STUDENT PORTAL

SYLLABUS - MAINS

PAPER 03 (GS 03)

ECONOMY

NOTE: This is not the complete syllabus. Here we have covered only those topics which UPSC has asked very frequently in past 20 years. To clear the mains exam and register your name in the fianl list, one cannot leave these topics and super consolidation these topics can easily bring your name in the final list and make your hardwork and struggle fruitful.

Planning

  • Five-Year Plans: Overview of the historical approach to planning in India, from the first Five-Year Plan in 1951 to the twelfth plan ending in 2017.
  • NITI Aayog: Introduced in 2015 to replace the Planning Commission, focusing on a bottom-up approach, cooperative federalism, and long-term strategic vision. Key initiatives include the “Make in India” strategy, Atal Innovation Mission, and the Think Tank function.

Mobilization of Resources

  • Financial Resources: This includes the role of public savings and tax collections, government borrowing (both domestic and foreign), and disinvestment of Public Sector Units (PSUs).
  • Physical Resources: Covers the utilization of natural resources like coal, minerals, and land.
  • Human Resources: Involves enhancing the workforce skills and capabilities through education and training programs.

Growth and Development

  • Economic Growth: Analysis of India's GDP growth, sectoral growth (agriculture, manufacturing, and services), and factors influencing these trends.
  • Human Development: Issues related to health, education, and social welfare. Discusses initiatives like Ayushman Bharat, Sarva Shiksha Abhiyan, and Mid-Day Meal Scheme.
  • Sustainable Development: Incorporates the challenges of balancing economic growth with environmental sustainability. Initiatives like the National Action Plan on Climate Change and renewable energy targets.

Employment

  • Employment Trends: Discusses the structure of employment, changes over time, and the impact of technology and globalization.
  • Unemployment Issues: Types of unemployment (cyclical, frictional, structural), and measures to mitigate these issues, such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and Skill India Mission.
  • Informal Sector: Challenges faced by informal workers, social security measures, and formalization efforts.

Sectoral Policies and Their Impact

  • Agricultural Policies: Focus on initiatives to improve agricultural productivity and farmers' income; issues around Minimum Support Price (MSP), farm loan waivers, and crop insurance schemes.
  • Industrial Policies: Discusses the impact of policies aimed at industrial growth, including ease of doing business reforms, industrial corridors, and special economic zones.
  • Service Sector Policies: Growth of IT, retail, finance, and other service sectors; policy initiatives like Digital India, FDI in services, and startup ecosystem support.

Inclusive Growth

Understanding Inclusive Growth

  • Definition: Inclusive growth is economic growth that creates opportunity for all segments of the population and distributes the dividends of increased prosperity, both in monetary and non-monetary terms, fairly across society.
  • Components: It includes equity, equality of opportunity, and protection in market and employment transitions.

Strategies for Achieving Inclusive Growth

  • Human Resource Development: Focused investments in health and education to improve the productivity and employability of the workforce.
  • Job Creation: Promoting industries that create mass employment opportunities, including small and medium enterprises (SMEs) which are major employment generators.
  • Technology and Innovation: Leveraging technology to bridge gaps in access to information, education, and markets, particularly in rural and underdeveloped areas.
  • Social Protection: Implementing social safety nets like unemployment benefits, pension schemes, and subsidized healthcare to protect the most vulnerable.
  • Infrastructure Development: Enhancing physical infrastructure such as transportation, electricity, and internet connectivity to boost economic efficiency and connectivity for marginalized areas.

Issues Arising from Inclusive Growth

  • Inequality: Despite growth, inequality can widen if the benefits are unevenly distributed. This can be seen in income disparities, unequal access to education, healthcare, and employment opportunities.
  • Employment Quality: Issues with the quality of jobs being created, including job security, working conditions, and adequacy of income.
  • Regional Disparities: Economic growth often varies significantly between different regions in a country, leading to concentration of prosperity in certain areas.
  • Gender Inequality: Women and other genders may not equally benefit from economic growth due to persistent social norms, discrimination, and lack of targeted opportunities.
  • Environmental Sustainability: Rapid growth can lead to environmental degradation, which disproportionately affects the poor and vulnerable, thereby undermining the goals of inclusive growth.

