UPSC Mains Previous Year Questions 2020: GS3 Indian Economy | Indian Economy for UPSC CSE PDF Download

Q1: Explain intra-generational and inter-generational issues of equity from the perspective of inclusive growth and sustainable development. (Economic Development)
Ans: 
Inter-generational Equity and Issues: As Mahatma Gandhi once remarked, "Earth provides enough to satisfy every man’s needs, but not every man’s greed." The core aim of inter-generational equity is the responsible use of resources by one generation to ensure economic sustainability for future generations.

This principle has gained significant importance today due to the increasing imbalance in resource distribution, ongoing environmental degradation, and resource overexploitation. This imbalance is particularly evident between developed and developing nations, often manifested as the disparity between the Global North and the Global South. Additionally, developed countries are hesitant to support developing nations in adapting to and mitigating the impacts of climate change.

Intra-generational Equity and Issues: Mahatma Gandhi's perspective that the progress of a society should be gauged by the well-being of the most vulnerable and weakest individuals emphasizes the importance of intra-generational equity.

This concept grants rights and responsibilities to every person within a generation to use and manage resources fairly, ensuring that all segments of society benefit. To foster intra-generational equity, the promotion of social justice is advocated. However, government initiatives such as welfare schemes, subsidies, and reservations, designed to assist vulnerable sections of society, often face challenges like corruption and inefficient implementation.

Despite the free-market doctrine calling for a reduction of state intervention and reliance on market solutions, the market-oriented reforms of 1991 have not effectively trickled down.

The key pillars of the global welfare narrative lie in the concepts of inclusive growth and sustainable development, both achievable by ensuring both intra-generational and inter-generational equity.

Q2. Define potential GDP and explain its determinants. What are the factors that have been inhibiting India from realizing its potential GDP? (Economic Development)
Ans:
Potential GDP and its Determinants: Potential GDP is a theoretical concept in national income accounting, assuming full employment and a balance between aggregate demand and aggregate supply. Unlike other methods, it estimates the highest sustainable output level an economy can maintain over time, representing the market value of all goods and services.

Determinants of Potential GDP:

• Capital Stock: The plant, equipment, and assets aiding production determine economic output and potential GDP.
• Labor Force: Depending on demographic factors and participation rates, potential GDP in the short run relies on the quantity of employed labor.
• Non-accelerating Inflation Rate of Unemployment: This specific unemployment rate stabilizes inflation, neither increasing nor decreasing.
• Other Factors: Including labor efficiency, production capacity, liquidity, government fiscal support, and labor market efficiency.

Factors Limiting India's Potential GDP:

• Negative Output Gap: Occurs when actual output is less than full capacity, indicating spare capacity in the economy.
• Fall in Private Consumption: Sharp declines in private consumption discourage firms from producing more goods, leaving resources and labor unutilized.
• Mounting NPAs of Banks: High NPAs reduce banks' lending capacity, impacting businesses, production houses, and the real estate sector.
• Unemployment: Widespread unemployment in India hampers the realization of its Potential GDP.
• Informal Economic Activities: The large unaccounted informal sector in India affects the recorded value of the economy in national accounts.
• Other Factors: Including weak intellectual property rights, low R&D expenditure, and contract enforcement issues.

Way Forward

• Work on policy levels to generate employment, mobilize resources efficiently, promote exports and innovation, and expand the Make in India Programme.
• Ensure better wages to boost private consumption expenditure.
• Manage and compensate for the negative output gap through fiscal and monetary policy measures while keeping inflation in check.
• Implement policies fostering rural economic growth.

Q3: Explain the meaning of investment in an economy in terms of capital formation. Discuss the factors to be considered while designing a concession agreement between a public entity and private entity.(Economic Development)
Ans: 
Investment in the Economy: In the economic context, investment pertains to the spending made to create capital assets or goods for generating future income and wealth. It involves adding to the physical capital stock, including machinery, buildings, equipment, and roads. Investment plays a vital role in capital formation, leading to increased national economic output.

Economic Impact of Investment:

• Capital Stock Addition: Investment contributes to the growth of capital stock in the economy.
• Enhanced Production Capacity: It boosts the economy's production capacity.
• GDP Growth: Increased production results in higher gross domestic product (GDP).
• Encouragement of Domestic Savings: Over time, investment may stimulate domestic savings.

