Test No.

IAS Prelims - 2020 7

PTS2020/PPP-7/092019/26

GENERAL STUDIES

ECONOMY - 1
FUNDAMENTALS OF ECONOMY
(NCERT)

Answer Key

Q. 1 (a) Q. 21 (a) Q. 41 (b) Q. 61 (c) Q. 81 (d)

Q. 2 (d) Q. 22 (b) Q. 42 (c) Q. 62 (a) Q. 82 (a)
Q. 3 (d) Q. 23 (c) Q. 43 (c) Q. 63 (a) Q. 83 (a)
Q. 4 (b) Q. 24 (c) Q. 44 (d) Q. 64 (c) Q. 84 (c)
Q. 5 (c) Q. 25 (b) Q. 45 (a) Q. 65 (a) Q. 85 (c)
Q. 6 (a) Q. 26 (c) Q. 46 (d) Q. 66 (d) Q. 86 (d)
Q. 7 (d) Q. 27 (a) Q. 47 (b) Q. 67 (d) Q. 87 (c)
Q. 8 (a) Q. 28 (b) Q. 48 (a) Q. 68 (d) Q. 88 (c)
Q. 9 (b) Q. 29 (c) Q. 49 (c) Q. 69 (c) Q. 89 (a)
Q. 10 (d) Q. 30 (b) Q. 50 (b) Q. 70 (b) Q. 90 (c)
Q. 11 (b) Q. 31 (d) Q. 51 (c) Q. 71 (b) Q. 91 (b)
Q. 12 (d) Q. 32 (d) Q. 52 (c) Q. 72 (c) Q. 92 (b)
Q. 13 (c) Q. 33 (b) Q. 53 (b) Q. 73 (d) Q. 93 (d)
Q. 14 (c) Q. 34 (d) Q. 54 (d) Q. 74 (d) Q. 94 (a)
Q. 15 (d) Q. 35 (c) Q. 55 (d) Q. 75 (a) Q. 95 (d)
Q. 16 (d) Q. 36 (b) Q. 56 (d) Q. 76 (d) Q. 96 (a)
Q. 17 (c) Q. 37 (d) Q. 57 (c) Q. 77 (d) Q. 97 (a)
Q. 18 (a) Q. 38 (c) Q. 58 (c) Q. 78 (a) Q. 98 (a)
Q. 19 (c) Q. 39 (c) Q. 59 (d) Q. 79 (b) Q. 99 (d)
Q. 20 (c) Q. 40 (a) Q. 60 (a) Q. 80 (c) Q. 100 (b)

PTS2020/PPP-7/092019/26
1. Correct Option: (a)
Explanation:
 Statement 2 is incorrect: The export
surplus was not used for the welfare of the
Indian economy.
Supplementary notes:
The Drain of Indian Wealth
 Britain maintained monopoly control over
India’s exports and imports.
 India’s foreign trade was restricted to
Britain.
 The opening of the Suez Canal further
intensified British control over India’s
foreign trade.
 The most important characteristic of
India’s foreign trade throughout the
colonial period was the generation of a
large export surplus. This surplus came
at a huge cost to the country’s economy.
 The export surplus did not result in any
flow of gold or silver in India. Rather, this
was used to make payments for the
expenses incurred by an office set up
by the colonial government in Britain,
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expenses on war, again fought by the
British government and the import of
invisible items.
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 This led to the drain of Indian wealth.
The Drain of Wealth Theory
 It refers to the economic critique of the
colonial rule in India that was advocated by
the early nationalists.
 They described it as the constant one-way
flow of wealth from India to England
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for which India received no returns as
‘Drain of Wealth’.
2. Correct Option: (d)
Explanation:
 All statements are correct
Supplementary notes:
Government Budget
 There is a constitutional requirement
in India (Article 112) to present before
the Parliament a statement of estimated
receipts and expenditures of the government
in respect of every financial year which
runs from 1 April to 31 March. This ‘Annual
Financial Statement’ constitutes the main
budget document of the government.
 Although the budget document relates to the
receipts and expenditure of the government
for a particular financial year, the impact of
it will be there in subsequent years.
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 There is a need therefore to have two
accounts- those that relate to the current
financial year only are included in the
revenue account (also called revenue
budget) and those that concern the assets
and liabilities of the government into the
capital account (also called capital budget).
 The Budget contains the following
elements:
 Estimates of revenue and capital
receipt.
 Ways and Means to raise revenue.
 Estimates of expenditure
 Details of the actual receipt and
expenditure of the closing financial
year.
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3. Correct Option: (d)
Explanation:
 All statements are correct
Supplementary notes:
Challenges in the Power Sector in India
India’s installed capacity to generate
electricity is not sufficient to feed an
annual economic growth of 7–8 per cent.
In order to meet the growing demand
for electricity, India’s commercial energy
supply needs to grow at about 7 percent. At
present, India is able to add only 20,000 MW
a year. Even the installed capacity is under-
utilized because plants are not running
properly.
 State Electricity Boards (SEBs), which
distribute electricity, incur losses that exceed
Rs 500 billion. This is due to transmission
and distribution losses, wrong pricing of
electricity and other inefficiencies.
 Private sector power generators are
yet to play their role in a major way;
same is the case with foreign investors.
There is general public unrest due to high
power tariffs and prolonged power cuts in
different parts of the country, and
 Thermal power plants, which are the
mainstay of India’s power sector are facing
shortage of raw material and coal
supplies.
4. Correct Option: (b)
Explanation:
 Option (b) is correct:
Terms Definitions
A. Devaluation 4. Increase in
exchange rate by
the government
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 B. Revaluation 3. A decrease in the
exchange rate by the
government
C. Depreciation 2. Price of dollar
increases in
terms of rupees due
to market forces.
D. Appreciation 5. Price of rupees
increases in terms of
the dollar
due to market
forces.
E. Accommodating 1. Determined by the
Transactions gap in the balance
of payments.
Supplementary notes:
Terms and Definitions
 In a fixed exchange rate system, when some
government action increases the exchange
rate (thereby, making domestic currency
cheaper) is called Devaluation.
O Council of Health and Family Welfare.
 On the other hand, a Revaluation is said to
occur, when the Government decreases the
exchange rate (thereby, making domestic
currency costlier) in a fixed exchange rate
system.
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 An increase in exchange rate implies that
the price of foreign currency (dollar) in
terms of domestic currency (rupees) has
increased. This is called the Depreciation
of domestic currency (rupees) in terms of
foreign currency (dollars).
Similarly, in a flexible exchange rate regime,
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when the price of domestic currency (rupees)
in terms of foreign currency (dollars)
increases, it is called Appreciation of
the domestic currency (rupees) in terms of
foreign currency (dollars).
 Accommodating transactions (termed
‘below the line’ items), on the other hand,
are determined by the gap in the balance of
payments, that is, whether there is a deficit
or surplus in the balance of payments. In
other words, they are determined by the net
consequences of autonomous transactions.
Since the official reserve transactions are
made to bridge the gap in the BoP, they are
seen as the accommodating item in the BoP
(all others being autonomous).
5. Correct Option: (c)
Explanation:
 Both statements are correct
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Supplementary notes:
Public Health
 The development of health
infrastructure ensures country healthy
man-power for the production of goods
and services.
 It is the responsibility of the government of
a respective country to ensure the right to
healthy living.
 Health infrastructure includes hospitals,
doctors, nurses and other paramedical
professionals, beds, equipments required
in hospitals and a well developed
pharmaceutical industry.
Measures related to Public Health
 The government has the constitutional
obligation to guide and regulate all health-
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related issues, such as medical education,
adulteration of food, drugs, and poisons, the
medical profession, vital statistics, mental
deficiency, and lunacy.
 The Union Government evolves broad
policies and plans through the Central
It collects information and renders
financial and technical assistance to State
governments, Union Territories and other
bodies for the implementation of important
health programs in the country.
 Over the years, India has built a vast
health infrastructure and manpower
at different levels. At the village level, a
variety of hospitals, technically known
as Primary Health Centres (PHCs),
Community Health Centres (CHC) and
other sub-centers have been set up by
the government.
 India also has a large number of hospitals
run by voluntary agencies and the private
sector. These hospitals are manned by
professionals and para-medical professionals
trained in medical, pharmacy and nursing
colleges.
 The expansion of health infrastructure has
resulted in the eradication of smallpox,
guinea worms and the near eradication of
malaria, polio, and leprosy.
 Premier institutes have been opened up
which imparts quality medical education,
conduct research and provide specialized
health care to the people like All India
Institute of Medical Science, New Delhi;
Post Graduate Institute, Chandigarh;
Jawaharlal Institute of Postgraduate
Medical Education and Research,
Pondicherry; National Institute of Mental
Health and Neuro Sciences, Bangalore and
All India Institute of Hygiene and Public
Health, Kolkata.
6. Correct Option: (a)
Explanation:
 Option (a) is correct: National Income
(Y) = Consumption (C) + Investment (I)
+ Government Expenditure (G) + Total
Exports (X) – Total Imports (M)
Supplementary notes:
National Income (NI or Y)
 National Income (Y) = Consumption
(C) + Investment (I) + Government
Expenditure (G) + Total Exports (X) –
Total Imports (M). Everything is valued
at Market Prices.
 All production done by the national
residents or the non-residents in a country
gets included, regardless of whether that
product is owned by a local company or a
foreign entity.
 NI is also known as the Net National
Product (NNP) at factor cost that is the
sum of income earned by all factors in the
production in the form of wages, profits,
rent, and interest, etc., belonging to a
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country during a year.
 It is the National Product and is not bound
by production in the national boundaries.
It is the net domestic factor income added
with the Net Factor Income from Abroad
(NFIA).
 NI = NNP at market price – Net Product
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taxes - Net Production taxes = Net Domestic
Product (NDP) at factor cost + NFIA = NNP
at factor cost.
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7. Correct Option: (d)
Explanation:
 Option (d) is correct: Golden Revolution
is related to National Horticulture Mission.
Supplementary notes:
Agricultural revolution
 The agricultural revolution refers to the
significant change in the agriculture that
occurs when there are discoveries, inventions,
or new technologies implemented. These
changes the ways of production and increase
the production rate. There are various
types of Agricultural Revolutions that have
occurred in India. They are as follows:
Golden Fiber
Jute production
Revolution
Higher Production
Protein Revolution (Technology-driven 2nd
Green revolution).
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Black Revolution Petroleum products.
Fruits / Honey
Production /
Golden Revolution
Horticulture
Development
Overall Production of
Evergreen Revolution
Agriculture
Meat Production /
Red Revolution
Tomato Production.
Saffron Revolution Solar mission
Round Revolution Potato
8. Correct Option: (a)
Explanation:
 Statement 2 is incorrect: The decline
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of the indigenous handicraft industries
created not only massive unemployment in
India but also a new demand in the Indian
consumer market.
Supplementary notes:
Industrial sector during British rule
 The British Government neglected Indian
industries. It followed the policy of
free trade post-1813. This was the period
when the Industrial Revolution reached its
height. The machine-made goods had no
match to Indian hand made goods in terms
of quantity. Gradually the Indian market
was flooded by machine-made goods which
were exported from England.
 The Indian handicraft industries could
not compete with machine-made goods.
Britishers deindustrialize India. The
primary motive of the colonial government
behind this policy of systematically
deindustrializing India was to reduce India
to the status of a mere exporter of important
raw materials for the upcoming modern
industries in Britain.
 It also wanted to turn India into a sprawling
market for the finished products of its
industries so that their continued expansion
could be ensured to the maximum advantage
of Britain.
 The decline of the indigenous
handicraft industries created not
only massive unemployment in India
but also a new demand in the Indian
consumer market. This new demand
created was now deprived of the supply
of locally made goods. This demand
was profitably met by the increasing
imports of cheap manufactured goods
from Britain.
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9. Correct Option: (b)
Explanation:
 Statement 1 is incorrect: It was not totally
based on ideology of Soviet Socialism.
Supplementary notes:
Planning in India.
 India emphasized on the public sector
as well as allowed for the active
participation of the private sector. It
planned for a socialist society with a strong
public sector with private property and
democracy.
 Its vision was to develop an economy with a
strong private sector. Here, the Industrial
Policy Resolution of 1948 and the Directives
Principles of the Indian Constitution
reflected this outlook.
 The Planning Commission was established
in 1950 with the Prime Minister as its
chairperson. The government of India had
replaced the old Planning Commission with
a new institution called NITI Aayog on 1
January 2015. O the future not matched by the benefits
 NITI Aayog (National Institution for
Transforming India) seeks to provide a
critical directional and strategic input into
the development process. It focuses on co-
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operative federalism.
 It is more a “think tank” than a finance
distributing agency. It is based on the 7
pillars of effective governance
 Pro-People
 Pro-Activity
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 Participation
 Empowering
 Inclusion of all
 Equality
 Transparency.
10. Correct Option: (d)
Explanation:
 All statements are correct
Supplementary notes:
Revenue Deficit
 The revenue deficit refers to the excess of
the government’s revenue expenditure over
revenue receipts. Revenue deficit = Revenue
expenditure – Revenue receipts.
 The revenue deficit includes only such
transactions that affect the current income
and expenditure of the government.
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 When the government incurs a revenue
deficit, it implies that the government
is dissaving and is using up the savings
of the other sectors of the economy
to finance a part of its consumption
expenditure.
 This situation means that the
government will have to borrow not
only to finance its investment but also
its consumption requirements. This
will lead to a build-up of stock of debt and
interest liabilities and force the government,
eventually, to cut expenditure. Since a major
part of revenue, expenditure is committed
to expenditure, it cannot be reduced.
 Often the government reduces productive
capital expenditure or welfare expenditure.
This would mean lower growth and
adverse welfare implications.
RE
 The revenue deficit is to be met from
the capital receipt, which is through the
borrowing and sale of assets. Given the
same level of fiscal deficit, a higher revenue
deficit is worse than lower one because it
implies a higher repayment burden in
via investment.
11. Correct Option: (b)
Explanation:
 Option (b) is correct: The above passage
is related to P.C. Mahalanobis
Supplementary notes:
Prasanta Chandra Mahalanobis
 He was born in 1893 in Calcutta and
educated at the Presidency College in
Calcutta and at Cambridge University in
England. His contributions to the subject of
statistics brought him international fame.
 In 1946, he was made a Fellow (member)
of Britain’s Royal Society, one of the
most prestigious organisations of
scientists.
 The Second Plan laid down the basic ideas
regarding the goals of Indian planning; this
plan was based on the ideas of Mahalanobis,
a famous statistician. In that sense, he can
be regarded as the Architect of Indian
planning.
 He established the Indian Statistical
Institute (ISI) in Calcutta and started
a journal, Sankhya, which still serves
as a respected forum for statisticians
to discuss their ideas.
 During the second plan period, he invited
many distinguished economists from
India and abroad to advise him on India’s
economic development.
  Many economists today reject the approach
to planning formulated by Mahalanobis but
he will always be remembered for playing
a vital role in putting India on the road
to economic progress, and statisticians
continue to profit from his contribution to
statistical theory.
12. Correct Option: (d)
Explanation:
• Statement 3 and 5 are incorrect: Use of Bio-
Fertilizers and the promotion of organic farming
were not adopted during Green Revolution.
Supplementary notes:
Green Revolution
Dependence on monsoon was also a major

