1. What is economic development?

ANS. It is a comprehensive term which includes increase in real per-capita income,

improvement in living standard of people, reduction in poverty etc.

2. What is national development?

ANS. National development is a comprehensive term which includes improvement in living
standard. of the people, increase in per-capita income, providing social amenities like education,
medical care, social services, etc. to the citizens of the country.

3. What is Sustainable Development?

ANS. Sustainable development is that process of economic development which aims at
maintaining the quality of life of both the present and the future generations without harming the
natural resources and environment.

4.What are the three components of human Development Index?

ANS. (i) Per-Capita Income
(ii) Life Expectancy
(iii) Literacy Rate

5. Define average income.

Ans. Average income measures the average income earned per person in a given area in a
specified year. It is calculated by dividing the area’s total income by its total population.

6. What is the rank of India as per the HDI report 2021?

Ans. 132 out of 191 countries.

7. Differentiate between Human Development Report and World Development

Ans. Human Development Report
It is an annual report published by the United Nations Development Programme (UNDP).
It compares countries on the basis of the educational level of the people, per capita income and
their health status.
It includes literacy rate, infant mortality rate etc, to determine the status of development of a
particular area or country.
It provides us with the qualitative aspect of development.

World Development Report

It is an annual report published by the World Bank or International Bank of Reconstruction and
Development (IBRD).
It compares countries by in-depth analysis of a specific aspect of economic development.
it includes GDP, national income and per capita income.
It provides us with the quantitative aspect of development.

8. What is per capita income? Mention any two limitations of per capita income as an
indicator of development.
ANS: The total income of a country divided by its total population gives the Per Capita Income.
Money cannot buy all the goods and services that are needed to live well. So income by itself is
not a completely adequate indicator of material goods and services that citizens are able to use.
For example, money cannot buy a pollution-free environment or ensure that one gets
unadulterated medicines, unless one can afford to shift to a community that already has all
these things.

9. What is GDP in economics?

ANS. Gross Domestic Product (GDP) is one of the most widely used measures of an economy’s
output or production. It is defined as the total value of goods and services produced within a
country’s borders in a specific time period—monthly, quarterly, or annually.
GDP is an accurate indicator of the size of an economy and the GDP growth rate is probably the
single best indicator of economic growth, while GDP per capita has a close correlation with the
trend in living standards over time.

10. a) ‘‘Economic Development is a wider concept than Economic Growth”. Do you agree
with the statement?
ANS. This statement is true
Economic Growth is the increase in the real output of the country in a particular span of time.
Whereas Economic Development is the increase in the level of production in an economy along
with the enrichment of living standards and the advancement of technology
.
Economic growth does not consider the Income from the Informal Economy. The Informal
economy is unrecorded economic activity. Economic Development considers all formal or
informal activities and gives people with low living standards suitable shelter and proper
employment.

Economic Growth does not reflect the depletion of natural resources. Depletion of resources
such as pollution, congestion & disease. Governments are under pressure due to environmental
issues, mainly global warming. However, Economic Development is concerned with
Sustainability, which means meeting the needs of the present without compromising.

Economic growth is the subset of economic development.

Economic growth indicates the expansion of the Gross Domestic Product (GDP) of the country,
and the concept of Economic Growth is related to the developed
countries.EconomicDevelopment is a broader concept than Economic Growth.
Economic Development refers to the increase of the Real National Income of the economic and
socio-economic structure of any country over a long period of time. Economic Development is
related to underdeveloped or developing countries of the world.
Unlike economic development, Economic growth is an automatic process. Meanwhile, economic
development is the outcome of planned and result-oriented activities.
Economic Growth refers to the rise in the value of all the products produced in the economy. It
indicates the yearly increase in the country’s GDP, or GNP, in percentage terms. It alludes to a
considerable rise in the per-capita national product over a period, i.e. the growth rate of increase
in total output should be greater than the population growth rate.

Economic growth is necessary but not enough to achieve economic development.

Both Economic Growth vs Economic Development have different indicators for their
measurement. Economic Growth can be measured through increased GDP, per capita income,
etc. However, Economic Development can be measured through improved life expectancy,
infant mortality, literacy, and poverty rates.
.

b) Explain PQLI.
ANS. The Physical Quality of Life Index (PQLI) is an attempt to measure the quality of life or
well-being of a country. The value is the average of three statistics: basic literacy rate at the age
of 15 years , infant mortality, and life expectancy at age one, all equally weighted on a 1 to 100
scale

11.'Human development is a better measure of economic development as it places

human-beings at the centre stage of development'. Discuss. ( 15 )
ANS.According to the United Nations Development Programme (UNDP), human development
may be defined as “a process of enlarging people’s choices.” At all levels of development, the
three essential choices for people include to live a long and healthy life, to acquire better
knowledge and to have access to resources needed for a decent standard of living. If these
essential choices are not available, many other opportunities to improve the quality of life will
remain inaccessible. Human development has two dimensions: acquiring human capabilities
and the use of these acquired capabilities for productive, leisure and other purposes. The
benefits of human development go far beyond the expansion of income and wealth
accumulation because people constitute the very essence of human development. Human
development is about much more than economic growth. The economic growth focuses on the
improvement of one option i.e. income or product while human development focus on enlarging
all human options including education, health, clean environment and material well being. Thus,
the options available for improving people’s lives are influenced by the quality of economic
growth in its wider sense, and the impact is by no means confined to quantitative aspects of
such growth. In other words, economic growth needs to be seen as a means, albeit an
important one, and not the ultimate goal, of development. Income makes an important
contribution to human well-being, broadly conceived, if its benefits are translated into more
fulfilled human lives. But the growth of income is not an end in itself. It is the quality of growth,
not its quantity alone, which is crucial for human well-being. Thus, the concept of human
development, is concerned mainly with enabling people to enjoy a better life as the ultimate goal
of human endeavor. Highlights that this goal cannot be achieved solely through improvements
in income or material well-being. As the 1996 Human Development Report put it, growth can be
jobless, rather than job creating; ruthless, rather than poverty-reducing; voiceless, rather than
participatory; rootless, rather than culturally enshrined; and future-less, rather than environment-
friendly. Economic growth which is jobless, ruthless, voiceless, rootless and future less is not
conducive to human development. The lack of income or income poverty is only one aspect of
human impoverishment; deprivation can also occur in other areas– having a short and
unhealthy life, being illiterate or not allowed to participate, feeling personal insecurity, etc.
Human poverty is thus larger than income poverty.

MEASURING HUMAN DEVELOPMENT: HUMAN DEVELOPMENT INDEX (HDI)

As stated earlier three dimensions of Human Development are capabilities of people to lead a
long and healthy life, to acquire knowledge and to have access to resources needed for a
decent standard of living. The combined effect of various components of human development is
measured through Human Development Index (HDI). The HDI contains four variables: life
expectancy at birth, to represent the dimension of a long, healthy life; adult literacy rate and
combined enrollment rate at the primary, secondary and tertiary levels to represent the
knowledge dimension; and real GDP per capita to serve as a proxy for the resources needed for
a decent standard of living. HDI thus looks not only at GDP growth rate but takes into account
education, health, gender inequality and income parameters to measure human development of
a country. As per the latest available Human Development Report (HDR) 2013 published by the
United Nations Development Programme (UNDP) (which estimates the human development
index [HDI] in terms of three basic capabilities: to live a long and healthy life, to be educated
and knowledgeable, and to enjoy a decent economic standard of living), the HDI for India was
0.554 in 2012 with an overall global ranking of 136 (out of 186 countries) compared to 134 (out
of 187 countries) as per HDR 2012. India’s HDI has risen by 1.7% annually since 1980.
So we can conclude that human development is a concept that recognizes that economic
development must be accompanied by improvements in the well-being of people. It places
human beings at the center of development by focusing on enhancing human capabilities, such
as education, health, and freedom, rather than solely on economic growth