Concession Agreement in Infrastructure Development: A concession agreement is a negotiated contract granting rights to a company by a government, local authority, or other legal entity. Essentially a Public-Private Partnership (PPP), it enables joint development and maintenance of government projects.

Factors in Designing Concession Agreements:

• Defined Timeframe: Clearly define the duration of the concession agreement.
• Clarity on Fees, Time Period, and Authority: Specify fees, timeframes, and the responsible authority.
• Management and Maintenance: Clearly outline who will manage, maintain, and repair the project in a timely manner.
• Timely Financing: Specify requirements for timely financing, including viability gap funding.
• Environmental Impact Assessment: Clearly state the requirements for environmental impact assessment and land clearance.

Importance of Concession Agreements: Concession agreements are crucial for infrastructure development, reducing time lags and associated costs. A well-designed concession agreement not only enhances performance but also minimizes contract disputes.

Q4: Explain the rationale behind the Goods and Services Tax (Compensation to States) Act of 2017. How has COVID-19 impacted the GST compensation fund and created new federal tensions?(Economic Development)
Ans: 

Goods and Services Tax (GST) and Compensation to States: The Goods and Services Tax is a comprehensive, multi-stage, destination-based tax, serving as a single domestic indirect tax law that subsumed various indirect taxes in India. The Goods and Service Tax (Compensation to States) Act, 2017, outlines a mechanism to compensate states for potential revenue loss resulting from the implementation of GST.

Rationale behind the Act:

• Raising New Revenue Sources: With GST absorbing most taxes, the Union compensates states to address their limited taxation rights.
• Fixed Revenue Growth: Compensation is calculated based on the difference between current GST revenue and protected revenue, ensuring an annualized 14% growth rate from the base year 2015-16.
• Guaranteed Compensation: States are assured compensation for revenue loss due to GST implementation for a five-year transition period (2017-2022) under the GST (Compensation to States) Act, 2017.

Impact of COVID-19 on GST Compensation Fund and Federal Tensions:

• Erosion of Gains: Economic slowdown due to COVID-19 lockdowns has eroded GST gains, leading to significant shortfalls in tax collection.
• Centre-State Conflict: The Central and State Governments are at odds as the Centre struggles to fulfill its promise of compensating states under the GST Act 2017.
• Binding Clause and Federal Ideas: The binding clause in the Act has caused a conflict, challenging federal ideas under the Constitution.
• Concerns and Questions: States express concern over compensation during this critical period, questioning the Centre's commitment to the federal agreement.
• Resolution Approach: States need to acknowledge realities and accept a lower level of compensation, ideally linked to the nominal growth rate of the Indian economy. The Centre must recognize its statutory obligation, and both parties should collaborate to prevent GST reforms from being jeopardized by the trust deficit stemming from this standoff.

Q5: Describe the benefits of deriving electric energy from sunlight in contrast to the conventional energy generation. What are the initiatives offered by our government for this purpose?(Economic Development)
Ans: 
Harnessing Solar Energy in India: India, located in the tropical belt, enjoys a significant advantage with nearly 300 days of peak solar radiation, providing 2,300-3,000 hours of sunshine equivalent to over 5,000 trillion kWh. As of February 2019, the installed solar power capacity in India, according to the Central Electricity Authority, stands at 26,025.97 MW, constituting 34% of the total renewable energy capacity of 75,055.92 MW.

Advantages of Solar Energy Over Conventional Sources:

• Energy Security: Solar energy, being abundant and cost-effective, can help reduce India's dependence on energy imports, ensuring energy security and minimizing expenditure.
• Social Development: Widespread power cuts and lack of electricity in rural areas hinder human development. Solar energy can address this issue, replacing subsidized kerosene and promoting social development.
• Environmental Concerns: Solar energy, as a clean and renewable resource, can serve as an environmentally friendly alternative to thermal energy, which heavily relies on fossil fuels and contributes to pollution.
• Infrastructure Efficiency: Solar power infrastructure requires no overhead wires, reducing transmission losses. Additionally, solar energy conversion equipment has a longer life and lower maintenance needs, ensuring higher infrastructure security.