Government Initiatives

  • Skill India, Make in India, and Digital India: Aim to enhance skills, promote manufacturing, and improve digital infrastructure, respectively, to create jobs and increase inclusivity.
  • Direct Benefit Transfer (DBT): Aims to enhance the efficiency of subsidy programs through direct transfer of benefits to the bank accounts of recipients, reducing leakages and corruption.
  • MGNREGA: Provides at least 100 days of guaranteed wage employment in a financial year to enhance livelihood security in rural areas.

Government Budgeting

Components of a Government Budget:

  • Revenue Budget: Includes the government's revenue receipts and expenditure. Revenue receipts are divided into tax revenues (like income tax, corporate tax) and non-tax revenues (like profits from PSUs, fees from public services). Revenue expenditure includes all expenditures that do not result in the creation of assets (e.g., salaries, subsidies, interest payments).
  • Capital Budget: Consists of capital receipts (loans from the public, foreign governments) and capital expenditure (investment in shares, loans by the central government to state governments, etc.).

Objectives of Government Budgeting

  • Resource Allocation: The government decides which sectors (agriculture, industry, defense, etc.) will receive how much allocation. This reflects the government’s priorities.
  • Redistribution of Income: Through its taxing and spending powers, the government can influence the distribution of income within the economy to ensure a more equitable distribution of wealth.
  • Economic Stability: The budget is used to control economic fluctuations through fiscal policy tools like taxes and government spending to manage the economic cycles.
  • Management of Public Enterprises: Budgets often allocate funds for the setting up, continuation, or maintenance of public enterprises.

Types of Budgets

  • Balanced Budget: Where government revenues and expenditures are equal.
  • Deficit Budget: Where government expenditures exceed revenues. This is common in most countries, including India.
  • Surplus Budget: Where revenues exceed expenditures, which is rare in practice.

Budget Process in India

  • Presentation of the Budget: The Union Budget is presented by the Finance Minister of India on the 1st of February each year. It lays out the proposed expenditures and receipts for the following financial year, running from April 1 to March 31.
  • Budgetary Legislation: Post-presentation, the budget goes through a series of debates and discussions in both houses of Parliament. It needs to be passed as a Finance Bill within 75 days.
  • Implementation: After approval, the budget is implemented from the start of the financial year, April 1.
  • Audit and Evaluation: The Comptroller and Auditor General (CAG) of India audits government receipts and expenditures and reports to the Parliament.

Issues and Reforms

  • Transparency and Accountability: There are ongoing demands for greater transparency in the government's budgetary process and the need for higher accountability in spending.
  • Fiscal Responsibility: The Fiscal Responsibility and Budget Management Act, 2003, aims to introduce more prudent fiscal management practices.
  • Outcome Budget: The government has started focusing on outcome-based budgeting, which ties the budgeted funds to measurable outcomes.

Agriculture

Major Crops and Cropping Patterns

  • Major Crops: Includes staples like rice, wheat, and maize; cash crops such as cotton, sugarcane, tea, and coffee; and oilseeds like groundnut, mustard, and soybean.
  • Cropping Patterns: Varies across regions due to differences in climate, soil type, and water availability. Common patterns include:
    • Mono-cropping: Growing one type of crop on a particular land each year.
    • Multiple cropping: Includes double cropping (two crops per year), and inter-cropping (growing two or more crops simultaneously on the same field).
  • Region-Specific Patterns: For example, rice-wheat in Punjab and Haryana, rice-fish culture in parts of Eastern India, and coconut-based cropping in coastal areas.