12. a) "The Gender Development Index (GDI) is a tool that measures the level of gender
development in a country". Explain ( 8 )
ANS. The Gender-Related Development Index is commonly referred to as a “gender-sensitive
HDI extension.” It addresses disparities in life expectancy, education, and wealth between men
and women. It employs an “inequality aversion” penalty, which penalises gender inequalities in
any of the Human Development Index (HDI) categories, such as life expectancy, adult literacy,
school enrollment, and logarithmic transformations of per-capita GDP.
The GDI predicts that women will live five years longer than males in terms of life expectancy. In
addition, the GDI takes into account income inequalities in terms of actual earned income. The
GDI can’t be utilised without the HDI score, hence it can’t be used as a standalone indication of
gender disparities. Only the difference between the HDI and the GDI can be examined
appropriately; the GDI is not an independent measure of gender gaps on its own.
The GDI accounts for differences between men and women in three basic dimensions of human
development—health, knowledge, and living standards—using the same component indicators
as the HDI to quantify gender gaps in human development achievements. The GDI is the ratio
of female and male HDIs calculated independently using the same methods as the HDI.
It’s a direct measure of the gender divide, with the female HDI expressed as a percentage of the
male HDI. Women Development Index is also the inaugural measure of women’s development
and empowerment in terms of education, health and living standards. Major concerns have
arisen which give rise to the introduction of the Women Development Index.
For 167 nations, the GDI is calculated. Based on the absolute divergence from gender parity in
HDI values, countries are divided into five groups. This means that both gender disparities
favouring males and those favouring females are taken into account when categorising.
The GDI indicates how much women lag behind their male counterparts in each dimension of
human development and how far they need to catch up. It is helpful in determining the true
gender gap in human development accomplishments and in developing policy measures to
close the gap.

b) What are the characteristics of Underdeveloped Economies? ( 7 )

ANS. Characteristics of Underdeveloped Economies
It is difficult to find an underdeveloped economy representing all the representative
characteristics of underdevelopment. While most of them are poor in nature, they have diverse
physical and human resources, socio-political conditions and culture. Some of the common
characteristics displayed by most of the underdeveloped countries in the world are as follows:
Low Per Capita Income
Almost all underdeveloped countries of the world show low per capita income in comparison to
developed countries of the world.
Slow Growth Rate of Per Capita Income
Low per capita income and slow growth rate of per capita income are characteristics of these
countries.
Economic Inequalities
High inequality of income and wealth is another common feature of underdeveloped countries.
In these countries, large percentage of national income is shared by a small segment of the
society while a large segment of the society gets barely enough to survive. Economic inequality
exists even in developed countries but it is not as much as found in underdeveloped countries.
Low Level of Living
Level of living in the underdeveloped countries is low because of low per capita income. Low
level of living of the people of underdeveloped countries is also reflected in Human
Development Index prepared by the United Nation Development Programme (UNDP). HDI of
developed countries is very high whereas for underdeveloped countries it is very low.
Low Rate of Capital Formation
Rate of capital formation is very low in underdeveloped economies due to low income levels and
high incidence of poverty.
Backward Techniques of Production
Underdeveloped economies use outdated technology for production. Lack of capital leads to
less spending on research and development.
High Growth Rate of Population and Dependency Burden
These countries are characterised by high growth rate of population and high dependency
burden.
Low Productivity of Labour
Underdeveloped economies are characterised by low labour productivity due to low level of skill
set.
Underutilisation of Natural Resources
Natural resources are underutilised in underdeveloped economies. Their capability to exploit
them is very low.
Large Scale Unemployment
Large scale unemployment is another characteristic feature of underdeveloped countries.
Dominance of Agriculture
Large section of people in underdeveloped economies depends on primary sector for
employment. But the primary sector is not well-developed in those countries.
High Incidence of Poverty
Low per capita income results in high incidence of poverty in underdeveloped economies.
Infrastructural Backwardness
Economic infrastructure and social infrastructure are almost at their bottom level in
underdeveloped countries.
Low Volume of Foreign Trade
Underdeveloped countries export primary products like, agricultural goods, minerals, petroleum
oil, etc., and import finished products, especially consumer goods. Terms of trade are grossly
unfavourable to underdeveloped countries.

13. What is the type of Indian economy?

ANS. Mixed economy.

14. Who are the owners of factors of production?

ANS.Households

15. How to increase national income?

ANS.Increase in the rate of investment.

16. Liberalization aims at retaining the licencing system. (True or False)

ANS.False.

17. Globalization aims at imposing tariff on imported goods. (True or False)

ANS.False.

18. During which plan period, the actual growth rate of national income was more than
the targeted growth rate?
ANS.First plan

19. list out the objectives of planning.

ANS. The various objectives of economic planning in India are drawn keeping in view
its socio-economic problems. Accordingly the objectives as follows:
1. Economic growth
2. Increase in employment
3. Reduction in inequality of income
4. Reduction in poverty
5. Modernization of the economy
6. Ensuring social justice and equality.

20. Meaning and objectives of liberalization in India

ANS.The term liberalization denotes removing restrictions from certain private individual activity,
typically pertaining to the economic system. Commonly, liberalization is used in the context of a
government relaxing its previously imposed restrictions on economic or social policies.

Objectives of Liberalization in India: The primary objectives of initiating liberalization in India can
be summed up as follows –
1. To solve India’s impending balance of payment crisis.
2. To boost the private sector’s participation in the development of India’s economy.
3. To increase the volume of foreign direct investment in India’s businesses.
4. To introduce competition between India’s domestic businesses.
5. To maximize India’s economic potential by encouraging multinational and private
companies to expand.
6. To usher in globalization for the Indian economy.
7. To regulate export and import and promote foreign trade.
8. Impact of Liberalization on Indian Economy.

21. Discuss the changing role of planning in the wake of globalization.

ANS.The role of planning in managing modern market economy is quite different from what it
was three decades ago when the public sector was seen as having an expanding role and
government sector pervasive whereas under the present circumstances, the country expects
and encourages much freer operation of market forces and the Government is withdrawing from
large part of the economy.
It is believed that free markets are conducive to economic efficiency and, therefore, higher
economic growth.
But there is a misconception that the Government has no role to play in the change economic
scenario. It is true that the role of the Government is radically different from what it was in the
past.
1. The Government must withdraw from areas, which are best-managed by the private sector
but it must strengthen its position in certain areas where the private sector cannot be expected
to play a role.
2. A whole range of social sector, especially health and education, are clearly areas where the
Government must play a much larger role than it has in the past, if it has to meet the huge gaps
that the country faces at present.
3.Planning Commission is best equipped to evolve a long-term economic strategy for the
development of the country.
In addition, the creation of a partnership in the public and private sector in other infrastructure
sectors requires a supportive regulatory framework. Here, policy planning rather than the old
fashioned material planning plays a crucial role.

22. What are the steps of economic planning? ( 10 )

ANS. Economic planning is a process which involves the following steps:
(i) Preparing a list of the problems facing the economy .
(ii) Rearranging the list on the basis of priority. The top priority issue which needs to be
addressed immediately should be placed at number one and so on.
(iii) The next step is to identify the problems which are to be solved in the immediate short run
and the other problems which are to be addressed over the long period.
(iv) Fixing a target to achieve the desired goal. The target could be a specified time period within
which the problem must be solved. If the problem is to be addressed over long run, then it must
be made clear that how much of the problem be solved in the first period (say a year or six
months) and so on.
Secondly the target could be a certain quantity to be achieved. Say in case of
production, the government can fix some target in terms of quantity.
(v) Estimating the amount of resources needed for achieving the target. Resources include
financial resource, human resource, physical resource etc.
(vi) Mobilizing the resources is another important task. This means that the planners must know
the sources of arranging the required resources. For example, in case of financing the plan, the
planners must make the budget and spell out the different sources of finding. When the
government makes plan, one of its major source of getting funds in the tax revenue. For a
business person, one of the sources of finance is the loan from bank. When various sources of
funds are available then the planner must also decide as to how much fund to be collected from
each of these sources. Use of the human resource is another important task to execute the plan
proposal. The planner must estimate the type of man power and the number of persons
required to carry out the task. A proper estimate on this requirement should be given at the
outset. Similarly proper estimate of physical resources should also be provided. Physical
resources include office buildings, vehicles, furniture, stationery etc.
(vii) Once the resources are arranged, implementation and execution process starts in an
organize manner to achieve the desired goal. To make sure that everything is running smoothly
and to rectify mistakes if any or to modify the style of working to accommodate any change,
periodic review must be done till the final achievement is realised.

b) What is the need for planning? ( 5 )

ANS: A major part of the question about need for planning has been answered in the meaning
of planning itself described above. There we said that planning involves various steps for
effective implementation and execution. In-fact the number of problems facing Indian economy
is very high. Each problem is complex in nature and cannot be solved in a short period. Take
the example of the problem of poverty. There is no method by which this problems can be
solved immediately. The government must collect data to know the number of people affected
by poverty and its nature. Collection of data itself is a very huge task keeping in view India’s
vast geographical area and lack of accessibility to many areas. In a democracy , the
government is duty bound to formulate policies after proper debate and discussions which takes
time. Then mobilization of adequate resources and provision of resources to continue the
programme over a long period are two most important things to solve the problem of poverty.
Without proper planning it cannot be done. Planning is also necessary to avoid wasteful
expenditure, minimize cost meet the target in time and optimal use of resource.