Government Initiatives:

• National Solar Mission: The government's initiative aims to promote ecologically sustainable growth while addressing India's energy security challenges.
• Indian Renewable Energy Development Agency (IREDA): IREDA provides term loans for renewable energy and energy efficiency projects.
• National Institute of Solar Energy: Established as an autonomous institution for R&D in solar energy under MoNRE.
• Solar Parks and Infrastructure: The establishment of solar parks and major solar power projects, along with enhanced grid connectivity infrastructure.
• Canal Bank and Canal Tank Solar Infrastructure: Promotion of solar projects along canal banks and tanks.
• Sustainable Rooftop Implementation of Solar Transfiguration of India (SRISTI) Scheme: Encouraging rooftop solar power projects across the country.
• Suryamitra Programme: Training programs to prepare a qualified workforce for the solar energy sector.
• International Solar Alliance (ISA): India proposed the formation of ISA, a platform for collaboration among sunshine countries in the field of energy security.

Conclusion: 
With its pollution-free, virtually inexhaustible, and globally distributed nature, solar energy stands as an immensely attractive resource. India, committed to achieving 100 GW of solar power out of 175 GW renewable energy by 2022, can significantly benefit from this abundant and sustainable energy source.

Q6: What are the main constraints in transport and marketing of agricultural produce in India?(Agriculture)
Ans: 
Agriculture's Contribution and Challenges in India: Agriculture constitutes approximately 17% of India's GDP and serves as the primary livelihood for over 55% of the country's population. While Indian farmers can sell their produce locally, at APMC (Agricultural Produce Market Committee) mandis, or to the government at the minimum support price (MSP), these traditional mechanisms have not significantly improved farmers' income. To achieve the goal of doubling farmers' income and ensuring sustainable livelihoods, effective transportation and marketing of agricultural produce are crucial.

Constraints in Transport:

• Poor Rural Connectivity: Inadequate connectivity between rural areas and markets.
• Weak Supply Chain: Underdeveloped supply chain infrastructure.
• Limited Warehousing and Cold Storage: Especially lacking in rural regions where agricultural commodities are produced.
• Issues with Vehicle Design: Insufficient cold chain vehicles for transporting perishable agricultural produce.

Constraints in Marketing:

• High Logistical Costs: Elevated costs associated with transportation.
• Lack of Formal Agricultural Markets: Absence of organized markets for agricultural products.
• Insufficient Packaging, Grading, and Measurement Facilities: Limited facilities for these crucial aspects.
• Stringent State-level Commodity Transfer Control: Stringent controls on commodity transfers at the state level.
• Underdeveloped National Market: Limited progress in the development of a national market.
• Insufficient Technology Integration: Lack of technological integration in the market mechanism.
• Low Marketable Surplus: Limited surplus of agricultural goods available for the market.
• Market Malpractices: Unfair practices in the market and a lack of market information.

The challenges in transporting and marketing agricultural produce not only lead to product wastage and efficiency losses but also significantly impact equitable distribution and inclusive growth by diminishing returns for smaller farmers.

Q7: What are the challenges and opportunities of the food processing sector in the country? How can the income of the farmers be substantially increased by encouraging food processing?(Agriculture)
Ans: 

Overview of Food Processing: Food processing generally involves the fundamental preparation of foods, transforming a food product into a different form, and employing preservation and packaging techniques. An example is the extraction of mango juice from the pulp.

Challenges Faced by Food Processing Industry in India:

• Supply Side Bottlenecks: Fragmented land holdings result in low farm productivity, leaving farmers with a small and dispersed marketable surplus.
• Demand Side Bottlenecks: The demand for processed food is mainly confined to urban areas of India and the middle and upper class population.
• Infrastructure Bottlenecks: Lack of mechanization and proper supply chain leads to poor market access. Seasonality and perishability necessitate cold storage, warehousing facilities, and reliable road, rail, and port connectivity.
• Manpower: Shortage of skilled workers and deficiencies in technical know-how at various levels in the value chain.
• Sanitary and Phytosanitary (SPS) Measures: Stringent SPS measures imposed by developed countries hinder the exports of processed foods.

Opportunities Associated with Food Processing Industries:

• Employment Generation: Food Processing Industry (FPI) serves as a vital link between agriculture and industry, providing direct and indirect employment opportunities.

• Nutritional Security: Fortified processed foods can address nutritional gaps in the population.

• Trade and Foreign Exchange: Food exports can be a significant source of foreign exchange due to the growing demand for nutritious, convenient, and time-saving food.