Irrigation and Irrigation Systems

  • Types of Irrigation: Includes surface irrigation (flood, furrow), subsurface irrigation (drip, trickle), and sprinkler irrigation.
  • Irrigation Systems: Major systems in India include canal irrigation, tank irrigation, and well irrigation (including tube wells and bore wells).
  • Issues: Challenges include the over-extraction of groundwater, inefficient water usage, and the degradation of water quality.

Storage, Transport and Marketing

  • Storage: Problems with storage facilities lead to post-harvest losses. Traditional methods (granaries, silos) and modern facilities (cold storage) vary in availability.
  • Transport: Inadequate transport facilities for perishable products contribute to high losses.
  • Marketing: Issues include lack of market access for small farmers, price fluctuations, and exploitation by middlemen. The role of institutions like APMC mandis and the impact of initiatives like the e-NAM (Electronic National Agriculture Market) are crucial.

E-technology in the Aid of Farmers

  • Mobile and Internet Technologies: Apps and platforms offer services like weather forecasting, market prices, online selling platforms, and expert advice.
  • Remote Sensing and GIS: Used for crop health monitoring, soil health mapping, and precision agriculture to optimize returns and reduce costs.
  • Challenges: Digital divide, lack of digital literacy among farmers, and issues with data privacy.

Government Policies and Schemes

  • PM-KISAN: Provides income support to small and marginal farmers.
  • Pradhan Mantri Krishi Sinchai Yojana: Aims to enhance irrigation coverage and ensure 'Per Drop More Crop'.
  • Fasal Bima Yojana: Crop insurance scheme to reduce risks associated with crop failures.

Direct and Indirect Farm Subsidies and Minimum Support Prices (MSP)

  • Direct Subsidies: These include cash transfers directly to farmers, such as those for fertilizers, seeds, or equipment, aimed at reducing the cost burden.
  • Indirect Subsidies: Benefits like electricity and water at subsidized rates which indirectly support agricultural productivity.
  • Minimum Support Prices: MSP is a government policy to purchase directly from the farmer at a guaranteed price, aiming to incentivize production and ensure income security for farmers.
  • Issues: Subsidies can distort agricultural markets, leading to inefficiencies like overuse of water or fertilizers. MSP might lead to the overproduction of certain crops at the expense of others, impacting biodiversity and sustainability.

Public Distribution System (PDS)

  • Objectives: To provide food grains and essential commodities at subsidized prices to the underprivileged sections of society, ensuring food security.
  • Functioning: Operates through a network of Fair Price Shops (FPS) where authenticated beneficiaries can purchase commodities at reduced prices.
  • Limitations: Issues include leakage and diversion of goods, quality of food grains, exclusion and inclusion errors in beneficiary lists.
  • Revamping: Recent reforms include the integration of Aadhar for biometric verification to reduce fraud, and initiatives like the 'One Nation, One Ration Card' for portability of benefits.

Buffer Stocks and Food Security

  • Buffer Stocks: These are stockpiles of food grains, primarily wheat and rice, maintained by governments through agencies like the Food Corporation of India (FCI).
  • Objectives: To stabilize food prices in response to production fluctuations and to ensure food availability during periods of shortage.
  • Issues: High carrying costs, inefficiencies in storage leading to spoilage, and challenges in distribution.

Technology Missions

  • Examples: Missions like the Technology Mission on Cotton, Pulses, and Horticulture aim to increase production through technological interventions.
  • Impact: These missions have helped in increasing the productivity and quality of various crops through research, better seeds, and farming practices.
  • Challenges: Adoption rates among farmers can vary, and there is often a need for better dissemination of technology and training.

Economics of Animal-Rearing

  • Scope: Includes dairy, poultry, and livestock farming which are critical for the rural economy, providing both employment and nutritional security.
  • Challenges: Issues include high feed costs, lack of veterinary services, unorganized markets, and low productivity in comparison to global standards.
  • Policies: Schemes like Rashtriya Gokul Mission and National Livestock Mission aim to promote sustainable growth of livestock sector.