23. LPG model of development- discuss. ( 10 )

Ans: The failure of the public sector on various fronts was seen as one of the major reasons for
lack of all round development of the country in the area of industrialization, removal of poverty
and unemployment etc. Hence in 1991, the central government came out with a new economic
policy resolution. The main feature of this policy are:
(i) Liberalization
(ii) Privatization
(iii) Globalization
The policy is also popularly called LPG model of development.

Liberalization
Liberalization removes state control over economic activities. It provides better autonomy to the
businesses in decision-making without government interference. It was assumed that the
market forces of demand and supply would operate automatically to derive a better efficiency
and economic health will recover. Internally, this was enacted by bringing reforms in the real
and financial sectors and externally by releasing foreign exchange and trade from state
governments grip.

Privatization
It means withdrawing the ownership or management of a government enterprise. Government
companies are converted into private companies in two ways
● Government is shredded from the ownership or management of the public-sector
companies
● by the blatant sale of public sector companies.

Privatization is the transfer of the control and ownership of businesses from the public sector to
the private sector. It means a decline in the role of the government as the property rights shaft
from public to private.

The public sector enterprises had been experiencing challenges, since planning, such as low
efficiency, low profitability, growing losses, political interference, lack of autonomy, labour
issues, etc. Therefore, to address this situation government introduced privatization in the
economy.
Conditions to be met before Privatization
● Liberalization and deregulation of the economy are major prerequisites for privatization
to set foot.
● Capital markets should be developed to bear the brunt of dis-invested public sector
shares.

Globalization
Globalization can be defined as the integration of the national economy with the world economy.
It enables a free flow of information, technology, goods and services, capital investments, and
even people across different countries. It brings the trade, investments, and markets from
various countries under one umbrella. It promotes a more lucid economy. Globalization is also
divided into three types.

The Main Elements of Globalization are

● To open the domestic markets for the steady flow of foreign manufactured goods, India
reduced customs duties on imports.
● The amount of foreign capital in a country is a good indicator of the growth and
globalization of an economy.
● Foreign Exchange Regulation Act (FERA) was liberalized in 1993 and later the Foreign
Exchange Management Act (FEMA) 1999 was passed to start transactions in foreign
currency.

b) What is the role of panchayat in rural development? ( 5 )

ANS. The Panchayat & Rural Development Department largely works to enhance livelihood
opportunities, address chronic poverty, provides social security and works for economic
inclusion of rural poor families. The Panchayat & Rural Development Department has been
implementing a number of programmes in the rural area of the State by empowering rural poor
through power of rights based law, aiming to transform the geography of poverty in the State.
The main objective of various poverty alleviation and employment generation programme are as
follows:
1.Reduction of Rural Poverty
2.Employment Generation in Rural Areas
3.Development of Rural Infrastructure
4.Removal of Regional Imbalance
5.Housing for Rural Poor
6.Community Participation
Under the Rural Development sector, some programme/schemes has been introduced which
are of the following nature:-
1. Self-employment Programme
2. Wage-employment Programme
3. Social Welfare Schemes
24. Why has the Indian economic environment undergone dramatic changes with a shift
in development strategy? ( 8 )
ANS: It was realised that an increase in the GDP growth and a high rate of accumulation might
not provide a sufficient condition for improving the standard of living and consumption needs of
the people, nor help in attaining economic self-sufficiency in fulfilling different demands.
Possibly in response to this, the strategy changed later and the investment mix began to be
chosen on the basis of the demand pattern for final consumption. This new strategy was, in turn,
reflected in the modelling area through a choice of appropriate inter-sectoral consistency
models – close to Leontief’s input-output families. This strategy primarily covered India’s Fourth
Plan. By the 1970’s it had become clear that the benefits of growth had not percolated to the
masses. As a corrective measure, development strategy shifted there from towards providing
the necessary consumption benefits to the poor directly. Accordingly, in the modelling area, a
large number of new economic and non economic variables were chosen to identify poverty and
incorporated in the model frame in order to build explicit redistribution strategy in planning. This
policy got largely reflected in the Fifth Plan. Incorporation of productivity with redistribution
became an important element of plan strategy pursued in more recent plans. To develop this
strategy and, at the same time, to protect-against centralised decision-making, mass
participation in the planning process was warranted. It was, therefore, felt that the quality of
human stock needed improvement at all levels, down to the blocks and villages. Certain past
strategies of the development plan are now seriously questioned.
Among these, the more important are:

1. The almost exclusive reliance on the generation of new investment as the only input in
accelerating growth;

2.The excessive emphasis on the need for self-sufficiency, leading to an indiscriminate

protection granted to domestic activities, almost in complete deference to efficiency and
incentives;

3. The attempt to solve the problems of poverty mainly by subsidy-oriented compensatory fiscal
measures, very often leading to unproductive employment and underutilised capital.

b) What are the significant drawbacks of planning in India? ( 7 )

ANS. Besides the achievements, there are many unfulfilled tasks which the planning in India is
yet to achieve completely.
1. Failure to Remove Poverty and Inequality completely :
Even after more than sixty years of planning, India has not been able to remove poverty
completely. More than 240 million people are still under absolute poverty according to official
estimates. The situation is worse in rural area. The government has introduced many
antipoverty measures. But they have not been very successful
so far. Similarly, there is no significant improvement in the distribution of income and asset
holding resulting in existence of inequality. The number of landless agricultural labourers is very
high as compared to the land holding population. The process of industrialization has helped
some big industrial houses. This has resulted in
concentration of economic wealth and power in few hands. This trend must be reversed if India
wants to achieve equity and social justice.
2. Problem of Unemployment Persists :
In spite of growth in income and output, India’s employment situation has not improved much.
Due to faster growth of population and labour force the situation has worsened further.
According to official estimates India’s unemployment rate is 6.6%. There is also huge backlog of
unemployment due to lack of creation of required amount of jobs every year.
3. Failure to Curtail Corruption and Black Money :
Existence of rampant corruption in various public offices is a matter of grave concern in India.
Common person faces a lot of problem in getting things done without giving bribe. In fact
corruption has become a major political issue in elections. Various forms of corruption include
paying or accepting bribe, non payment of tax to government, political influence to get contract,
secret understanding among sellers to increase price etc. Corruption has given rise to black
money which is not accounted anywhere but very much in circulation. A
sizable portion of India’s GDP is unaccounted . Black money creates inflation and pressure in
the society. It is also the root cause of inequality in distribution of income as people who
possess black money grow richer at the cost of common citizen.

25. What are the characteristics of people below the poverty line?
ANS. a. Debt trap
b. Gender inequality
c. Poor health

26. What is full form of EDI?

ANS. Economic Development Index

27.What is urbanization?
ANS.Trend of migration of people from rural areas to urban areas.

28. How to calculate growth rate in population?

ANS. Current Year's Population - Last Year's Population
------------------------------------------------------------------- X 100
Last Year's Population

29. What is Demographic transition?

ANS.Change in the size of population and its determinants.

30. What is Lorenz Curve?

ANS.This is a graphical representation of the proportionality of a distribution. This is often
associated with income distribution calculations and commonly used in the analysis of
inequality.
31. What are the causes of urbanization?
ANS.Urbanization usually occurs when people move from villages to cities to settle, in hope of a
higher standard of living. This usually takes place in developing countries. In rural areas, people
become victims of unpredictable weather conditions such as drought and floods, which can
adversely affect their livelihood. Consequently many farmers move to cities in search of a better
life. This can be seen in Karnataka as well where farmers from Raichur, Gulbarga districts which
are drought-stricken areas, migrate to Bangalore to escape poverty. Cities in contrast, offer
opportunities of high living and are known to be places where wealth and money are
centralized. Most industries and educational institutions are located in cities whereas there are
limited opportunities within rural areas. This further contributes to migration to cities.

32. State how social protection can play an important role in mitigating poverty and
inequality?
ANS.The social protection system can play an important role in mitigating poverty and inequality
through redistribution. This also helps to give the platform to the excluded section of the society.
India has implemented a plethora of poverty alleviation programmes to address the issue of
poverty and inequality. Most important programme is Public Distribution System (direct food
subsidy), Indira Awas Yojana (Housing for poor) and direct cash transfer through the
programmes like old age pension scheme, widow pension scheme, disability pension scheme,
national family benefit schemes, etc. Some other programmes are also incentive based for
example,
incentives for institutional delivery, incentives for family planning, etc. For some of the
educational development programmes like scholarship, free distribution of books, cycle,
dresses, midday meal etc. are implemented. From time to time the central and state
governments implement different employment generation programmes which provides the
minimum livelihood for rural and urban poor.