setback for Indian farmers. Thus, in
this scenario, the introduction of High
Yielding Varieties (HYV) of seeds and
the increased use of fertilizers, pesticides
and irrigation facilities was the major
breakthrough and the use of these
measures was collectively known as the
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Green Revolution.
 It was implemented to make India a
self-sufficient country by increasing the
production of food-grains by using HYV
seeds and to ensure food security in India
and to upgrade the mode of technology used
in agriculture. It also aimed to enhance
marketed surplus in India.
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Green Revolution benefited farmers in
the following ways:
 Increase in Income: It helped in raising
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the income of the farmers and hence their
living standard because now the large
production of food grains and the farmers
had marketable surplus to sell in the
market.
 Improvement in Irrigation facilities:
The use of HYV seeds necessitated the
improvement in irrigation facilities by
the government which made the farmers
less dependent on rainfall and hence more
secure.
 Loan and Subsidy Facility: The
government provided loans at a low-Interest
rate to small farmers and subsidised
fertilizers so that small farmers could also
have access to the required inputs.
Green revolution benefited the
government in the following ways:
 Increase in Production: Green Revolution
led to an increase in the production of food
grains.
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 Use of modern technology, use of HYV
seeds, the spread of marketed surplus,
abolition of the zamindari system and shift
of ownership of land to tenants were the
other major contributing factors.
13. Correct Option: (c)
Explanation:
 Both statements are correct
Supplementary notes:
Privatization
 Privatization implies the shedding of the
ownership or management of a government-
owned enterprise. Government companies
are converted into private companies in two
ways:
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 By the withdrawal of the government
from ownership and management of
public sector companies and/or
 By the outright sale of public sector
companies.
 Privatization of the public sector enterprises
(PSEs) by selling off part of the equity of PSEs
to the public is known as disinvestment.
 The purpose of the sale is mainly
to improve financial discipline
and facilitate modernization. It is
also envisaged that private capital and
managerial capabilities could be effectively
utilized to improve the performance of the
public sector units (PSUs).
 An efficient and profit earning PSU is a
revenue generator for the government. But
if a PSU is an inefficient and loss-making
one, then the same PSU exerts unnecessary
burden on the government’s scarce revenues
and further may lead to the budget deficit.
Hence the loss-making PSUs should be
privatized whereas it would be unfair to
privatize a profit-making PSU.
 Instead of privatization of profit-making
PSUs, the government can allow more
degree of autonomy and accountability
in their operations, which will not only
increase their productivity and efficiency
but also enhance their competitiveness with
their private counterparts.
14. Correct Option: (c)
Explanation:
 Option (c) is correct: Fiscal
Responsibility and Budget Management
Act, 2003 (FRBMA) mandates the Central
Government to reduce the fiscal deficit as
well as revenue deficit.
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 Supplementary notes:
Fiscal Responsibility and Budget
Management Act, 2003 (FRBMA)
 The enactment of the FRBMA, in August
2003, marked a turning point in fiscal
reforms, binding the government through
an institutional framework to pursue a
prudent fiscal policy.
 The central government must ensure
intergenerational equity and long-term
macro-economic stability by achieving
sufficient revenue surplus, removing fiscal
obstacles to monetary policy and effective
debt management by limiting deficits and
borrowing. The rules under the Act were
notified with effect from July 2004.
Main Features of the Act
 The Act mandates the Central Government
to take appropriate measures to reduce
fiscal deficit to not more than 3 percent of
GDP and to eliminate the revenue deficit
by March 31, 2009, and thereafter build up
adequate revenue surplus.
 It requires a reduction in fiscal deficit
by 0.3 percent of GDP each year and the
not achieved through tax revenues, the
necessary adjustment has to come from
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revenue deficit by 0.5 percent. If this is
a reduction in expenditure.
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 The actual deficits may exceed the targets
specified only on grounds of national security
or natural calamity or such other exceptional
grounds as the central government may
specify.
 The Central Government shall not borrow
from the Reserve Bank of India except by
way of advances to meet temporary excess
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of cash disbursements over cash receipts.
 The Reserve Bank of India (RBI) must not
subscribe to the primary issues of central
government securities from the year 2006-
07.
 Measures to be taken to ensure greater
transparency in fiscal operations.
 The Central Government to lay before both
Houses of Parliament three statements
– Medium-term Fiscal Policy Statement,
The Fiscal Policy Strategy Statement, The
Macroeconomic Framework Statement along
with the Annual Financial Statement.
 Quarterly Review of the trends in receipts
and expenditure in relation to the budget be
placed before both Houses of Parliament.
15. Correct Option: (d)
Explanation:
 All statements are correct
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Supplementary notes:
The Poverty Line
 There are many ways of measuring poverty.
One way is to determine it by the monetary
value (per capita expenditure) of the
minimum calorie intake.
 It was estimated at 2,400 calories for a
rural person and 2,100 for a person in the
urban area. Based on this, in 2011-12, the
poverty line was defined for rural areas as
consumption worth Rs 816 per person a
month and for urban areas it was Rs 1,000.
 Though the government uses Monthly Per
Capita Expenditure (MPCE) as a proxy for
the income of households to identify the
poor, various economists state that there
are some problems with this mechanism:
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 One is that it groups all the poor together
and does not differentiate between
the very poor and the other poor.
 This mechanism takes into account
expenditure on food and only a few
selected items as a proxy for income.
 This mechanism is helpful in identifying
the poor as a group to be taken care of
by the government, but it would be
difficult to identify who among the
poor need help the most.
 The existing mechanism for
determining the Poverty Line also
does not take into consideration
social factors that trigger and
perpetuate poverty such as
illiteracy, ill health, lack of access to
resources, discrimination or lack of
civil and political freedoms.
 The aim of poverty alleviation schemes
should be to improve human lives by
expanding the range of things that a
person could be and could do, such as
to be healthy and well-nourished, to be
knowledgeable and to participate in the
life of a community.
16. Correct Option: (d)
Explanation:
 Option (d) is correct: Inventory is a stock
of unsold finished goods and raw materials.
It is a stock variable and it is treated as
capital.
Supplementary notes:
Inventory
 The stock of unsold finished goods, or
semi-finished goods, or raw materials
which a firm carries from one year
 to the next is called inventory. It is a
stock variable. Inventories are treated
as capital.
 It may have a value at the beginning of the
year; it may have a higher value at the end
of the year. In such a case inventories have
increased (or accumulated).
 If the value of inventories is less at the
end of the year compared to the beginning
of the year, inventories have decreased
(decumulated).
 Change of inventories of a firm during a
year ≡ production of the firm during the year
(value added + intermediate goods used by
the firm) – sale of the firm during the year
(‘≡’ stands for identity, which always holds
irrespective of what variables we have on
the left hand and right-hand sides of it).
 For example: Suppose that a firm had
an unsold stock worth of Rs. 100 at the
beginning of a year. During the year, it
had produced Rs. 1,000 worth of goods and
managed to sell Rs. 800 worth of goods.
Therefore, Rs. 200 is the difference between
production and sales. This Rs 200 worth of
goods is the change in inventories. This will
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add to the Rs. 100 worth of inventories the
firm started with. Hence the inventories at
the end of the year are, Rs. 100 + Rs. 200 =
Rs. 300. Here, change in inventories takes
place over a period of time and is treated
as an investment. Therefore, it is a flow
variable.
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17. Correct Option: (c)
Explanation:
 Both statements are correct
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Supplementary notes:
Outsourcing
 Outsourcing is trend that is radically
reshaping business. It refers to a long-
term contracting out generally the
non-core and of late even some of the
core activities to captive or third party
specialists with a view to benefitting
from their experience, expertise,
efficiency and, even investment.
 This simple definition leads one to the
salient features of the concept that are not
peculiar to an industry/ business or country
but have become a global phenomenon.
Features of outsourcing
 Outsourcing involves contracting out
 Generally non-core business activities are
outsourced
 Processes may be outsourced to a captive
unit or a third party
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18. Correct Option: (a)
Explanation:
 Option (a) is correct: Public goods are
not restricted to one particular consumer.
These goods are available to all. For
example, public parks, roads, government
administration, etc.
Supplementary notes:
Public Goods
 The government provides certain goods
and services which cannot be provided by
the market mechanism i.e. by an exchange
between individual consumers and
producers. Examples of such goods are
National Defense, roads, government
administration, etc.
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 These goods may be produced by the
government or the private sector.
 The benefits of these goods are available
to all and are not only restricted
to one particular consumer. One
person’s consumption of a good does
not reduce the amount available for
consumption for others and so several
people can enjoy the benefits, that is,
the consumption of many people is not
‘rivalrous’.
 There is no feasible way of excluding anyone
from enjoying the benefits of these goods.
That is why public goods are called
non-excludable. Even if some users do not
pay, it is difficult and sometimes impossible
to collect fees for the public good. These
non-paying users are known as ‘free-
riders’.
 Consumers will not voluntarily pay for what
they can get for free and for which there
is no exclusive title to the property being
enjoyed. The link between the producer and
consumer which occurs through the payment
process is broken and the government must
step in to provide for such goods.
19. Correct Option: (c)
Explanation:
 Option (c) is correct:
List I List II
A. Gross 3. The money value of
Domestic all the final goods and
Product services produced
within the economy in
one year
B. Quota 2. Quantity of goods that
can be imported
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C. Land Reforms 4. Improvements in
the field of agriculture
to increase its
productivity
D. HYV Seeds 1. Seeds that give a large
proportion of output
E. Subsidy 5. The monetary
assistance was given
by the government for
production activities.
Supplementary notes:
Gross Domestic Product (GDP)
 It is the market value of all the goods
and services produced in the country
during a year.
GDP is like a cake and growth is increasing
 