Food Processing

Scope and Significance

  • Economic Contribution: The food processing industry contributes significantly to India's GDP, employment, and export earnings. It acts as a bridge between agriculture and manufacturing.
  • Value Addition: By converting raw agricultural products into more consumable forms, the industry adds value, increases shelf life, and reduces waste.
  • Linkage with Agriculture: It provides a stable market for agricultural products and helps in stabilizing prices, thus benefiting farmers.

Location

  • Factors Influencing Location:
    • Proximity to Raw Materials: Most food processing units are located close to agricultural hubs to minimize the cost of transportation and reduce spoilage.
    • Accessibility to Markets: Proximity to large urban centers is preferred for better access to consumer markets.
    • Infrastructure: Availability of adequate infrastructure such as roads, electricity, water, and technology also influences the location.
    • Government Policies: Incentives like tax breaks, subsidies, and special economic zones (SEZs) also attract industries to particular locations.

Upstream and Downstream Requirements

  • Upstream Requirements:
    • Raw Materials: Dependence on the agricultural sector for raw materials like fruits, vegetables, grains, milk, meat, etc.
    • Equipment and Technology: Advanced machinery for processing, packaging, and testing is crucial.
  • Downstream Requirements:
    • Packaging: Innovations in packaging technology that extend the shelf life and improve the transportability of food products.
    • Distribution: Efficient systems to ensure that processed foods reach retailers and consumers in good condition.
    • Marketing and Branding: Effective strategies are needed to create consumer awareness and brand loyalty.

Supply Chain Management

  • Components:
    • Supply Chain Planning: Involves demand planning, production planning, inventory management, and procurement strategies.
    • Logistics: Efficient logistics for moving raw materials to processing plants and finished goods to the market.
  • Challenges:
    • Fragmentation: Many small operators lead to inefficiencies.
    • Inefficiencies: Issues like high transportation costs, inadequate cold storage, and logistics bottlenecks.
  • Technological Integration:
    • ERP Systems: Deployment of Enterprise Resource Planning systems to integrate all processes.
    • Blockchain: For enhancing traceability and transparency.
    • IoT: Internet of Things for real-time monitoring of storage conditions and logistics.

Government Initiatives

  • Schemes like Pradhan Mantri Kisan Sampada Yojana aim to create modern infrastructure with efficient supply chains from farm gate to retail outlets.
  • Mega Food Parks, Cold Chain Infrastructure and Agro-Processing Clusters are part of these initiatives to reduce wastage, increase processing levels and enhance the export of the processed foods.

Land Reforms

Pre-Independence Initiatives

  • Zamindari System: Land was concentrated in the hands of a few landlords (Zamindars), who exploited tenant farmers. Early reform efforts aimed to reduce this exploitation.
  • British Policies: Introduced to document land ownership more accurately but often reinforced existing landlord systems.

Post-Independence Reforms

Land reforms after independence were undertaken to abolish feudal land structures and distribute land more equitably among the tillers. Major reforms included:

  • Abolition of Intermediaries: The primary step taken in the early years of independence (1947-1950) aimed at removing Zamindars, Jagirdars, etc., and redistributing their land to tenants.
  • Tenancy Reforms: Regulated rent provided security of tenure, and conferred ownership rights to tenants. These reforms varied significantly across states due to differing local conditions and political will.
  • Ceiling on Land Holdings: Imposed limits on the amount of land that an individual or family could own. Excess land was to be redistributed to landless farmers. Implementation was uneven across states, with some like West Bengal and Kerala making significant progress.

Consolidation of Holdings

  • Fragmentation: Small and fragmented landholdings were common due to traditional inheritance laws, leading to inefficiencies in farming.
  • Consolidation: Efforts were made to consolidate these small pieces into larger, more viable units. This was more successful in states like Punjab and Haryana, contributing to the success of the Green Revolution.

Cooperative Farming

  • Objective: Encouraged the voluntary association of small farmers in farming collectively to enjoy the benefits of large-scale farming and reduce individual investment.
  • Outcomes: Had limited success due to lack of interest and inherent issues in management and coordination.