33.What are the projections about the growth rate of population in near future? ( 8 )
ANS.India will soon become the world’s most populous country as India’s population is
predicted to surpass that of China within the next decade.
India’s population is expected to continue to grow until mid-century, reaching an estimated 1.68
billion in the 2050s as the chart below shows. But an important piece of evidence tells us that
population growth will come to an end: The number of children in India peaked more than a
decade ago and is now falling.
The chart here shows the population change since 1950 and the UN’s projections of population
by age bracket. Here we see that the number of children under the age of five (under-5s)
peaked in 2007; since then the number has been falling. The number of Indians under 15 years
old peaked slightly later (in 2011) and is now also declining. These are landmark moments in
demographic change.
India’s population will still continue to grow as a result of ‘population momentum’ – the effect
often referred to by Hans Rosling and Gapminder as the ‘inevitable fill-up‘ when young
generations grow older. But we can now see an end to population growth: reaching ‘peak child‘
anticipates the later ‘peak population’. The number of children has peaked; total population will
follow and reach its peak in four decades.
b)State the concept of inclusive growth. ( 7 )
ANS.We often hear the term inclusive growth in the papers and in various media where experts
pronounce that while growth is good, there must be what is known as inclusive growth as well.
So, what does the term inclusive growth mean and why is it so important? To start with,
inclusive growth refers to the phenomenon where the benefits of a country’s growth are shared
equally by all sections or at least in a fair and just manner.
it must also be noted that if those at the top make hundred or more times what those at the
bottom make, then essentially we have a situation where there is mismatch between the
incomes of the top 1% and the bottom 50%. Similarly, when countries grow and a tiny elite
benefits more than those at the lower income levels, then a similar situation manifests where
there is gross disparity and inequality between the classes that can lead to resentment and
bitterness from the lower income levels which can also result in social unrest and chaos.
Indeed, this is the reason why many experts talk about inclusive growth wherein they mean that
unless all sections of society benefit from faster and more economic growth, the social
conditions in such countries can deteriorate and lead to violence and chaos. This was what
happened in the years following the 2008 global economic crisis wherein the people at the
bottom realized that before the crisis and especially after the crisis, they were the ones who
were the worst affected while those at the top continued to be comfortable and secure.

34. Reason of poverty & inequality in India - discuss. ( 15 )

ANS. Main causes of poverty and inequality in INDIA are-
(i) Heavy pressure of population:Population has been rising in India at a rapid speed.
(ii) Unemployment and under employment:Due to continuous rise in population, there is chronic
unemployment and under employment in India. There is educated unemployment and disguised
unemployment. Poverty is just the reflection of unemployment.
(iii) Capital Deficiency:Shortage of capital creates hurdles in development.
(iv) Under-developed economy:The Indian economy is under developed due to low rate of
growth. It is the main cause of poverty.
(v) Increase in Price:The steep rise in prices has affected the poor badly. They have become
more poor.
(vi) Net National Income:The net national income is quite low as compared to size of population.
Low per capita income proves its poverty.
(vii) Rural Economy: The Indian economy is the rural economy. Indian agriculture is backward. It
has great pressure of population. Income in agriculture is low and disguised unemployment is
more in agriculture.
(viii) Lack of Skilled Labour: In India, unskilled labor is in abundant supply but skilled labor is
less due to insufficient industrial education and training.
(ix) Deficiency of efficient Entrepreneurs:For industrial development, able and efficient
entrepreneurs are needed. In India, there is shortage of efficient entrepreneurs. Less industrial
development is a major cause of poverty.
(x) Lack of proper Industrialization: Industrially, India is a backward state. 3% of total working
population is engaged in industry. So industrial backwardness is major cause of poverty.
(xi) Low rate of growth: So compared to the population, the per capita growth rate of the
economy has been very low. It is the main cause of poverty.
(xii) Outdated Social institutions:The social structure of our country is full of outdated traditions
and customs like caste system, laws of inheritance and succession. These hamper the growth
of economy.
(xiii) Improper use of Natural Resources:
India has large natural resources like iron, coal, manganese, mica etc. It has perennial flowing
rivers that can generate hydro electricity. Man power is abundant. But these sources are not put
in proper use.
(xiv) Lack of Infrastructure: The means of transport and communication have not been properly
developed. Road transport is inadequate and the railway is quite less. Due to the lack of proper
development of road and rail transport, agricultural marketing is defective. Industries do not get
power supply and raw materials in time and finished goods are not properly marketed.
(xv) Lack of land resources has been one of the major causes of poverty in India.
(xvi) A high level of indebtedness among small farmers is also a major cause of poverty in our
country: Since poor farmers hardly have any savings, they borrow. Unable to repay because of
poverty, they become victims of indebtedness.

35. a) What do you understand by commercialisation of infrastructure? ( 5 )

ANS.Entry of private capital in infrastructure sector is not merely a matter of simple policy
initiatives. Infrastructure services should not be treated as public goods. In this regard, the
possibility of commercialisation will depend on the ability to segregate payers and prevention of
any incidence of ‘free riding’. Thus the excludability is a key factor in commercialisation.

b)What are the suggestion to develop infrastructure? ( 10 )

ANS.India has never lacked in intent on infrastructure front, but has often messed up the
implementation. A sum of $ 1 trillion is proposed to be spent on infrastructure development
during the Twelfth Five-Year Plan. This will form 9.95 per cent of the GDP.
Following suggestions can be made to accelerate the growth of infrastructure:
1) Annual Infrastructure Budget: Just as in case of railways, an annual policy, progress and
accountability statement is required for other areas, as roads, ports, power and airports. These
areas will begin to invite focus and attention.
2) Establishment of Infrastructure Investment Promotion Board: Along the lines of the Foreign
Investment Promotion Board, this body can identify some infrastructure projects of national
importance, ensure that land environmental clearances are ready, release and help mobilise
funds, set a deadline, review progress every quarter and provide regular updates on
implementation to the nation.
3) Setting Up of Domestic Economic Zones (DEZs): These could be set up along the lines of the
SEZs. They should enjoy all the benefits that SEZs do today.
4) Independent Regulatory Authorities: Independent regulators with authority over government
bodies and private companies will greatly enhance the latter’s comfort to invest. The regulator
should not only monitor the projects, but also take care of the interests of the consumer of
infrastructure services.
5) More PSUs to Carry out Major Infrastructure Projects: Presently, there are few institutions
that can actually convert fiscal devolution into projects on the ground. The government needs to
create many more such institutions.
6) Public-Private Partnership in Rural Infrastructure: The PPP model has accelerated
development in roads and highways. The model can be easily applied to rural infrastructure
projects such as irrigation canals, mandies, cold
storages and rural roads.
7) Mass Transit System in 20 Top Cities: City-specific mass transit system can improve
productivity.
8) Energise PSUs in Inland Waterways and Highways.

36. Overall energy scene is none-too-happy.” Comment. ( 7 )

ANS.By ‘energy problem’ we mean the problem of providing fuels or energy in its
various forms at reasonable cost to those who need them wherever they are. At present, India
faces an energy shortage of 10.1 per cent and a peak load shortage of 13.3 per cent. Given the
estimated elasticity coefficient at 0.95, an annual 9 per cent growth in GDP would translate into
7.6 per cent annual growth in electricity. In order to meet that demand, our power generation
capacity would have to increase more than six times by the year 2032.
That the overall energy scene is none-too-happy is evident from the reduced level of self-
sufficiency in oil, the yawning gap between power demand and supply, the declining share of
hydel power in total power generation, the increasing dependence on coal imports and the
insignificant commercialisation of non-traditional sources of energy.

b)Integrated Energy Policy- Discuss ( 8 )

ANS.Towards the end of 2008, the Planning Commission approved the Integrated
Energy Policy. Two critical elements of the policy are (i) that the price of all energy from all
sources must be determined by markets and (ii) that sources should be taxed differentially
based on their negative externalities, mainly contributions to local and global pollution.
The immediate implication of this is that subsidies on all energy sources should cease.
Consumers should pay what it costs to supply energy in a competitive market situation as well
as for the damage that they do to the environment as a result of their consumption. If
implemented in the letter, this will immediately raise the prices of some of the petroleum
products, which are currently subsidised, including, LPG and kerosene. It will also lower the
price of petrol relative to diesel, since the two currently bear differential taxes. While the policy
does not call for a complete end to subsidies, it does favour limiting their scope through better
targeting.