in the size of the cake. If the cake is larger,
more people can enjoy it. It is necessary
to produce more goods and services if the
people of India are to enjoy (in the words of
the First Five Year Plan) a more rich and
varied life.
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Quota
 Protection from imports took two forms:
tariffs and quotas.
 Tariffs are a tax on imported goods; they
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make imported goods more expensive and
discourage their use.
 Quotas specify the number of goods
which can be imported. The effect of
tariffs and quotas is that they restrict
imports and, therefore, protect domestic
firms from foreign competition.
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Land Reforms
 At the time of independence, the land
tenure system in India was characterised by
intermediaries (variously called jagirdars,
zamindars, etc.) who merely collected rent
from the actual tillers of the soil without
any contribution towards improvements in
the farm.
 Thus, the low productivity of the agricultural
sector in India promoted to land reforms.
High Yielding Variety (HYV) seeds
 These seeds are of better quality than
normal quality seeds, which are used in
order to obtain a healthy and surplus
crop.
 These seeds have a good immune system to
fight with insects and other diseases.
 Examples: Paddy, Wheat, Maize, Jowar,
Bajra and other crops utilized HYV seeds
over a large area within a short period.
9 PTS2020/PPP-7/092019/26
 HYV seeds yield more under irrigated
conditions.
 The use of these seeds required the use
of fertiliser and pesticide in the correct
quantities.
 The farmers who could benefit from HYV
seeds required reliable irrigation facilities
as well as the financial resources to purchase
fertiliser and pesticide.
Subsidy
 The monetary assistance given by the
government for productive activities is
known as Subsidy.
 During the Green Revolution, its adoption
provides an incentive for the adoption of the
new HYV technology by farmers.
Subsidies were needed to encourage farmers
RE
to test the new technology.
20. Correct Option: (c)
Explanation:
Both statements are correct
Supplementary notes:
Capital Account
 Capital Account records all international
transactions of assets. An asset is any one
of the forms in which wealth can be held, for
example, money, stocks, bonds, Government
debt, etc.
 Foreign Loans and Foreign Direct
Investment (FDI) are components of Capital
Account.
Private Remmitance is a component of