Food Processing Industry & Farmers’ Income:

• Value Addition: Processed foods command higher prices than raw items, offering farmers a better price for their products.
• Demand for Agro-Products: Urbanization in India increases the demand for processed food, contributing to a rise in farmers’ income.
• Combating Rural Unemployment: As a labor-intensive industry, food processing provides localized employment opportunities, reducing migration push factors.

Food processing has become integral to the global food supply chain. India, being agriculturally dominant, should harness its potential in the Food Processing Industry to double farmers’ income by 2022-23.

Q8: What are the major factors responsible for making the rice-wheat system a success? In spite of this success how has this system become bane in India? (Agriculture)
Ans:
The Rice-Wheat Cropping System in India: The rice-wheat cropping system has been a dominant pattern in the Indo-Gangetic region for years, satisfying a significant portion of the country's annual wheat and rice demand. Key states practicing this system include Punjab, Haryana, Bihar, Uttar Pradesh, and Madhya Pradesh.

Factors Contributing to the Success of the Rice-Wheat System:

1. Ideal Geographical Conditions: Northern India provides ideal conditions for both rice and wheat cultivation, with ample water from annual monsoonal rainfall and suitable temperature ranges.
2. Government Support: The Indian government supports wheat and rice producers through Minimum Support Price (MSP) procurement, ensuring a guaranteed price, a secure market, and protection from market fluctuations.
3. Low Input Cost and High Productivity: Wheat and rice crops have low input costs and high productivity, with MSP increases exceeding production cost increments as per government policy, ensuring consistent profits for farmers.

Challenges and Issues with the Rice-Wheat System:

1. Residue Management: Burning rice straw residue in open fields for wheat crop preparation causes significant environmental pollution, especially in the NCR region.
2. Unchecked Water Usage: Paddy cultivation's high-water footprint leads to extensive groundwater extraction, contributing to declining water tables in northern India.
3. Lack of Crop Rotation: Continuous wheat and rice planting on the same land degrades soil structure and nutrient levels, necessitating a shift towards diverse cropping systems.
4. MSPs Impact: The reliance on MSPs for wheat and rice has led to overproduction, market glut, higher social costs, and increased government subsidies, adding stress to government resources.

Conclusion:
In conclusion, the rice-wheat system's drawbacks call for a reassessment of this traditional agricultural practice. Urgent steps are needed to implement new and sustainable agricultural policies to address environmental concerns, water management, soil health, and market dynamics.

Q9: Suggest measures to improve water storage and irrigation system to make its judicious use under depleting scenario.(Agriculture)
Ans:
Addressing Water Scarcity Through Traditional and Modern Techniques: The continuous mismanagement and excessive use of potable groundwater in industries, agriculture, and households have led to a significant portion of the country facing high water stress. This, combined with a growing population, raises concerns about an impending shortage of potable water in the country.

Traditional Water Conservation Methods:

• Jhalaras: Rectangular stepwells with tiered steps on three or four sides.
• Talabs: Reservoirs storing water for household and drinking purposes, including natural ponds like pokhariya.
• Bawaris: Unique stepwells diverting rainwater to man-made tanks through canals.
• Taanka: Indigenous rainwater harvesting technique in desert regions.
• Ahar Pynes: Floodwater harvesting systems in flood-prone regions.
• Johads: Small earthen check dams capturing and storing rainwater for groundwater recharge.

Modern Water Storage Methods:

• Rainwater Overhead Tanks: Simple tanks placed on buildings or terraces to collect rainwater.
• Rooftop Rainwater Harvesting: Structures using roofs to channel rainwater into ground-level containers.
• Percolation Tanks: Earthen dams with a masonry spillway for recharging groundwater storage.

Efficient Irrigation Practices:

• Bamboo Drip Irrigation System: Indigenous system in northeast India diverting water from springs to terrace fields through bamboo pipes.
• Irrigation Scheduling: Smart water management based on weather forecasts, soil conditions, and the use of smart meters.
• Dryland Farming: Cultivating crops without irrigation in regions with limited moisture.
• Sprinkler Irrigation: Applying water to crops in a manner similar to natural rainfall, utilizing pumps, pipes, and nozzles.

Conclusion:
By integrating traditional methods with modern scientific approaches, a holistic approach to water conservation can be achieved. These methods should be implemented comprehensively to minimize water wastage and ensure the sustained availability of potable water for an extended period.