37.What is infrastructure financing?

ANS.In most countries around the world, the government publishes a list of industries that will
be designated as infrastructure. Infrastructure financing refers to the funding of projects or
businesses in these industries. Financing the $1.3 trillion infrastructure investment gap in
Emerging Market Economies (EMEs) is critical to achieving the SDGs. India’s infrastructure at
the beginning of the century was in need of a total overhaul. It was a drag on the rapid growth of
the country’s economy and adversely affected the lives of Indian citizens. The government
looked to public-private partnerships to promote investment and revitalise its transport and
energy sectors.

38. "Natural vs Man Made Regional Imbalances" discuss.

ANS.Natural Regional Imbalances:

These are the imbalances in inter regional or intra regional development due to unequal
distribution of natural resources by the nature. Each region is different from the other region in
respect of natural resources, water capacity, forest etc.

Man Made Regional Imbalances:

There may be some regions where more efforts have been made for development by giving
preference for investment and other development efforts like – subsidies, grants, special status
etc.

39. All infrastructural facilities directly impact the production of goods and services.
(True/False)
ANS. False

40.The industrial sector in India has the highest level of energy consumption.
(True/False)
ANS. True

41. What is morbidity?

ANS.Refers to having a disease or a symptom of disease, or to the amount of disease within a
population.

42. Which state in India has excelled in literacy and health care?
ANS. Kerala

43. Transport & telecommunication, banking are examples of

____________Infrastructure.
ANS. Economic
44. Soft Infrastructure means what?
ANS. It refers to all the institutions which are required to maintain the economic health, and
cultural and social standards of a country.

45.When was the National Bank for Agriculture and Rural Development (NABARD) set
up?
ANS. 1982

46. Alternative marketing channels help farmers expand their market and ______ their
price risk.
ANS. reduce

47.Operation Flood is related to ________.

ANS. Milk cooperatives

48. _______ is a promise to farmers that the government would buy their produce at a
particular price.
ANS. Minimum Support Price

49. What is the purpose of Kisan Credit Card?

ANS. Kisan Credit Card (KCC) scheme meets the financial requirements of farmers at various
stages of farming.

50. What are the problems faced by agricultural markets in rural areas?
ANS. The problems faced by agricultural markets in rural areas are Malpractice in unregulated
markets, Lack of storage facilities, Lack of adequate finance.

51. What is acquisition?

ANS. When a company taken over another one and clearly becomes the new owner, the action
is called acquisition.

52. By which act does the government check restrictive trade?

ANS. MRTP Act.

53. Manufacturing only one product is called what?

ANS. Monopolistic trade practice

54. Laissez Faire policy is adopted in___________

ANS. Capitalist Economic system

55. Railways is not opened for private sector participation in India (True/False)
ANS. True
56. Who is responsible for formulating the Fiscal Policy in India?
ANS. Ministry of Finance, Government of India

57. Excess of the total expenditure over the total receipts is called ___________
ANS.Fiscal deficit

58. What is revenue budget?

ANS. The revenue budget consists of revenue receipts of the government (revenues from tax
and other sources), and its expenditure.

59. Annual budget prepared by the Government of India is not a part of the fiscal policy
of the government. (True/False)
ANS. False

60. Non-tax Revenues means___________

ANS. receipts of government mainly consist of interest and dividend on investments made by
government, fees and receipts for other services rendered by government.

61. Which agency regulates the money supply in India?

ANS. Reserve Bank of India.

62. If repo rate is increased then what will happen to the economy?
ANS. The money supply in the country will decrease.

63. The Indian monetary system is based on the paper standard. (True/False)
ANS. True

64. What is bankers acceptance?

ANS. It is a short term credit investment created by a non financial firm and guaranteed by a
bank to make payment. It is simply a bill of exchange drawn by a person and accepted by a
bank.

65. Money supply is the total volume of money that is held by the government of a
country. (True/False)
ANS. False

66. ___________ is the policy that helps integrate a domestic economy with the world
economy.
ANS. Globalization

67. Which Act did FEMA replace?

ANS. FEMA replaced an act called Foreign Exchange Regulation Act (FERA).
68. The foreign exchange market, Stock exchange market, banking and non banking
financial institutions are a part of ___________.
ANS. Financial sector reforms.

69. BOP adjustment was a part of the structural adjustment programs under the New
Economic Policy (NEP) in 1991. (True/False)
ANS. False

70. What is GDR?

ANS. A global depositary receipt is a type of bank certificate that represents shares of stock in
an international company. The shares underlying the GDR remain on deposit with a depositary
bank or custodial institution.

71. What was the reason behind the introduction of land reforms in India?
ANS.Almost all agricultural lands of India before independence were owned by intermediaries,
like jagirdars and zamindars, among others, and not by the farmers who worked in these lands
to produce crops. These farmers naturally suffered from exploitation when the landowners paid
no heed to agricultural requirements and were solely concerned about the rent they collected
from these labourers.
After independence in 1947, an inadequate agricultural output was apparent. In order to fix this
situation, the Indian government took measures to alter existing regulations for a better
outcome. These acts formed agrarian reforms in India after independence.

72. What are the disadvantages of Agricultural Price Policy?

ANS: Although the Agricultural Price Policy was devised by the government to benefit the
farmers, it still has certain disadvantages, some of which are listed below -
1. Only agricultural goods are subject to government price controls.
2. The policy has failed to supply agro-products with remunerative prices.
3. Only rice had a remunerative price set under MSP.
The basic motive behind the Agriculture policy of the Government of India is to save the
interests of both farmers and consumers. The prices of the food grains should be decided very
wisely so that neither farmers nor consumers get to suffer.

73. a)What are sources of Agricultural Finance In India?

ANS. The sources of agricultural finance in the country are broadly classified as institutional and
non-institutional sources. Institutional sources are related to institutions such as cooperatives,
regional rural banks (RRBs) or scheduled commercial banks (SCBs). Non-institutional
agricultural finance refers to financing support offered by traders, money lenders or other
individuals like agents, landlords or even family members.

b)"Types of agricultural loans"- Discuss

ANS. Agriculture loans in India can be categorised into five main types. They are:

Kisan credit card

To help farmers and others engaged in agriculture meet their short-term and seasonal capital needs,
the government of India introduced the Kisan Credit Card. It works similar to a credit card and
farmers can dip into the approved line of credit to meet their various short-term needs.
Agriculture Term Loan
It works similar to a regular term loan. Farmers are provided with a one-time loan amount, which
they then repay as fixed EMIs over a specific tenure. Term loans are mostly used to meet large
capital needs of farmers.
Agriculture Working Capital Loans
These loans lie between KCCs and long-term capital loans. They are used to fund the large working
capital needs of farmers. It’s repaid as fixed EMIs over a specific tenure.
Agriculture Gold Loans
It works just like regular gold loans. The borrower pledges a gold ornament as collateral and
receives loans on it. The only difference between agriculture gold loans and regular gold loans is
that the former is exclusively offered to farmers.
Farm Mechanisation Loans
As the name implies, these loans are specifically offered to farmers for upgrading farm machinery. It
includes various subcategories like tractor loans, drip irrigation loans, solar pumpset loans, etc.

c)Explain the Macro and Micro Aspects of Agricultural Finance.

ANS. Agricultural finance studied at both micro and macro level. Macro Finance deals with
different sources of raising funds for agriculture as a whole in the economy. It is also concerned
with the lending procedure, rules, regulations, monitoring and controlling of different agricultural
credit institutions. Hence macro-finance is related to financing of agriculture at aggregate level.
Micro-finance refers to financial management of the individual farm business units. And it is
concerned with the study as to how the individual farmer considers various sources of credit,
quantum of credit to be borrowed from each source and how he allocates the same among the
alternative uses with in the farm. It is also concerned with the future use of funds. Therefore,
macro-finance deals with the aspects relating to total credit needs of the agricultural sector, the
terms and conditions under which the credit is available and the method of use of total credit for
the development of agriculture, while microfinance refers to the financial management of
individual farm business.

74. What is Sustainable Agriculture? What suggestions will you suggest for developing
agriculture in India?
ANS. Sustainable agriculture means meeting current needs without compromising the ability of
future generations to meet their own needs, for example by depleting soil fertility or irreversibly
damaging the environment.
This undermines the productivity and ability of renewable resources such as soil, wildlife,
forests, crops, fish, livestock, plant genetic resources and ecosystems to provide ecosystem
services and food for current and future generations.