Current Account.
21. Correct Option: (a)
Explanation:
 Option (a) is correct: Dadabhai Naoroji
was the first to discuss the concept of the
‘Poverty Line’ in India.
Supplementary notes:
The Poverty Line
 In pre-independent India, Dadabhai
Naoroji was the first to discuss the
concept of a ‘Poverty Line’.
 He used the menu for a prisoner and used
appropriate prevailing prices to arrive at
what may be called ‘jail cost of living’.
 However, only adults stay in jail whereas,
in an actual society, there are children too.
He, therefore, appropriately adjusted this
cost of living to arrive at the poverty line.
  For this adjustment, he assumed that one-
third population consisted of children and
half of them consumed very little while the
other half consumed half of the adult diet.
This is how he arrived at the factor of three-
fourths: (1/6) (Nil) + (1/6) (Half) + (2/3)
(Full) = (3/4) (Full).
 The weighted average of consumption of the
three segments gives the average poverty
line, which comes out to be three-fourth of
the adult jail cost of living.
22. Correct Option: (b)
Explanation:
 Statement 1 is incorrect: It primarily
benefited the wheat-growing regions only.
Supplementary notes:
Green Revolution
 At independence, about 75% of the country’s
population was dependent on agriculture.
Productivity in agriculture was very low
because of the use of old technology and the
absence of an appropriate infrastructure for
the vast majority of farmers.
CO
 Dependence on monsoon was the major
setback for Indian farmers. Thus, in
this scenario, Green Revolution was
implemented to make India a self-
sufficient country by increasing the
production of food-grains by using HYV
seeds and to ensure food security in India
and to upgrade the mode of technology used
S
in the agriculture. It also aimed to enhance
marketed surplus in India.
 Green revolution included various measures
like (i) Use of High Yielding Varieties
GS
(HYV) seeds (ii) Increase in irrigation cover
(iii) Use of insecticides and pesticides (iv)
Consolidation of land holdings (land ceiling)
(v) Improvement in rural infrastructure
(vii) Use of chemical fertilizers.
 In the first phase of the green revolution
(approximately mid 1960s upto mid
1970s), the use of HYV seeds was
restricted to the more affluent states
such as Punjab, Andhra Pradesh and
Tamil Nadu. Further, the use of HYV
seeds primarily benefited the wheat-
growing regions only.
 In the second phase of the green revolution
(mid-1970s to mid-1980s), the HYV
technology spread to a larger number of
states and benefited more variety of crops.
23. Correct Option: (c)
Explanation:
 Both statements are correct
PTS2020/PPP-7/092019/26 10
Supplementary notes:
Food Security
 Global food security implies that all people
throughout the world, including vulnerable
groups such as the rural and urban poor, at
all times have access to adequate quantities
of safe and nutritious food to maintain a
healthy and active life.
 Food security is essential to a country
but it is challenged by factors such
as lack of education and political
instability; inadequate planning
and policies; lack of transparency and
improper governance, financing; slow
paces in technology development and other
governance issues.
 Food security in developing countries is
further complicated by social inequality
RE
and political instability. People lacking
food security will search for a better
life elsewhere. Food insecurity and
hunger have led to the displacement of
millions, and migration brought about
by food insecurity has destabilized
several countries.
Role of Technology in food security
 Technology can contribute to the
achievement of global food security.
 Technology can help provide basic and extra
food choices to vulnerable populations. This
can come from improved crop varieties, for
example, orange-fleshed sweet potato added
into a basket of purple- or white-fleshed
sweet potato or iron-rich beans.
 It can help restore political stability by
ensuring that the production of food is
based on efficient agricultural activities;
sustainable practices; high productivity
from well-adapted, improved crop varieties;
dynamic employment and revenue
generation for large number of people.
 Technology can support improved economic
growth and social well-being; effective
harvest and post-harvest practices to
minimize food loss; effective storage and
conservation practices to increase the value
of harvested products; identification of high
value-added products to improve economic
gains for processors and ensure long shelf-
life and enhanced marketing of available
foodstuffs at competitive prices, based on
effective government policies.
24. Correct Option: (c)
Explanation:
 Statement 1 is incorrect: Industrial
Policy Resolution 1956 formed the basis of
the Second Five Year Plan (1956-61).
 Supplementary notes:
Industrial Policy resolution 1956 (IPR
1956)
 IPR 1956 was adopted with the goal of the
state controlling the commanding heights
of the economy. This resolution formed
the basis of the Second Five Year Plan,
the plan which tried to build the basis for a
socialist pattern of society.
 This policy was used for promoting the
industry in backward regions; it was easier
to obtain a license if the industrial unit was
established in an economically backward
area.
 In addition, such units were given certain
concessions such as tax benefits and
electricity at a lower tariff. The purpose
of this policy was to promote regional
RE
equality.
 Even an existing industry had to obtain
a license for expanding output or for
diversifying production (producing a new
variety of goods).
 This was meant to ensure that the number
O
of goods produced was not more than what
the economy required. The license to expand
26. Correct Option: (c)
production was given only if the government
was convinced that the economy required a
larger quantity of goods.
SC
 The IPR 1956 was based on the Mahalanobis
model of growth. This model suggests that
there should be an emphasis on heavy
industries that can lead the Indian
economy to a long term growth path.
25. Correct Option: (b)
GS
Explanation:
 Statement 2 is incorrect: Public health
is assessed by various indicators like infant
mortality and maternal mortality rates, life
expectancy and nutrition levels, along with
the incidence of communicable and non-
communicable diseases.
Supplementary notes:
Health
 It is not only an absence of disease but
also the ability to realize one’s potential.
It is a yardstick of one’s wellbeing.
 It is related to the overall growth and
development of the nation. People’s health
is assessed by taking into account
various indicators like infant mortality
and maternal mortality rates, life
expectancy and nutrition levels, along
with the incidence of communicable
and non-communicable diseases.
11
 Indian healthcare delivery system is broadly
categorized into two components: public and
private. The public delivery system consists
of basic healthcare facilities in the form of
primary healthcare centers (PHCs) in rural
areas, secondary and tertiary healthcare
institutions in key towns and cities. The
private sector primarily caters to secondary,
tertiary and quaternary care.
The main characteristics of the health of
people in our country:
 There have been noteworthy improvements
in health indicators such as life expectancy,
infant mortality rate (IMR), the maternal
mortality rate (MMR), etc as well due
to increasing penetration of healthcare
services across the country.
 Rise in life expectancy to 68 years in
2016.
 Control over deadly diseases like cholera,
smallpox, malaria, polio, and leprosy.
 Malnutrition in children, another serious
concern in India, is also being addressed at
a rapid rate than ever before.
Explanation:
 Statement 1 is incorrect: Prime Minister’s
Rozgar Yojana and Swarna Jayanti
Shahari Rozgar Yojana are examples of self-
employment programs.
Supplementary notes:
Poverty Alleviation Programs
 Expanding self-employment programs
and wage employment programs are being
considered as the major ways of addressing
poverty.
Self-employment programs
 Examples of self-employment programs
are Rural Employment Generation
Programme (REGP), Prime Minister’s
Rozgar Yojana (PMRY) and Swarna
Jayanti Shahari Rozgar Yojana
(SJSRY).
 REGP is a composition of two schemes-
Prime Minister’s RojgarYojana and
Rural Employment Generation Program.
It is a credit-linked subsidy program
that aims at generating employment
opportunities through the establishment
of micro-enterprises in rural as well as
urban areas. The objective is to provide
continuous and sustainable employment
to a large segment of traditional and
prospective artisans, rural and urban
unemployed youth in the country.
The Khadi and Village Industries
PTS2020/PPP-7/092019/26
 Commission (KVIC) is implementing
it. Under this program, one can get
financial assistance in the form of bank
loans to set up small industries.
 The educated unemployed from low-
income families in rural and urban
areas can get financial help to set up any
kind of enterprise that generates self-
employment under PMRY.
 SJSRY mainly aims at creating
employment opportunities—both self-
employment and wage employment—in
urban areas.
 Earlier, under self-employment programs,
financial assistance was given to families or
individuals.
 Since the 1990s, this approach has been
changed. Now, those who wish to benefit
from these programs are encouraged to
form Self-Help Groups. Initially, they are
encouraged to save some money and lend
among themselves as small loans. Later,
through banks, the government provides
partial financial assistance to SHGs which
then decide whom the loan is to be given to
for self-employment activities.
CO
 Swarnajayanti Gram SwarozgarYojana
(SGSY) is one such programme. This has
now been restructured as National Rural
Livelihoods Mission (NRLM).
 A similar programme called National Urban
Livelihoods Mission has also been in place
for urban poor.
S
Wage employment programmes:
 The government has a variety of programmes
to generate wage employment for the poor
unskilled people living in rural areas.
GS
 In August 2005, the Parliament passed
a new Act to provide guaranteed wage
employment to every rural household whose
adult volunteer is to do unskilled manual
work for a minimum of 100 days in a year.
This Act is known as Mahatma Gandhi
National Rural Employment Guarantee
Act.
 Under this Act, all those among the poor
who are ready to work at the minimum
wage can report for work in areas where
this programme is implemented. In 2013-14,
nearly five crore households got employment
opportunities under this law.
27. Correct Option: (a)
Explanation:
 Statement 2 is incorrect: Commercial
sources are limited in nature whereas
non-commercial sources are abundant in
nature.
PTS2020/PPP-7/092019/26 12
Supplementary notes:
Energy
 Energy is very vital for rapid economic
growth. There is a huge gap between
consumer demand and supply of electricity
in India.
 It is necessary for industries, agriculture
and other related areas like production,
transportation of fertilizers, pesticides and
farm equipments. It is required in houses for
cooking, household lighting, and heating.
Sources of energy
 Commercial sources are generally
exhaustible (with the exception of
hydropower). This energy pollutes the
environment badly. High capital investment
is required in the purification of these
RE
sources. It is used in urban as well as rural
areas and is limited in nature. Example:
Coal, petroleum, natural gas, and nuclear
energy.
 Non-commercial sources are non-
commercial as they are found in nature/
forests and are available in abundant
amounts. These sources are generally
renewable. More than 60 percent of Indian
households depend on traditional sources
of energy for meeting their regular cooking
and heating needs. The non-commercial
sources are cheaper. These are pure and
keep the environment clean. Example: Cow
dung, charcoal, firewood, and agricultural
waste. Non-commercial sources are cheaper
than commercial sources of energy.
28. Correct Option: (b)
Explanation:
 Statement 1 is incorrect: Agricultural
marketing is a process that involves
the assembling, storage, processing,
transportation, packaging, grading
and distribution of different agricultural
commodities across the country.
Supplementary notes:
Agricultural Marketing
 Agricultural marketing is a process that
involves the assembling, storage, processing,
transportation, packaging, grading and
distribution of different agricultural
commodities across the country.
Importance of Agricultural marketing
 Advanced agricultural practices adopted
during the green revolution resulted in
surplus production which changed the
subsistence face of Indian agriculture.
  Approximately 33% of the output of
food grains, pulses and nearly all of the
productions of cash crops like cotton,
sugarcane, oilseeds, etc. are marketed as
they remain surplus after meeting the
consumption demands.
 As the agriculture sector produces raw
materials for many of the other industries,
the marketing of such commercial products
is important.
 Increased efficiency of the marketing
mechanisms would result in the distribution
of products at lower prices to consumers
having a direct bearing on national income.
 An improved marketing system stimulates
the growth in the agro-based industries
mainly in the field of processing.
Measures initiated by the Government to
improve the marketing aspects
 Regulation of the market to create
orderly and transparent marketing
conditions.
 Provision of physical infrastructure
facilities like roads, railways,
warehouses, godowns, cold storages O
and processing units.
 However, the current infrastructure
facilities are quite inadequate to meet the
growing demand and need to be improved.
SC
 Cooperative marketing, in realizing fair
prices for farmers’ products.
 Policy instruments like the assurance
of minimum support prices (MSP) for
agricultural products, maintenance of
buffer stocks of wheat and rice by Food
Corporation of India and distribution
of food grains and sugar through PDS.
GS
These instruments aim at protecting
the income of the farmers and providing
foodgrains at a subsidized rate to the
poor.
 Emerging Alternate Marketing Channels:
 Some examples of these channels are Apni
Mandi (Punjab, Haryana, and Rajasthan);
Hadaspar Mandi (Pune); Rythu Bazars
(vegetable and fruit markets in Andhra
Pradesh and Telangana) and Uzhavar
Sandies (farmers markets in Tamil Nadu).
29. Correct Option: (c)
Explanation:
 Both statements are correct
Supplementary notes:
Energy Sector in India
 In India, commercial energy consumption
makes up about 74 per cent of the total
energy consumed in India.
13
 This includes coal with the largest share
of 54 percent, followed by oil at 32 percent,
natural gas at 10 per cent and hydro energy
at 2 percent. Non-commercial energy
sources consisting of firewood, cow dung
and agricultural wastes account for over 26
percent of the total energy consumption.
 The critical feature of India’s energy sector,
and its linkages to the economy is the
import dependence on crude and petroleum
products.
 There has been continuous fall in the
share of the transport sector while the
shares of the household, agriculture and
industrial sector have been increasing.
30. Correct Option: (b)
RE
Explanation:
 Statement 1 is incorrect: Bharat Heavy
Electricals Limited (BHEL) is a Maharatna
Central Public Sector Enterprise.
Supplementary notes:
Maharatna, Navratna and Miniratna
 In order to improve efficiency, infuse
professionalism and enable them to compete
more effectively in the liberalized global
environment, the government identifies
PSEs and declares them as maharatns,
navratnas and miniratnas.
 They were given greater managerial and
operational autonomy, in taking various
decisions to run the company efficiently
and thus increase their profits. Greater
operational, financial and managerial
autonomy has also been granted to
profit-making enterprises referred to as
miniratnas.
 List of Maharatna, Navratna CPSEs: As per
available information (as on April, 2018):
Maharatna CPSEs
1. Bharat Heavy Electricals Limited (BHEL)
Bharat Petroleum Corporation Limited
2.
(BPCL)
3. Coal India Limited
4. GAIL (India) Limited
5. Indian Oil Corporation Limited
6. NTPC Limited
Oil & Natural Gas Corporation Limited
7.
(ONGC)
8. Steel Authority of India Limited (SAIL)
PTS2020/PPP-7/092019/26
 Navratna CPSEs Supplementary notes:
1. Bharat Electronics Limited Causes of Poverty
2. Container Corporation of India Limited  The causes of poverty lie in the institutional
3. Engineers India Limited and social factors that mark the life of the
4. Hindustan Aeronautics Limited poor.