Current Issues and Challenges

  • Ineffective Implementation: Many reforms were poorly implemented due to lack of political will, bureaucratic inefficiencies, and resistance from powerful landowning classes.
  • Emerging Issues: Urbanization and industrialization are leading to new forms of land acquisition challenges, where land is being diverted from agricultural to non-agricultural uses, often leading to disputes and protests (e.g., Singur and Nandigram).
  • Land Records Modernization: Incomplete and inaccurate land records have been a persistent issue, complicating reforms and leading to legal disputes.

Modern Initiatives

  • Digitization of Land Records: Efforts under the Digital India Land Records Modernization Programme aim to modernize management of land records, minimize scope of land/property disputes, enhance transparency, and facilitate land transactions.
  • Reforms in Land Lease: Encouraging states to adopt Model Agricultural Land Leasing Act, 2016 to legalize and liberalize land leasing to promote agricultural efficiency, equity, and poverty reduction.

Effects of Liberalization

Effects of Liberalization on the Economy

  • Introduction to Economic Liberalization: Initiated in 1991 under the then Finance Minister Dr. Manmohan Singh, to address a severe economic crisis. The liberalization was marked by a reduction in import tariffs, deregulation of markets, reduction of taxes, and greater foreign investment.
  • Impact on Different Sectors:
    • Agriculture: Liberalization reduced the heavy protection and subsidies in agriculture, which was a mixed blessing—increasing efficiency but also exposing Indian farmers to global market fluctuations.
    • Services: The sector witnessed unprecedented growth, particularly in IT and ITES (Information Technology Enabled Services), benefiting from outsourcing trends globally.
    • Manufacturing: Saw both growth and challenges; growth due to increased competitiveness and FDI, and challenges due to exposure to global competition.

Changes in Industrial Policy and Their Effects

  • Pre-1991 Industrial Policies: Characterized by the "License Raj," where firms required licenses to invest and expand, leading to inefficiencies and slow growth.
  • 1991 Industrial Policy Reforms: Aimed at liberalizing the economy by removing unnecessary bureaucratic restrictions. Key reforms included:
    • Deregulation: Reducing the number of industries reserved for the public sector and removing many industries from the compulsory licensing framework.
    • Privatization: Selling or closing non-strategic PSUs (Public Sector Undertakings) to promote efficiency and modernization.
    • Foreign Direct Investment (FDI): Allowing increased FDI in many sectors to bring in capital, technology, and managerial expertise.
  • Impact on Industrial Growth:
    • Increased Competition: Led to greater efficiency and innovation in several sectors.
    • Expansion of Industrial Base: Many new sectors such as telecommunications, pharmaceuticals, and auto components grew significantly.
    • Regional Disparities: While states with better infrastructure and governance like Maharashtra, Gujarat, and Karnataka benefited, others lagged behind.

Long-term Effects of Liberalization

  • Economic Growth: Sustained higher growth rates post-liberalization, making India one of the fastest-growing major economies.
  • Employment: Creation of jobs in the service sector, although the manufacturing sector has not been as robust in job creation.
  • Foreign Exchange Reserves: Significant improvement in forex reserves, providing a cushion against economic shocks.

Current Challenges and Issues

  • Inequality: Economic benefits have not been evenly distributed, leading to increased income and wealth disparities.
  • Manufacturing Sector: Despite initiatives like "Make in India," manufacturing has not achieved the desired growth trajectory.
  • Infrastructure Constraints: Inadequate infrastructure remains a bottleneck for industrial growth.

Infrastructure

Energy

  • Types: Includes conventional sources like coal, natural gas, and oil, and renewable sources such as solar, wind, hydro, and nuclear energy.
  • Challenges: Issues include the high dependency on coal, energy inefficiency, and environmental concerns.
  • Initiatives: The Government of India has launched several initiatives like the National Solar Mission, UDAY scheme for power sector reform, and ambitious targets for renewable energy capacity.