Here are some suggestions for developing agriculture in India:

Promote sustainable agricultural practices. The government of India should promote sustainable
agricultural practices, such as crop rotation, water conservation, and organic farming. These
practices can help to improve soil health, reduce water pollution, and increase crop yields.
Invest in agricultural research and development. The government of India should invest in
agricultural research and development. This investment can help to develop new crop varieties
that are resistant to pests and diseases, and that can be grown in different climatic conditions.
Improve access to agricultural credit. The government of India should improve access to
agricultural credit. This can help farmers to invest in new technologies and practices, and to
improve their productivity.
Provide market linkages for farmers. The government of India should provide market linkages
for farmers. This can help farmers to get a fair price for their produce, and to reduce their
dependence on middlemen.
Strengthen agricultural extension services. The government of India should strengthen
agricultural extension services. This can help farmers to learn about new technologies and
practices, and to improve their productivity.
These are just some suggestions for developing agriculture in India. The government of India
should work with farmers, scientists, and other stakeholders to develop a comprehensive plan
for sustainable agricultural development.

Here are some additional suggestions:

Reduce the use of chemical fertilizers and pesticides. Chemical fertilizers and pesticides can
pollute the environment and harm human health. The government of India should promote the
use of organic fertilizers and biopesticides.
Protect water resources. Water is a precious resource in India. The government of India should
take steps to protect water resources, such as building dams and reservoirs, and promoting
rainwater harvesting.
Educate farmers about sustainable agriculture. Farmers need to be educated about the benefits
of sustainable agriculture. The government of India should promote awareness about
sustainable agriculture through extension programs and other initiatives.
Sustainable agriculture is the key to ensuring food security for India's growing population. The
government of India should take steps to promote sustainable agricultural practices and to
protect the environment.
75. Objective of New Industrial Policy, 1991.
ANS. Objectives
a) To consolidate the strengths built up during the first four decades of economic planning and
to build on the gains already made;
b) To correct the distortions or weaknesses that may have crept in the industrial structure as it
had developed over the first four decades;
c) To maintain a sustained growth in the productivity and gainful employment;
and
d) To attain international competitiveness. The pursuit of these objectives will be tempered by
(a) the need to preserve the environment, and (b) the need to ensure the efficient use of
available resources.

76. "Need for Labour market reforms in India" Discuss.

ANS. Reforms with greater flexibility are required for generation of more jobs in economy where
10 million young people enter the market annually. More than 90 % of India's labour force works
in the informal and unorganised sector. Also, unemployment , both for the unskilled worker and
educated youth is all time high. The 2019 economic survey had pointed out that states having
more flexible labors markets where 25.4% more productive than states which had rigid labour
laws.
There are huge problems due to increasing inequality and regional differences in parity of work
& employment opportunities. Eg: minimum wage in Tripura are Rs. 40 a day while Rs. 300 in
Kerala. Vietnam, Indonesia & Bangladesh are far more competitive in labour intensive sector

77. What are the causes of industrial sickness in India? Define industrial sickness.
Ans: Industrial sickness refers to the uneconomical performance of industrial entities. It reflects
poor functioning of business operations and suggests that something has seriously gone wrong
with the usual business running. As the term indicates, industrial sickness is related with
industrial/ production/ manufacturing units of large, medium and small scale businesses.

There are various causes of industrial sickness, i.e., some business units are born sick, in some
sickness may have been thrust upon, and others may have turned towards sickness due to other
reasons. The dynamic economic factors and the external influence greatly affect the economic
sustainability of the industry, and hence, they are responsible for sickness in an industry. Every
commonly held business unit may have different reasons for sickness. However, the most
prevalent causes of sickness can be categorised into two groups namely, internal and external
causes

78. Distinguish between Privatization and Disinvestment. What is industrial stagnation

and how to overcome stagnation?
Ans:
Privatization Disinvestment

Transfer of ownership from public sector to Reduction of government stake in a public

 private sector, which means that the
government gives up its ownership and control
of a particular state-owned enterprise (SOE) or
asset to a private entity. The objective is to
improve efficiency, productivity, and profitability
of the SOE.
sector company, which means that the
government sells off a portion of its stake in a
public sector company to the private sector.
The objective is to raise government revenue,
reduce debt, or both.

Privatization can bring about a number of
benefits, such as increased efficiency and
productivity, improved services, and increased
competition. However, it may also lead to job
losses in the short term, as private companies
may choose to streamline operations and cut
costs.
Disinvestment can bring about a number of
benefits, such as increased competition,
improved efficiency, and increased government
revenue. However, it may also lead to job losses
in the short term, as private companies may
choose to streamline operations and cut costs.

Privatization can lead to increased competition Disinvestment can lead to increased

and innovation in the industry, as private
companies may be more nimble and responsive
to market forces than government-run entities.
It can also lead to reduced government control
and regulation, which can free up the SOE to
operate more efficiently.
competition and innovation in the industry, as
private companies may be more nimble and
responsive to market forces than government-
run entities. It can also lead to reduced
government control and regulation, which can
free up the SOE to operate more efficiently.

Privatization can lead to increased foreign
investment, as foreign companies may be more
likely to invest in a privately-owned entity than a
government-run one. This can bring about
increased economic growth and development.
Disinvestment can lead to increased foreign
investment, as foreign companies may be more
likely to invest in a publicly-traded company
with a reduced government stake than a fully
government-owned one. This can bring about
increased economic growth and development.

Privatization can lead to increased economic
growth, as private companies may be more
efficient and productive than government-run
entities, which can result in increased output,
increased jobs, and increased income.
Disinvestment can lead to increased economic
growth, as private companies may be more
efficient and productive than government-run
entities, which can result in increased output,
increased jobs, and increased income.

Industry stagnation refers to a protracted period of no growth or little growth in an industry.When

demand for an industry's products grows more slowly than the economy-wide average,
the industry is stagnant. Demand continues to fall.
One of the best ways to survive in an industry nearing stagnation may be to focus on growth
segments. A company can hunt for specialised markets where it can operate profitably. This is
also known as Niche/Focus Strategy. Concentrating on such segments may be the best
approach to escape some of the harsh realities of a stagnant industry. The technique employed
by the General Cinema Corporation is a classic example. During the 50’s, the motion picture
theatres were following a decline. One market segment, the shopping center theater, was
increasing at an amazing rate over this extended period of stagnation and decline. General
Cinema Corporation was at the forefront of recognizing this opportunity and focused its energies
on this fast-growing market. In a decreasing overall industry, General Cinema was able to
maintain average profits of over 20% and a 20% return on equity during that time
79. What do you mean by fiscal imbalance?
ANS: What we earn is not always what we spend...and the same goes for governments. A fiscal
imbalance is when government expenditures are unequal with the revenue the government is
bringing in.
Since governments have budgets and laws for taxation, a fiscal imbalance can be seen in
advance. For instance, if a tax cut is paired with an increase in government spending, one can
do the maths to see how big the fiscal imbalance will be.
If a fiscal imbalance results in a deficit for many years, the government will eventually need to
pay that down, with tax increases, spending cuts, or both. This is a “vertical” fiscal imbalance,
where revenues and expenditures for a given government level are mismatched.

80. What is the need for a Finance Commission?

ANS.It is the duty of the Commission to make recommendations to the President as to—
1. the distribution between the Union and the States of the net proceeds of taxes which are to
be, or may be, divided between them and the allocation between the States of the respective
shares of such proceeds;
2.the principles which should govern the grants-in-aid of the revenues of the States out of the
Consolidated Fund of India;
3. the measures needed to augment the Consolidated Fund of a State to supplement the
resources of the Panchayats in the State on the basis of the recommendations made by the
Finance Commission of the State;
4.the measures needed to augment the Consolidated Fund of a State to supplement the
resources of the Municipalities in the State on the basis of the recommendations made by the
Finance Commission of the State;
5.any other matter referred to the Commission by the President in the interests of sound
finance.
The Commission determines its procedure and have such powers in the performance of their
functions as Parliament may by law confer on them.

81. What is Marginal Standing Facility?

ANS:The Reserve Bank of India (RBI) introduced (MSF) a new Marginal Standing Facility (MSF)
scheme on in its Monetary Policy for the year 2011-12. Under the new facility, banks will borrow
overnight up to 1 per cent of net demand and time liabilities (NDTL) outstanding at the end of
the second preceding fortnight. The MSF will be 100 basis points above the repo rate – the rate
at which banks borrow from RBI. All scheduled commercial banks that have current account and
subsidiary general ledger (SGL) account with RBI are eligible to participate in the MSF scheme.

82. "Money and capital markets" Discuss.