5. Hindustan Petroleum Corporation Limited  The poor are deprived of quality education
and unable to acquire skills that fetch
6. Mahanagar Telephone Nigam Limited
better incomes. Also, access to health care
7. National Aluminium Company Limited is denied to the poor.
8. NBCC (India) Limited  The main victims of caste, religious and
9. NMDC Limited other discriminatory practices are poor.
10. NLC India Limited  These can be caused as a result of:
11. Oil India Limited  Social, economic and political
12. Power Finance Corporation Limited inequality
13. Power Grid Corporation of India Limited  Social exclusion

RE
14. Rashtriya Ispat Nigam Limited  Unemployment
15. Rural Electrification Corporation Limited
 Indebtedness
16. Shipping Corporation of India Limited
 Unequal distribution of wealth.

31. Correct Option: (d)  Aggregate poverty is just the sum of

individual poverty. Poverty is also explained
Explanation: by general, economy-wide problems, such
CO
as:
 All statements are corrrect
 Low capital formation
Supplementary notes:
 Lack of infrastructure
Investment
 Lack of demand
 An investment is a monetary asset
purchased with the idea that the asset will  Pressure of population
provide income in the future or will later be
Lack of social/ welfare nets.
S


sold at a higher price for a profit.
 In other words, an investment is the
purchase of goods that are not consumed 33. Correct Option: (b)
today but are used in the future to create
Explanation:
GS

wealth.
 It is oriented toward future returns, and
thus entails some degree of risk.
 It is a gross or net addition to capital
stock and is always capital formation.
 A measure of the final output, which
comprises capital goods, constitutes the
Gross Investment of an economy.
 It does not denote the purchase of shares
or property or even having an insurance
policy.
 Common forms of investment include
financial markets (e.g. stocks and bonds),
credit (e.g. loans or bonds), assets (e.g.
commodities or artwork), and real estate.
32. Correct Option: (d)
Explanation:
 All statements are correct
 Statement 1 is incorrect: Jobless growth
refers to a situation when an economy is
able to produce more goods and services
without a proportionate increase in
employment opportunities.
Supplementary notes:
Growth and Changing Structure of
Employment
 Jobless growth refers to a situation
when an economy is able to produce
more goods and services without a
proportionate increase in employment
opportunities.
 India has been witnessing ‘jobless growth’
since the last few decades.
 Sixty years of planned development have
been aimed at the expansion of the economy
through an increase in national output and
employment.

PTS2020/PPP-7/092019/26 14
  During the period 1950–2010, the Gross
Domestic Product (GDP) of India grew
positively and was higher than the
employment growth.
 However, during this period,
employment grew at the rate of not
more than 2 percent.
 In the late 1990s, employment growth
started declining.
 During these years, there was a
widening gap between the growth of
GDP and employment. This means
that in the Indian economy, without
generating employment, we have
been able to produce more goods
and services. Scholars refer to this
phenomenon as jobless growth.
34. Correct Option: (d)
Explanation:
 All statements are correct
Supplementary notes:
Liberty Indicator

O
Liberty indicator is a measure of ‘the extent
of democratic participation in social
and political decision-making’ but it has
SC
not been given any extra weight.
 Some obvious ‘liberty indicators’ like
measures of ‘the extent of Constitutional
protection given to rights of citizens’ or
‘the extent of Constitutional protection
of the Independence of the Judiciary
and the Rule of Law’ have not even been
introduced so far.
GS
 Without including these and giving them
overriding importance in the list, the
construction of a Human Development
Index may be said to be incomplete and its
limited usefulness.
35. Correct Option: (c)
Explanation:
 Statement 4 is correct: Shoeshine boy
is a self-employed worker.
Supplementary notes:
Self-employed Worker
 Workers who own and operate an
enterprise to earn their livelihood
are known as self- employed. For
example cement shop owner. In the
given question shoeshine boy is a self-
employed as he owns his tools and is
not paid any wages on a regular basis.
15
Casual worker
 A worker who does not work throughout
the year. The casual workers work for a few
months and get remuneration for the work
done they are not hired by the employers on
a regular basis. They are generally unskilled
workers. For example a construction worker,
mechanic shop worker.
Regular salaried employees
 When a worker is engaged by someone or
an enterprise and paid his or her wages on
a regular basis, they are known as regular
salaried employees.
 They are those who have proper professional
skills and a particular level of educational
qualification, these skills are required
through training and education process
which are not available in rural areas. For
RE
example civil engineers.
36. Correct Option: (b)
Explanation:
 Statements 1 is incorrect: There is a
downward trend in inequality worldwide
with a rise in average education levels.
Supplementary notes:
The relation between education level and
inequalities of income
 There is a downward trend in
inequality worldwide with a rise
in average education levels. The
increase in literacy level increases
the individual’s income-generating
capacity which further reduces
inequalities of income.
 An educated person can utilize the
inputs in the best possible manner
which increases productivity as well as
with the help of education they can earn
better which improves the standard of
living and the quality of life.
 The increase in the literacy level reduces
the inequalities in income and wealth and
this benefit of education has forced the
Government of various countries to invest
more and more in the education sector.
37. Correct Option: (d)
Explanation:
 All statements are correct
Supplementary notes:
Land Reforms
 At the time of independence, the land
tenure system in India was characterized by
PTS2020/PPP-7/092019/26
 intermediaries (variously called jagirdars,
zamindars, etc.) who merely collected rent
from the actual tillers of the soil without
any contribution towards improvements in
the farm.
 Thus, the low productivity of the agricultural
sector in India demanded land reforms.
Aims of Land reforms
 To change in the ownership of
landholdings
 Abolition of Intermediaries: The
Zamindari system was abolished to
end exploitation. The abolition of
intermediaries meant that tenants
were freed from being exploited by the
zamindars.
 The shift in ownership to the tenants
gave them the incentive to increase
output and this contributed to the
growth of agriculture.
 Land Ceiling: It was the policy to promote
equity in agriculture in which the size
of the land was fixed at a maximum level,
which could be owned by an individual. Its
CO
purpose was to reduce the concentration of
land ownership in a few hands.
 Government control: To bring tenants
under the direct control of the
government.
38. Correct Option: (c)
S
Explanation:
 Pair (b) is incorrectly matched: Fiscal
Deficit includes revenue deficit and capital
GS
expenditure but not non-debt creating
capital receipts.
Supplementary notes:
Revenue Deficit
 The revenue deficit refers to the excess of
the government’s revenue expenditure over
revenue receipts. Revenue deficit = Revenue
expenditure – Revenue receipts.
 The revenue deficit includes only
such transactions that affect the
current income and expenditure of the
government.
Fiscal Deficit
 It is the difference between the government’s
total expenditure and its total receipts
excluding borrowing. Gross fiscal deficit
= Total expenditure – (Revenue receipts +
Non-debt creating capital receipts).
 Non-debt creating capital receipts are those
receipts that are not borrowings and do not
PTS2020/PPP-7/092019/26 16
give rise to the debt. Examples are recovery
of loans and the proceeds from the sale of
PSUs.
 The fiscal deficit will have to be financed
through borrowing. Thus, it indicates
the total borrowing requirements of the
government from all sources.
 From the financing side, Gross fiscal deficit
= Net borrowing at home + Borrowing from
RBI + Borrowing from abroad.
 Net borrowing at home includes that
directly borrowed from the public through
debt instruments (for example, the various
small savings schemes) and indirectly from
commercial banks through the Statutory
Liquidity Ratio (SLR).
 The gross fiscal deficit is a key variable in
judging the financial health of the public
RE
sector and the stability of the economy.
 Revenue deficit is a part of fiscal deficit
(Fiscal Deficit = Revenue Deficit
+ Capital Expenditure - non-debt
creating capital receipts). A large share
of revenue deficit in fiscal deficit indicated
that a large part of borrowing is being used
to meet its consumption expenditure needs
rather than investment.
Primary Deficit
 The goal of measuring the primary deficit is
to focus on present fiscal imbalances.
 It is simply the fiscal deficit minus the
interest payments Gross primary deficit =
Gross fiscal deficit – Net interest liabilities.
 Net interest liabilities consist of
interest payments minus interest
receipts by the government on net
domestic lending.
39. Correct Option: (c)
Explanation:
 Both statements are correct
Supplementary notes:
Rural Credit in India
 The growth of the rural economy depends
primarily on the infusion of capital to
realize higher productivity in agriculture
and non-agriculture sectors. Farmers
borrow from various sources to meet their
initial investment on seeds, fertilizers,
implements and other family expenses of
marriage, death, religious ceremonies, etc.
 Small and marginal farmers and landless
laborers were exploited by moneylenders
and traders at the time of independence.
They lent them money on higher interest
rates and manipulated the accounts to keep
the farmers in a debt-trap.
  A major change occurred after 1969
when India adopted a social banking and
multiagency approach to adequately meet
the needs of rural credit.
 Later, the National Bank for Agriculture
and Rural Development (NABARD)
was set up in 1982 as an apex body
to coordinate the activities of all the
institutions involved in the rural
financing system.
 The Green Revolution was a harbinger
of major changes in the credit system
as it led to the diversification of the
portfolio of rural credit towards
production-oriented lending.
Green Revolution
 The Green Revolution is referred to as the
process of increasing agricultural production
by incorporating modern tools and
techniques. In the second half of the Second
Five-year plan, a team of experts sponsored
by the Ford Foundation was invited by the
Government of India to propose ways to
boost agricultural production efficiency.
 As per the recommendations of the expert
O 
team, the government of India introduced
a rigorous development programme in 7
districts selected from seven states in the
year 1960.
SC
NABARD
 It is a development bank focusing primarily
on the rural sector of the country.
 It is the apex banking institution to
provide finance for Agriculture and rural
development.
It is responsible for the development of the
GS