Ports

  • Significance: Critical for India’s trade as a majority of merchandise trade is seaborne.
  • Major Ports: India has 12 major ports and numerous non-major ports. Recent initiatives aim to modernize and improve the efficiency through the Sagarmala project, which focuses on port modernization, new port development, port connectivity enhancement, and coastal community development.
  • Challenges: Issues include underutilization, congestion, and inefficiencies in cargo handling.

Roads

  • Network: India has the second-largest road network in the world. Roads are crucial for internal trade and connectivity.
  • Programs: Major projects include the Bharatmala Pariyojana, which aims to enhance connectivity particularly along economic corridors, border areas, and far-flung regions.
  • Challenges: Quality of road infrastructure, maintenance issues, and the need for better road safety measures are persistent concerns.

Airports

  • Growth: Rapid growth in air travel in recent years has led to expansions and upgrades of airports across India.
  • Initiatives: The UDAN (Ude Desh ka Aam Naagrik) scheme aims to make air travel affordable and widespread, to boost inclusive national economic development, job growth, and air transport infrastructure development.
  • Challenges: Requires substantial investment to upgrade facilities, improve connectivity, and manage increasing passenger volumes.

Railways

  • Network: An extensive network that is crucial for transporting freight and passengers across the country.
  • Modernization: Efforts include electrification of railway lines, introduction of high-speed trains, and the dedicated freight corridor projects aimed at improving the speed and efficiency of freight trains.
  • Challenges: Overcrowding, underinvestment, and safety are significant issues.

Cross-Sectoral Issues

  • Investment Needs: Significant investments are required across all sectors to upgrade and expand infrastructure.
  • Policy Support: Requires coherent policy frameworks that encourage both public and private sector investment.
  • Technological Integration: Use of technology like GIS for planning, drones for monitoring construction, and digital systems for traffic and cargo handling can enhance efficiency.

Investment Models

Public Investment Model

  • Description: Projects are funded and operated entirely by the government. This model is used primarily for strategic sectors such as defense, public health, and education.
  • Advantages: Ensures public control over essential services and allows social welfare objectives to be prioritized over financial returns.
  • Disadvantages: Can be inefficient due to bureaucratic delays, lack of accountability, and potential for corruption.

Private Investment Model

  • Description: Projects are entirely funded and executed by private entities. This model is common in industries where innovation and efficiency are required, such as telecommunications and IT.
  • Advantages: Tends to be more efficient, innovative, and responsive to consumer demands.
  • Disadvantages: Primary focus is on profit, which may lead to the exclusion of underprivileged sections of society from accessing basic services.

Public-Private Partnership (PPP)

  • Description: A collaborative investment model where both the public sector and the private sector share responsibilities in terms of investment, management, and operation. PPPs can take various forms, including Build-Operate-Transfer (BOT), Build-Own-Operate-Transfer (BOOT), and Build-Lease-Transfer (BLT).
  • Advantages: Combines the strengths of both sectors—public oversight with private sector efficiency and capital. It helps in risk sharing and can lead to better quality of service.
  • Disadvantages: The complexity of contracts and the need for very clear agreements can lead to disputes. There can also be issues regarding cost overruns and uneven profit sharing.

Foreign Direct Investment (FDI)

  • Description: Investment made by a firm or individual in one country into business interests located in another country. FDI can be in the form of a controlling ownership in a business in one country by an entity based in another country.
  • Advantages: Brings in capital, improves the balance of payments, creates jobs, and fosters technology transfer.
  • Disadvantages: There are concerns about foreign influence, national security, and profit repatriation.

Multilateral and Bilateral Funding

  • Description: Investments sourced from international institutions like the World Bank, IMF, or through agreements between two countries.
  • Advantages: Useful for projects that require large investments, which are not feasible through domestic funding alone. These investments often come with expertise and international standards.
  • Disadvantages: Sometimes accompanied by strict conditions or stipulations that may not always align with the national priorities or may lead to dependence on external entities.

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