ANS.A capital market is a financial market where money is borrowed or invested for a long-term
meaning more than a year. Some prominent participants of this market are banks, financial
institutions, corporate bodies, foreign institutional investors, retail investors, etc. Due to the long
term nature, the returns and gains are also high. Some capital market instruments are equity,
preference share, debenture, bonds, etc. The capital market is further divided into primary
market and secondary market.
A money market is a financial market where money is borrowed or invested for a short-term,
meaning less than a year. This short-term fund is not bound to a fixed geographical location due
to globalization. It includes institutions like The Reserve Bank of India, commercial banks, life
insurance corporations (LIC), etc. Due to the short-term nature of this financial market, it is not
risky, and the returns and gains are low. Some money market instruments are treasury bills,
commercial bills, commercial paper, cal money, certificate of deposit, etc.

83. "WTO and its role" Discuss

ANS.The full form of the WTO is the World Trade Organization, and its function is to control and
maintain trade across the world. Generally, this organisation makes the rules for trading
between countries. At present, 159 countries are members of the WTO. It ensures that trade
between the nations runs smoothly and peacefully and is profitable for both countries.
The primary role of the WTO is as follows:
● WTO trade agreement administration.
● Providing a trade negotiation forum.
● Resolving trade disputes.
● Monitoring national trade policies.
● Helping technical support and training to developing countries.
It allows open communication between its members regarding trade.

84. Do you think foreign capital is a panacea for all ailments?

ANS.Foreign capital contributes to growth of a developing economy by reducing three
types of gaps i.e. saving gap, foreign exchange gap and technological gap. Foreign
capital can be public such as multilateral organisations (the World Bank, ADB) or
private. Again foreign private capital is of two types — Foreign direct investment
and portfolio investment. Foreign capital has grown substantially with opening up
of the economy. However the total foreign investment have become volatile due
to portfolio investment. Several new forms of investment (i.e. setting up of research
centres by MNCs securing access of raw materials, etc.) have emerged.
Before 1991, there were numerous restrictions on FDI. But after 1991, 51 per
cent investment by FDI was allowed. Majority of FDI was allowed automatically
in priority sectors. There are forms of foreign control over production that do not
involve capital investment like outsourcing of services, franchising or licensing,
global production networks etc. On the whole, However, foreign capital in large
economy like India, is neither a panacea for all ailments, nor a menace to
sovereignty.

85. Distinguish between the Horizontal Fiscal Imbalance and Vertical Fiscal Imbalance.
Explain the principles of federal finance.
Ans: Vertical Fiscal Imbalance The fiscal imbalance due to the difference between the revenue
resources and expenditure commitments of the Central government, and those of the State
governments put together is called as the Vertical Fiscal Imbalance. It is natural that the federal
governments of any country have vertical fiscal imbalance irrespective of their development
status.
Horizontal Fiscal Imbalance Horizontal fiscal imbalance arises due to the non-correspondence
between the revenue generating potential/efficiency of the different state governments within the
federal structure vis-à-vis their respective expenditure commitments. This type of fiscal
imbalance arises due to the differences in the endowment (or availability) of the natural
resources, even if the revenue powers and expenditure responsibilities are uniform.

The principles of federal finance are:

A. Principle of Independence:
Under the system of federal finance, a Government should be autonomous and free about the
internal financial matters concerned.
• It means each Government should have separate sources of revenue, authority to levy taxes,
to borrow money, and to meet the expenditure.
• The Government should normally enjoy autonomy in fiscal matters.
B. Principle of Equity:
• From the point of view of equity, the resources should be distributed among the different states
so that each state receives a fair share of the revenue.
C. Principle of Uniformity:
• In a federal system, each state should contribute equal tax payments for federal finance.
D. Principle of Adequacy of Resources:
• The principle of adequacy means that the resources of each Government i.e. Central and
State should be adequate to carry out its functions effectively.
• Here adequacy must be decided with reference to both currents as well as future needs.
• Besides, the resources should be elastic in order to meet the growing needs and unforeseen
expenditures like war, floods,
etc.
D. Principle of Fiscal Access:
• In a federal system, there should be the possibility for the Central and State Governments to
develop new sources of revenue within their prescribed fields to meet the growing financial
needs.
• In a nutshell, the resources should grow with the increase in the responsibilities of the.
Government.
E. Principle of Integration and coordination:
• The financial system as a whole should be well integrated.
• There should be perfect coordination among different layers of the financial system of the
country.
• Then only the federal system will survive.
• This should be done in such a way as to promote the overall economic development of the
country.
F. Principle of Efficiency:
• The financial system should be well organized and efficiently administered.
• Double taxation should be avoided.
G. Principle of Administrative Economy:
• The economy is an important criterion of any federal financial system.
• That is, the cost of collection should be at the minimum level and the major portion of revenue
should be made available
for the other expenditure outlays of the Governments.
H. Principle of Accountability:
• Each Government should be accountable to its own legislature for its financial decisions i.e.
the Central to the Parliament and the State to the Assembly.

86."Fiscal deficit and fiscal sector reforms in India" Discuss in detail

Ans: Fiscal deficit is the difference between government spending and government
revenue. It is a measure of the amount of money the government borrows each year.
Fiscal deficit can be a problem if it is too large, because it can lead to inflation and debt
problems.

Fiscal sector reforms are a set of policies that are designed to reduce fiscal deficit.
These reforms can include tax reforms, expenditure reforms, and debt management
reforms.

India has a long history of fiscal deficit problems. In the 1980s, the fiscal deficit reached
a peak of 8.5% of GDP. This was caused by a combination of factors, including high
government spending on subsidies and defense, and low government revenue due to
tax evasion and corruption.

In the 1990s, the Indian government began to implement a series of fiscal sector
reforms. These reforms included:

Tax reforms: The government introduced a new tax system, the Goods and Services
Tax (GST), in 2017. The GST is a single tax that is levied on goods and services across
the country. This has helped to reduce tax evasion and increase government revenue.

Expenditure reforms: The government has cut back on subsidies and other non-
essential spending. This has helped to reduce government spending.
Debt management reforms: The government has taken steps to manage its debt more
effectively. This has helped to reduce the risk of default.
As a result of these reforms, the fiscal deficit has been reduced significantly. In 2022-23,
the fiscal deficit is expected to be 6.4% of GDP. This is still high, but it is a significant
improvement from the 1980s.
The fiscal sector reforms in India have been successful in reducing fiscal deficit.
However, there is still more work to be done. The government needs to continue to
implement reforms to reduce government spending and increase government revenue.
This will help to ensure that India's fiscal deficit remains under control.

In addition to the reforms mentioned above, the Indian government is also working to
improve the efficiency of government spending. This includes measures such as:

Performance-based budgeting: The government is linking government spending to

specific results. This will help to ensure that government spending is used effectively.

Public-private partnerships: The government is partnering with the private sector to

deliver public services. This can help to reduce government spending and improve the
efficiency of service delivery.

The fiscal sector reforms in India are a work in progress. However, they have made
significant progress in reducing fiscal deficit and improving the efficiency of government
spending. The government is committed to continuing these reforms, and they are
expected to continue to improve the Indian economy.

87. What are the various monetary policy lags?

Ans: There are three main types of monetary policy lags:

Recognition lag: This is the time it takes for policymakers to recognize that a change in
economic policy is needed. This lag can be long, especially if the economy is changing
slowly.
Decision lag: This is the time it takes for policymakers to decide on the appropriate
policy response. This lag can be short if there is a clear consensus among policymakers
about what needs to be done. However, it can be long if there is disagreement among
policymakers about the best course of action.
Implementation lag: This is the time it takes for the policy change to be implemented.
This lag can be short if the policy change is simple, such as a change in interest rates.
However, it can be long if the policy change is complex, such as a change in the
monetary base.
The total lag between the time a change in economic policy is needed and the time the
policy change has its full effect can be long, sometimes several years. This makes it
difficult for policymakers to use monetary policy to fine-tune the economy. However,
monetary policy can still be an effective tool for managing inflation and economic growth
over the medium to long term.
88. What is “Transmission Mechanism” of Monetary policy?
Ans:
The transmission mechanism of monetary policy is the process by which changes in monetary
policy affect the economy. The transmission mechanism is complex and there are a number of
different channels through which it can operate.