small industries, cottage industries, and
any other such village or rural projects.
 It is a statutory body established in 1982
under Parliamentary act-National Bank for
Agriculture and Rural Development Act,
1981.
40. Correct Option: (a)
Explanation:
 Statements 2 is incorrect: Population
explosion implies the death rate is decreasing
while the birth rate remains constant at a
high level.
Supplementary notes:
Demographic Transition Theory
 Theory of Demographic Transition is
a theory that throws light on changes
in birth rate and death rate and
consequently on the growth rate of
17
population. “Demographic transition refers
to a population cycle that begins with a fall
in the death rate, continues with a phase of
rapid population growth and concludes with
a decline in the birth rate”-E.G. Dolan.
 According to this theory, economic
development has the effect of bringing about
a reduction in the death rate. There are four
stages of demographic transition according
to Max.
First Stage
 This stage is called a high population growth
potential stage. It is characterized by high
and fluctuating birth and death rates which
will almost neutralize each other.
 People mostly live in rural areas and their
main occupation is agriculture which is in
the stage of backwardness.
RE
 The tertiary sector consisting of transport,
commercial banking, and insurance is
underdeveloped.
 All these factors are responsible for the low
income and poverty of the masses.
Social beliefs and customs play an important
role in keeping the birth rate high.
 The death rate is also high because of
primitive sanitation and the absence of
medical facilities. People live in dirty and
unhealthy surroundings.
Second Stage
 It is called the stage of Population
Explosion. In this stage, the death
rate is decreasing while the birth rate
remains constant at a high level.
 Agricultural and industrial productivity
increases, means of transport and
communication develops. There is great
mobility of labor.
 Education expands. Income also increases.
People get more and better quality of food
products. Medical and health facilities are
expanded.
 During this stage economic development is
speeded up due to individual and government
efforts. Increased use of better technology,
mechanization, and urbanization takes
place. But there is no substantial change
in the men, the attitude of the people and
hence birth rate stays high i.e., economic
development has not yet started affecting
the birth rate.
Third Stage
 It is also characterized as a population stage
because the population continues to grow at
a fast rate. In this stage, the birth rate as
compared to the death rate declines more
rapidly.
PTS2020/PPP-7/092019/26
  As a result, the population grows at a
diminishing rate. This stage witnesses a fall
in the birth rate while the death rate stays
constant because it has already declined to
the lowest minimum.
 Birth rate declines due to the impact of
economic development changed social
attitudes and increased facilities for family
planning.
 The population continues to grow fast
because the death rate stops falling whereas
the birth rate though declining but remains
higher than the death rate.
Fourth Stage
 It is called the stage of a stationary
population.
 Birth rate and death rate are both at a low
level and they are again near balance.
 The birth rate is approximately equal to
the death rate and there is little growth
in population. It becomes more or less
stationary at a low level.
 The details about the population of British
CO
India were first collected through a census
in 1881. Though suffering from certain
limitations, it revealed the unevenness in
India’s population growth. Subsequently,
every ten years such census operations were
carried out. Before 1921, India was in the
first stage of demographic transition.
The second stage of transition began
after 1921.
S
41. Correct Option: (b)
Explanation:
GS
 Statement 2 is incorrect: it does not
take into account unexpected or sudden
destruction or disuse of capital.
 Statement 3 is incorrect: The value of
the replacement of existing capital goods is
subtracted from gross investment to get
the net investment.
Supplementary notes:
Depreciation
 A significant part of the current output
of capital goods goes in maintaining or
replacing part of the existing stock of capital
goods because the already existing capital
stock suffers wear and tear or depreciation
and needs maintenance and replacement.
 A part of the capital goods produced
in a year goes for replacement of
existing capital goods and is not an
addition to the stock of capital goods
already existing and its value needs to
PTS2020/PPP-7/092019/26
be subtracted from gross investment
for arriving at the measure for net
investment.
 This deletion, which is made from the
value of the gross investment in order to
accommodate regular wear and tear of
capital, is called depreciation.
 So new addition to the capital stock in an
economy is measured by net investment or
new capital formation, which is expressed
as Net Investment = Gross investment
– Depreciation
 It is an annual allowance for wear and
tear of a capital good. In other words, it
is the cost of the good divided by a number
of years of its useful life.
 It does not take into account unexpected
or sudden destruction or disuse of
RE
capital as can happen with accidents,
natural calamities or other such extraneous
circumstances.
42. Correct Option: (c)
Explanation:
 Both statements are correct
Supplementary notes:
Gross Domestic Product (GDP)
 The sum of the gross value added of
all the firms of the economy in a year
gives a measurement of the value of
the aggregate amount of goods and
services produced by the economy in a
year. Such an estimate is called Gross
Domestic Product (GDP).
If there are N firms in the economy, each

assigned with a serial number from 1 to N,
then GDP ≡ Sum total of the gross value
added of all the firms in the economy.
 The gross value added of the firm is the sum
of net value-added and depreciation of the
firm.
 Hence, GDP is also the sum of net value-
added and depreciation of the firm.
43. Correct Option: (c)
Explanation:
 Both statements are correct
Supplementary notes:
Great Leap Forward (GLF)
 After the establishment of the People’s
Republic of China under one-party rule, all
critical sectors of the economy, enterprises,
and lands owned and operated by individuals
were brought under government control.
18
  The Great Leap Forward (GLF)
campaign initiated in 1958 aimed
at industrialising the country on a
massive scale.
 People were encouraged to set up industries
in their backyards.
 In rural areas, communes were started.
Under the Commune system, people
collectively cultivated lands. In 1958, there
were 26,000 communes covering almost all
the farm population.
 GLF campaign met with many problems:
 A severe drought caused havoc in
China killing about 30 million people.
 When Russia had conflicts with China,
it withdrew its professionals who had
earlier been sent to China to help in
provides more job facilities in urban
areas.
 The rural population is primarily engaged
in the agricultural sector and they are not
willing to take the risk of becoming regular
salaried employees.
45. Correct Option: (a)
Explanation:
 Statement 2 is incorrect: The land
settlements did not improve agriculture
productivity.
Supplementary notes
Agriculture sector during British rule in
India
 India’s economy under the British colonial

RE
the industrialisation process. rule remained fundamentally agrarian
 In 1965, Mao introduced the Great  Agricultural productivity became
Proletarian Cultural Revolution low though, in absolute terms, the sector
(1966–76) under which students and experienced some growth due to the
professionals were sent to work and expansion of the aggregate area under
learn from the countryside. cultivation. The stagnation in the
O agricultural sector was caused mainly
44. Correct Option: (d) because of the various systems of land
settlement that were introduced by the
Explanation: colonial government.
 All statements are correct  Particularly, under the zamindari system
SC
which was implemented in the then Bengal
Supplementary notes: Presidency comprising parts of India’s
Regular Salaried Employees present-day eastern states, the profit
accruing out of the agriculture sector went
 When a worker is engaged by someone to the zamindars instead of the cultivators.
or an enterprise and paid his or her
 However, a considerable number of
wages on a regular basis, they are
zamindars, and not just the colonial
known as regular salaried employees.
government, did nothing to improve the
GS

 The regular salaried employees are condition of agriculture.

those who have proper professional
skills and a particular level of
educational qualification. These 46. Correct Option: (d)
skills are acquired through training Explanation:
and education process which are not
available in rural areas.  Option (d) is correct:
 The rural population is primarily engaged Policy Statement Aim
in the agricultural sector and they are not A. Medium-term 3. It sets a three-year
willing to take the risk of becoming regular
Policy Statement rolling target for
salaried employees.
fiscal specific indicators.
 Agriculture is not a major source of
employment in urban areas where people
are mainly engaged in the service sector. B. Fiscal Policy 1. It sets the priorities
Strategy of the government
 The presence of service sector provides Statement in the fiscal area.
great opportunities for regular salaried job.
For example MNCs. C. Macroeconomic 2. It assesses
Framework the prospects of
 The MNCs are concentrated only in
Statement the economy with
the urban areas due to the various
respect to the fiscal
supportive facilities like infrastructure
development, transportation and balance of the
communication facilities, etc. This central government

