has the Food Security Bill helped in eliminating hunger and malnutrition in
India? [15 Marks]

Answer:
Govt. of India in 2013 enacted The National Food Security Act to provide subsidized
food grains to 75% of the rural population and 50% of the urban population totaling
around 84 crore people. Following are some of the important features of the Act:

 The Antyoday Anna Yojana (AAY) beneficiaries are provided 35 kg per month per
family @ Rs. 3/kg rice, Rs. 2/kg wheat and Rs. 1 per kg coarse grains.
 Priority households are provided 5 kg per person per month @ Rs. 3/kg rice, Rs.
2/kg wheat and Rs. 1 per kg coarse grains.
 Women are provided free meal during pregnancy and up to six months after child
birth through Aanganwadi and Rs. 6000 in installments
 Children aged 6 months to 6 yrs are provided free meal at local Aanganwadi
 Children aged 6 yrs to 14 yrs are provided mid-day meal scheme at school
 The eldest woman who is not less than 18 years of age, in every eligible household,
are made the head of the household for the purpose of ration cards.

The report of National Family health survey indicates there has been marginal
improvement in the terms of eliminating Hunger and Malnutrition. There are many
factors which have resulted in such improvement, and Food security bill is one of
them. However Food security Bill is not free from lacunas, which if addressed helps in
eliminating malnutrition:-

 Quality of Food: It has been pointed out by CAG in its audit report that the quality
of food supplied under PDS is not tested.

 Quantity of Food: As the PDS is incremental in nature, it does not meet the entire
need of a family’s monthly requirement of food.

 Non-diversification: As per the Act, mostly wheat and rice is supplied which lacks
most of the nutrients required to eliminate malnutrition in children.

 Determinants of Nutrition: Nutrition encompasses more than simple food. It

includes factors such as health, water, sanitation, gender perspectives, and social
standards, to which the Act does not cater to.

Hunger and Malnutrition can be dramatically reduced, if not eliminated, through a

massive “public health” campaign. Govt. also need to focus on crop diversification,
food system, distribution of fortified rice, pulses and millets under PDS and
convergence of schemes having an impact on nutrition like Swachh Bharat Abhiyan,
Har Ghar Jal etc.
14. What are the present challenges before crop diversification? How do
emerging technologies provide the opportunity for crop diversification? [15
Marks]
Answer:

Crop diversification refers to the addition of new crops or cropping systems to

agricultural production on a particular farm. In India crop diversification is happening
mostly into horticulture, livestock and commercial crops like cotton, soyabean etc.

The major problems and constraints in crop diversification are primarily due to the
following reasons with varied degrees of influence:

 Over 50% of the cropped area in the country is completely dependent on rainfall.
 Inadequate supply of quality seeds.
 Fragmentation of land holding less favouring modernization and mechanization of
agriculture.
 Poor basic infrastructure like rural roads, power, transport, communications etc.
 Inadequate post-harvest technologies and inadequate infrastructure for post-
harvest handling of perishable horticultural produce.
 Very weak agro-based industry.
 Weak research - extension - farmer linkages.
 Inadequately trained human resources together with persistent and large scale
illiteracy amongst farmers.
 Host of diseases and pests affecting most crop plants.
 Government’s MSP procurement policy

Emerging technologies like AI, IoT, Precision farming has the potential to diversify crop
production in India in the following ways:

 Biotechnology and genetic engineering in crops with new quality traits will motivate
farmers to diversify their crop production.
 IoT let devices with remote sensors placed at farms can help in getting the real time
data which will enable farmers to sow new kinds of crops having more returns.
 Using drone technology with AI enabled cameras, farmers can monitor the entire
field sitting at home. This can lead to diversification to commercial and high value
crops.
 Precision farming can help farmers in diversification to horticulture crops as these
are high input and high output crops which require continuous monitoring and
active management of soil nutrients, pests and diseases.

As the young generation is moving to manufacturing and services sector, agriculture

will have to embrace new technologies to increase production and gain efficiency. Crop
diversification using emerging technologies has the potential to double the farmers’
income.