The most common channels are:

The interest rate channel: When the central bank lowers interest rates, it makes it cheaper for
businesses and consumers to borrow money. This can lead to increased investment and
spending, which can boost economic growth.
The exchange rate channel: When the central bank lowers interest rates, it can cause the
value of the currency to depreciate. This can make exports cheaper and imports more
expensive, which can boost exports and reduce imports. This can lead to a trade surplus and a
boost to economic growth.
The asset price channel: When the central bank lowers interest rates, it can lead to higher
asset prices, such as stock prices and house prices. This can make people feel wealthier, which
can lead to increased spending.
The bank lending channel: When the central bank lowers interest rates, it can make it easier
for banks to borrow money from the central bank. This can lead to increased lending by banks
to businesses and consumers. This can lead to increased investment and spending, which can
boost economic growth.

89. Discuss the objectives of SEBI.

Ans: The Securities and Exchange Board of India (SEBI) is the regulatory body for the securities
market in India. It was established in 1992 to protect the interests of investors, promote the
development of the securities market, and regulate the activities of intermediaries in the market.

SEBI has four main objectives:

To protect the interests of investors: SEBI works to protect the interests of investors by
ensuring that they have access to accurate and timely information about securities, by
preventing fraudulent and unfair practices, and by providing a forum for investors to raise
complaints.
To promote the development of the securities market: SEBI works to promote the
development of the securities market by providing a fair and orderly market, by encouraging
innovation, and by making it easier for companies to raise capital.
To regulate the activities of intermediaries: SEBI regulates the activities of intermediaries in
the securities market, such as brokers, underwriters, and merchant bankers. This is to ensure
that intermediaries act in the best interests of investors and that they comply with the laws and
regulations governing the securities market.
To promote investor education: SEBI promotes investor education by providing information to
investors about the securities market and by encouraging investors to invest wisely.

90. Elucidate the role, significance and functions of capital market

Ans:
A capital market is a market for long-term financial instruments. It is where companies,
governments, and other entities can raise money by issuing stocks, bonds, and other securities.
The capital market plays a vital role in the economy by providing a way for businesses to grow
and for investors to earn a return on their money.

The role of the capital market is to channel funds from savers to borrowers. Savers are people
who have money that they are willing to invest, while borrowers are people who need money to
finance their projects. The capital market provides a platform for savers and borrowers to meet
each other and to exchange funds.

The significance of the capital market is that it helps to promote economic growth. When
businesses have access to capital, they can invest in new projects and expand their operations.
This leads to job creation and increased economic activity. The capital market also helps to
provide investors with a way to earn a return on their money. When investors buy stocks or
bonds, they are essentially lending money to a company or government. In return, they receive
a share of the company's profits or interest payments from the government.

The functions of the capital market are to:

Provide a platform for savers and borrowers to meet: The capital market provides a way for
savers and borrowers to meet each other and to exchange funds. This allows businesses to get
the money they need to grow and for investors to earn a return on their money.
Promote economic growth: The capital market helps to promote economic growth by providing
businesses with access to capital. This allows businesses to invest in new projects and expand
their operations, which leads to job creation and increased economic activity.
Provide investors with a way to earn a return on their money: When investors buy stocks or
bonds, they are essentially lending money to a company or government. In return, they receive
a share of the company's profits or interest payments from the government.

91. Distinguish between Foreign Direct Investment (FDI) and Foreign Portfolio
Investment?
Ans: Foreign direct investment (FDI) and foreign portfolio investment (FPI) are two
different types of investments that involve investing in foreign countries.

Foreign direct investment (FDI) is an investment made by a firm or individual in

one country into business interests located in another country. This can include
setting up a new business, acquiring an existing business, or expanding an
existing business into a new market. FDI is often seen as a long-term investment,
as it involves the investor taking an active role in the management of the
business.

Foreign portfolio investment (FPI) is an investment made in securities and other

financial assets issued in another country. This can include stocks, bonds,
mutual funds, and exchange traded funds. FPI is often seen as a shorter-term
investment, as investors are more likely to buy and sell securities based on short-
term market movements.

Here is a table that summarizes the key differences between FDI and FPI:

Characteristic FDI FPI

Type of investment Business interests Securities and

financial assets

Investor's role Active Passive

Investment horizon Long-term Short-term

Risk Higher Lower

Returns Higher Lower

FDI is often seen as a more beneficial form of investment for the host country, as
it can lead to job creation, technology transfer, and increased exports. However,
FDI can also have negative consequences, such as increased competition for
local businesses and the potential for job losses.

FPI is often seen as a less risky form of investment for the host country, as it
does not involve the investor taking an active role in the management of the
business. However, FPI can also have negative consequences, such as the
potential for currency fluctuations and the volatility of stock markets.

The decision of whether to invest in FDI or FPI is a complex one that should be
made on a case-by-case basis. Investors should carefully consider the risks and
rewards of each type of investment before making a decision.

92.What do you mean by saving gap? How does foreign capital help to fill this gap?
Ans:
In economics, the saving gap is the difference between the amount of savings in an economy
and the amount of investment needed to achieve a certain level of economic growth. A saving
gap can occur in developing countries that have a high level of poverty and a low level of
income. In these countries, people may not have enough money to save, and the government
may not be able to collect enough taxes to finance investment.

Foreign capital can help to fill the saving gap by providing additional resources for investment.
Foreign capital can come in the form of foreign direct investment (FDI), which is investment
made by a company or individual in one country into a business in another country, or foreign
portfolio investment (FPI), which is investment made in securities and other financial assets
issued in another country.

FDI can help to fill the saving gap by bringing new technology and management skills to
developing countries. This can help to increase productivity and economic growth. FPI can help
to fill the saving gap by providing additional funds for investment. This can help to finance
infrastructure projects, such as roads, bridges, and power plants, which can help to improve the
efficiency of the economy.

93. List out the Parameters for assessing economic reforms.

Ans: There are many parameters that can be used to assess economic reforms. Some
of the most important include:

Economic growth: Economic growth is a key indicator of the success of economic

reforms. A higher rate of economic growth can lead to increased prosperity for the
country as a whole.
Employment: Economic reforms should lead to an increase in employment
opportunities. This can help to reduce poverty and improve the standard of living for the
population.
Poverty: Economic reforms should help to reduce poverty. This can be done by creating
jobs, increasing wages, and providing social safety nets.
Inflation: Economic reforms should help to control inflation. This can help to protect the
purchasing power of consumers and businesses.
Trade: Economic reforms should help to increase trade. This can lead to increased
access to goods and services, and can also help to boost economic growth.
Investment: Economic reforms should help to attract investment, both domestic and
foreign. This can help to create jobs and boost economic growth.
Infrastructure: Economic reforms should help to improve the country's infrastructure.
This can include roads, railways, airports, and telecommunications. Improved
infrastructure can help to boost economic growth and improve the quality of life for the
population.
Education: Economic reforms should help to improve the quality of education. This can
help to create a more skilled workforce, which can lead to increased productivity and
economic growth.
Healthcare: Economic reforms should help to improve the quality of healthcare. This
can help to improve the health of the population, which can lead to increased
productivity and economic growth.

94.Has economic growth led to an improvement in human development in India

uniformly? Explain with the help of relevant data.
Ans:
Economic growth has led to an improvement in human development in India, but not uniformly.
The benefits of economic growth have not been evenly distributed across the country, with
some states and regions benefiting more than others.

One way to measure human development is to look at the Human Development Index (HDI),
which is a composite measure of life expectancy, education, and per capita income. India's HDI
has improved significantly over the past few decades, from 0.427 in 1990 to 0.644 in 2020. This
improvement is largely due to economic growth, which has led to increased investment in
education and healthcare.

However, the benefits of economic growth have not been evenly distributed across India. The
HDI varies significantly between states, with the richest states having a much higher HDI than
the poorest states. For example, the HDI of Goa is 0.795, while the HDI of Bihar is 0.444. This
inequality is due to a number of factors, including differences in investment in education and
healthcare, differences in infrastructure, and differences in social and cultural factors.

The government of India has taken some steps to address the inequality in human
development. For example, the government has launched a number of programs to improve
education and healthcare in rural areas. However, more needs to be done to ensure that the
benefits of economic growth are more evenly distributed across the country.

Here are some relevant data:

The average annual growth rate of India's GDP between 1990 and 2020 was 6.7%.
The average annual growth rate of India's HDI between 1990 and 2020 was 1.7%.
The richest 10% of Indians control more than 70% of the country's wealth.
The poorest 20% of Indians control less than 5% of the country's wealth.
The HDI of the richest state in India (Goa) is 0.795, while the HDI of the poorest state in India
(Bihar) is 0.444.
These data show that economic growth has led to an improvement in human development in
India, but that the benefits of economic growth have not been evenly distributed across the
country. More needs to be done to ensure that the benefits of economic growth are more evenly
distributed across the country.