19 PTS2020/PPP-7/092019/26
 Supplementary notes:
Three Policy Statements
 The budget is not merely a statement
of receipts and expenditures. Since
Independence, with the launching of the
Five-Year Plans, it has also become a
significant national policy statement.
 The budget reflects and shapes, and is, in
turn, shaped by the country’s economic
life. Along with the budget, three policy
statements are mandated by the Fiscal
Responsibility and Budget Management
Act, 2003 (FRBMA).
 The Medium-term Fiscal Policy
Statement sets a three-year rolling
target for specific fiscal indicators
and examines whether revenue
expenditure can be financed through
revenue receipts on a sustainable basis
and how productively capital receipts
including market borrowings are being
utilized.
 The Fiscal Policy Strategy Statement
sets the priorities of the government
in the fiscal area, examining current
policies and justifying any deviation in
CO
important fiscal measures.
 The Macroeconomic Framework
Statement assesses the prospects of
the economy with respect to the GDP
growth rate, fiscal balance of the central
government and external balance.
S
47. Correct Option: (b)
Explanation:
 Option (b) is correct: The Second Five
GS
Year Plan was based on the ideas of
Prasanta Chandra Mahalanobis. In that
sense, he can be regarded as the Architect
of Indian planning.
Supplementary notes:
Prasanta Chandra Mahalanobis
 He was born in 1893 in Calcutta and educated
at the Presidency College in Calcutta and at
Cambridge University in England.
 In 1946, he was made a Fellow (member) of
Britain’s Royal Society.
 He established the Indian Statistical
Institute (ISI) in Calcutta and started a
journal, Sankhya, which still serves as a
respected forum for statisticians to discuss
their ideas.
Second Five Year Plan
 It envisaged an increase in the total national
income from Rs. 10,800 crores in 1955-56 to
Rs. 13,480 crores in 1960-61 (calculated at
1952-53 prices).
PTS2020/PPP-7/092019/26
 This represented an increase of about 25%
over the five-year period. The per capita
income was expected to increase from Rs.
281 in 1956 to Rs. 331 in 1960-61.
 In order to make these achievements possible,
the rate of investment was expected to rise
from 7% of the national income in 1955-56
to 11% in 1960-61, assuming that the rate of
population growth would remain stationary
at 1.3% per annum and the capital-output
ratio at 2:3:1.
48. Correct Option: (a)
Explanation:
 Statement 3 is incorrect: Developing
country like India does not have
RE
access to developed countries’ markets
because of high non-tariff barriers.
Supplementary notes:
Reforms in the Industrial Sector
The impact of LPG reform on the
industrial sector were:
 Industrial growth had recorded a
slowdown. This was because of the
decreasing demand for industrial products
due to various reasons such as cheaper
imports, inadequate investment in
infrastructure, etc.
 In a globalized world, developing countries
are compelled to open up their economies
to a greater flow of goods and capital from
developed countries and rendering their
industries vulnerable to imported goods.
Cheaper imports have, thus, replaced
the demand for domestic goods. Domestic
manufacturers are facing competition from
imports.
 The infrastructure facilities, including
power supply, have remained
inadequate due to lack of investment.
Globalization is, thus, often seen as creating
conditions for the free movement of goods
and services from foreign countries that
adversely affect the local industries and
employment opportunities in developing
countries.
 Moreover, a developing country like
India does not have access to developed
countries’ markets because of high non-
tariff barriers. For example, although all
quota restrictions on exports of textiles and
clothing have been removed in India, the
USA has not removed their quota restriction
on import of textiles from India and China.
20
49. Correct Option: (c)
Explanation:
 Both statements are correct
Supplementary notes:
Formal and Informal sector
 All the public sector establishments and
private sector establishments which
employ ten hired workers or more are
called formal sector establishments.
 Those who work in such establishments are
formal sector workers.
 All other enterprises and workers working
in those enterprises form the informal
sector.
The informal sector includes farmers,
 in India conducting regular socio-economic
agricultural laborers, owners of small
enterprises and people working as self-
employed who do not have any hired
workers.
 It also includes all non-farm casual wage
laborers who work for more than one

O
employer such as construction workers and
headload workers.
Those who are working in the formal sector
enjoy social security benefits. They earn
SC
more than those in the informal sector.
India’s scenario
 Developmental planning envisaged that as
the economy grows, more and more workers
would become formal sector workers and
the proportion of workers engaged in the
informal sector would dwindle.
GS
 However, this did not happen in India.
 There are about 473 million workers
in the country. There are only 30
million workers in the formal sector.
The remaining 94 percent are in the
informal sector.
 Out of 30 million formal sector workers, only
6 million, that is, only about 21 percent are
women. In the informal sector, male workers
account for 69 percent of the workforce.
 Out of about 30 million formal sector
workers, about 18 million workers were
employed by the public sector.
 Here also men form the majority, as women
constitute only about one-sixth of the formal
sector workforce.
 Economists point out that the reform process
initiated in the early 1990s resulted in a
decline in the number of workers employed
in the formal sector.
21
50. Correct Option: (b)
Explanation:
 Option (b) is correct: NSSO is an
organisation either MoSPI.
Supplementary notes:
National Sample Survey Organisation
 The National Sample Survey
Organisation (NSSO), now known
as the National Sample Survey Office,
is an organization under the Ministry
of Statistics, Planning and Programme
Implementation of the Government of
India.
 It was established in 1950.
 It is the largest organization
RE
surveys.
51. Correct Option: (c)
Explanation:
Statement 1 is incorrect: A Person


is unemployed if he is not able to get
employment of even one hour in half a day.
Statement 2 is incorrect: There are three
sources of data on unemployment: Reports
of Census of India, National Sample Survey
Organisation’s Reports of Employment and
Unemployment Situation and Directorate
General of Employment and Training
Data of Registration with Employment
Exchanges.
Supplementary notes:
Unemployment
 NSSO defines unemployment as a situation
in which all those who, owing to lack of
work, are not working but either seek
work through employment exchanges,
intermediaries, friends or relatives or
by making applications to prospective
employers or express their willingness or
availability for work under the prevailing
condition of work and remunerations.
 Economists define an unemployed
person as one who is not able to get
employment of even one hour in half a
day.
 There are three sources of data on
unemployment: Reports of Census of India,
National Sample Survey Organisation’s
Reports of Employment and Unemployment
Situation and Directorate General of
Employment and Training Data of
Registration with Employment Exchanges.
PTS2020/PPP-7/092019/26
 Disguised Unemployment
 Economists call unemployment
prevailing in Indian farms as disguised
unemployment. Suppose a farmer has four
acres of land and he actually needs only two
workers and himself to carry out various
operations on his farm in a year, but if he
employs five workers and his family members
such as his wife and children, this situation
is known as disguised unemployment.
 One study conducted in the late 1950s showed
about one-third of agriculture workers in
India as disguisedly unemployed.
52. Correct Option: (c)
Explanation:
 Both statements are correct
Supplementary notes:
Where most of the people are employed?
 The primary sector continues to be the
largest employer even now.
CO
 It is because not enough jobs were
created in the secondary and tertiary
sectors.
 While production in the service sector rose
by 14 times, employment in the service
sector rose around five times.
 More than half of the workers in the country
S
are working in the primary sector, mainly
in agriculture, producing only a quarter of
the GDP.
 In contrast to this, the secondary and
GS
tertiary sectors produce four-fifths of the
produce whereas they employ less than half
the people.
53. Correct Option: (b)
Explanation:
 Option (b) is correct:
Methods of
Calculating Explanation
National Income
1. The aggregate value of
spending that the firms
Expenditure
receive for the final goods
Method
and services which they
produce.
3. The aggregate value of final
Product Method goods and services produced
by all the firms.
2. Sum total of all factor
Income Method
payments.
PTS2020/PPP-7/092019/26
Supplementary notes:
Methods of Calculating National Income
 The same amount of money, representing
the aggregate value of goods and services,
is moving in a circular way as shown in the
above diagram. To estimate the aggregate
value of goods and services produced during
a year, the annual value of the flows at
any of the dotted lines can be measured
indicated in the diagram.
 The uppermost flow can be measured by
measuring the aggregate value of spending
that the firms receive for the final goods and
services which they produce. This method
will be called the expenditure method.
 The flow at Goods and Services can be
measured by measuring the aggregate value
of final goods and services produced by all
RE
the firms, it will be called product method.
 At Factor Payments, measuring the sum
total of all factor payments will be called
income method. Observe that the aggregate
spending of the economy must be equal to
the aggregate income earned by the factors
of production
54. Correct Option: (d)
Explanation:
 Option (d) is incorrect: Cash grants-in-
aid from international organizations and
foreign countries are included in revenue
receipts.
Supplementary notes:
Revenue Receipts
 These are those receipts that do not lead
to a claim on the government. They are
therefore termed non-redeemable.
 They are divided into tax and non-tax
revenues. Tax revenues, an important
component of revenue receipts, have for
long been divided into direct taxes (personal
income tax) and firms (corporation tax), and
indirect taxes like excise taxes (duties levied
on goods produced within the country),
customs duties (taxes imposed on goods
imported into and exported out of India) and
service tax. Other direct taxes like wealth
tax, gift tax and estate duty (now abolished)
have never brought in large amounts of
revenue and thus have been referred to as
‘paper taxes’.
 Firms are taxed on a proportional
basis, where the tax rate is a particular
proportion of profits. With respect to
excise taxes, necessities of life are exempted
or taxed at low rates, comforts and semi-
luxuries are moderately taxed, and luxuries,
22
 tobacco, and petroleum products are taxed
heavily.
 Non-tax revenue of the central government
mainly consists of interest receipts on
account of loans by the central government,
dividends, and profits on investments made
by the government, fees and other receipts
for services rendered by the government.
 Cash grants-in-aid from foreign
countries and international
organizations are also included.
Capital Receipts
 The government also receives money by way
of loans or from the sale of its assets. Loans
will have to be returned to the agencies from
which they have been borrowed. Thus they
create liability.
Sale of government assets, like sale of shares

in Public Sector Undertakings (PSUs)
which is referred to as PSU disinvestment,
reduces the total amount of financial assets
of the government.
 All those receipts of the government
which creates liability or reduce
financial assets are termed as capital
O Supplementary notes:
receipts.
 When the government takes fresh loans it
will mean that in future these loans will
have to be returned and interest will have
SC
to be paid on these loans.
 Similarly, when the government sells an
asset, then it means that in future its
earnings from that asset will disappear.
Thus, these receipts can be debt creating or
non-debt creating.
GS
55. Correct Option: (d)
Explanation:
 Statements 1 is incorrect: Human capital
treats human beings as a means to an end.
 Statement 2 is incorrect: In the human
development perspective, human beings are
ends in themselves
Supplementary notes:
Human Capital and Human Development
 The two terms sound similar but there is
a clear distinction between them. Human
capital considers education and health as
a means to increase labor productivity.
Human development is based on the
idea that education and health are
integral to human well-being because
only when people have the ability to
read and write and the ability to lead
a long and healthy life, they will be
able to make other choices which they
value.
23
 Human capital treats human beings
as a means to an end; the end is the
increase in productivity. In this view,
any investment in education and health
is unproductive if it does not enhance the
output of goods and services.
 In the human development perspective,
human beings are ends in themselves.
Human welfare should be increased through
investments in education and health even
if such investments do not result in higher
labor productivity.
 Therefore, basic education and basic health
are important in themselves, irrespective of
their contribution to labor productivity. In
such a view, every individual has a right to
get basic education and basic health care,
that is, every individual has a right to be
literate and lead a healthy life.
RE
56. Correct Option: (d)
Explanation:
 All statements are correct
Role of Public Sector in
Industrialization
 Public sector enterprises are owned
and managed by the government. At
the time of independence, the state of
the Indian economy was backward and
underdeveloped.
 During the planning period, the public
sector was given a leading role in industrial
development because of the following
reasons:
 Lack of capital: Private entrepreneurs
lacked capital for setting industries
as a huge amount was required. The
government took the responsibility of
developing industries in the economy.
 Lack of incentive: The Indian
market was comparatively small which
discouraged Indian industrialists to
invest in major projects (even though
they had sufficient capital to invest).
The government promoted the industrial
sector.
 Development of India on socialist
base: Indian planners wanted to develop
the Indian economy on a socialist base,
so they focused on government-funded
major projects.
 Social welfare: In India, there were
certain projects in which the profit margin
was negligible. Thus, the private sector
was not interested in such projects, and
it was only the public sector which
PTS2020/PPP-7/092019/26
 could bring the balanced regional
growth with the establishment of
government units in the backward
areas. This move could increase the
employment and income of the
people.
 Although, the inefficiency and low
productivity in Public Sector Undertakings
(PSUs) may lead to wastage of the scarce
resources and result in huge losses forming
a constraint on economic resources of the
country, they do have some advantages:
 Basic Infrastructure: An important
ideology that was inherited in the initial
Five Year Plans was that the public sector
should lay down the basic infrastructure
required for Industrialization that would
encourage and facilitate the private sector
at the later stage of industrialization.
 Reduce Exploitation: It is believed
that in public sector units, the labour
is not exploited as it is protected by the
government. The consumers are also
not exploited by charging high prices or
serving low quality goods as PSUs do
CO
not operate with profit motive.
 Generate Employment: Private sector
does not have the inducement to invest
and create employment opportunities
during periods of low demand i.e.,
during economic recession. During such
phases, PSUs are needed to generate
employment opportunities with the help
S
of government investment. Apart from
this, job security is also provided by the
PSUs to their employees.
GS
57. Correct Option: (c)
Explanation:
 Both statements are correct
Supplementary notes:
Human Capital and Economic Growth
 Investments in health, education, on- job
training, migration, and information are
the sources of human capital formation.
 The labor skill of an educated person is
more than that of an uneducated person
and that the former generates more income
than the latter. Thus, an educated person
contributes more to national income.
 Economic growth means the increase in
real national income of a country; naturally,
the contribution of the educated person to
economic growth is more than that of an
illiterate person.
PTS2020/PPP-7/092019/26 24
 If a healthy person could provide
uninterrupted labor supply for a longer
period of time, then health should be an
important factor for economic growth.
Thus, both education and health, along with
other factors like on-the-job training, job
market information and migration, increase
an individual’s income-generating capacity.
 The enhanced productivity of human
beings or human capital contributes
substantially not only towards
increasing labor productivity but also
stimulates innovations and creates
the ability to absorb new technologies.
Education provides knowledge to
understand changes in society and
scientific advancements, thus, facilitate
inventions and innovations. Similarly,
the availability of an educated labor force
RE
facilitates adaptation to new technologies.
58. Correct Option: (c)
Explanation:
 Option (c) is correct: GDP is used by IMF
to measure economic growth of a country.
Supplementary notes:
Gross Domestic Product (GDP)
 It is the market value of all the goods and
services produced in the country during a
year.
 International Monetary Fund/World
Bank uses only GDP for comparative
analysis of its member nations.
Net National Product (NNP)
NNP of an economy is the GNP after

deducting the loss due to ‘depreciation’. The
formula to derive it may be written like:
NNP = GNP – Depreciation
 This is the ‘National Income’ (NI) of an
economy. This is the purest form of the
income of a nation. When we divide NNP by
the total population of a nation we get the
‘per capita income’ (PCI) of that nation, i.e.,
‘income per head per year’.
Gross National Product (GNP)
 GNP is an estimate of total value of all the
final products and services turned out in
a given period by the means of production
owned by a country’s residents.
 It is commonly calculated by taking the
sum of personal consumption expenditures,
private domestic investment, government
expenditure, net exports and any income
earned by residents from overseas
investments, minus income earned within
the domestic economy by foreign residents
 Per Capita Real Income
 It is a measure of the amount of money
earned per person in a nation or geographic
region.
 It can be used to determine the average per-
person income for an area and to evaluate
the standard of living and quality of life of
the population.
 It for a nation is calculated by dividing the
country’s national income by its population.
59. Correct Option: (d)
Explanation:
 All statements are correct
Supplementary notes:
Energy Crisis
 Over the last two centuries, energy needs
have increased dramatically, especially
because of the transportation and industry
sectors. However, fossil fuels are polluting
and their reserves are limited.
These resources are close to exhaustion and


the energy crisis.
India’s installed capacity to generate
O
our societies are facing a major challenge:
electricity is not sufficient to feed an annual
SC
economic growth of 7–8 percent. In order to
meet the growing demand for electricity,
India’s commercial energy supply needs to
grow at about 7 percent.
 At present, India is able to add only 20,000
MW a year. Even the installed capacity is
under-utilized because plants are not run
properly.
GS
 State Electricity Boards (SEBs), which
distribute electricity, incur losses that exceed
Rs 500 billion. This is due to transmission
and distribution losses, wrong pricing of
electricity and other inefficiencies.
 Private sector power generators are yet to
play their role in a major way; the same is
the case with foreign investors.
 There is general public unrest due to high
power tariffs and prolonged power cuts in
different parts of the country.
 Thermal power plants, which are the
mainstay of India’s power sector, are facing a
shortage of raw material and coal supplies.
Challenges in the Power Sector in India
 India’s installed capacity to generate
electricity is not sufficient to feed an
annual economic growth of 7–8 percent.
In order to meet the growing demand
for electricity, India’s commercial energy
25
supply needs to grow at about 7 percent. At
present, India is able to add only 20,000 MW
a year. Even the installed capacity is under-
utilized because plants are not running
properly.
 State Electricity Boards (SEBs), which
distribute electricity, incur losses that exceed
Rs 500 billion. This is due to transmission
and distribution losses, wrong pricing of
electricity and other inefficiencies.
 Private sector power generators are
yet to play their role in a major way; the
same is the case with foreign investors.
There is general public unrest due to high
power tariffs and prolonged power cuts in
different parts of the country, and
 Thermal power plants, which are the
mainstay of India’s power sector are
RE
facing a shortage of raw material and
coal supplies.
Solutions to overcome the problem of an
energy crisis
 The government should encourage the use
of hydel and wind energy.
 More public investment, better research
and development efforts, exploration,
technological innovation and use of
renewable energy sources can ensure an
additional supply of electricity.
 Investment in the power sector by
adding to the installed capacity should
be promoted along with privatization
of the power sector.
 The use of renewable sources is the best
way to overcome the crisis in the energy
sector. Biogas generation programs have
been boosted up.
 For a tropical country like India, where
sunlight is an abundant source, solar
energy should be given the highest
priority.
60. Correct Option: (a)
Explanation:
 Statement 2 is incorrect: WPI does
not include services transport, health,
education, etc that CPI includes.
Supplementary notes:
Wholesale Price Index (WPI)
 It is ‘the price of a representative basket
of wholesale goods’ at wholesale prices. It
focuses on the price of goods traded
between corporations, rather than
goods bought by consumers, which is
measured by the Consumer Price Index.
PTS2020/PPP-7/092019/26
  The WPI is an indicator designed to
measure the changes in the price levels of
commodities that flow into the wholesale
trade and is a very vital guide in economic
analysis and policy formulation. But one
of the biggest drawbacks of WPI is that
it does not include services which
CPI includes like transport, health,
education, etc.
Consumer Price Index (CPI)
 It measures changes in the price level of
a market basket of consumer goods and
services purchased by households at retail
prices. The CPI is a statistical estimate
constructed using the prices of a sample
of representative items whose prices are
collected periodically.
CPI gives larger weight on food items than
 services.
WPI and therefore is more sensitive to
changes in prices in food items whereas the
change in international crude prices has a
greater bearing on WPI as fuel gets higher
weightage in WPI.
61. Correct Option: (c)
O
Explanation:
 Both statements are correct
SC
Supplementary notes:
Regional Rural Banks
 The nationalization of the banks in 1969
boosted the confidence of the public in the
Banking system of the country. However,
the purpose of financial inclusion was not
served by the nationalization of the bank.
GS
On the basis of the recommendations of the
Narasimham committee, a Regional Rural
Banks Ordinance was promulgated in
September 1975, which was replaced by the
Region Rural Bank Act 1976.
 RRBs were configured as hybrid micro
banking institutions, combining the local
orientation and small scale lending culture
of the cooperatives and the business culture
of commercial banks.
 Their mission was to fulfill the credit needs
of the relatively unserved sections in the
rural areas -small and marginal farmers,
agricultural laborers and socio-economically
weaker sections.
 Every RRB bank is sponsored by
a Public Sector Bank. The Regional
Rural Banks are owned by the Central
Government, the State Government and the
Sponsor Bank who held shares in the ratios
as follows Central Government – 50%, State
Government – 15% and Sponsor Banks – 35.
PTS2020/PPP-7/092019/26
62. Correct Option: (a)
Explanation:
 Statement 1 is incorrect: Growth (not
growth with equity) is assessed by the
market value of goods and services produced
in the economy (GDP).
Supplementary notes:
What is growth?
 Growth refers to the increase in the country’s
capacity to produce the output of goods and
services within the country.
 It implies either the stock of productive
capital, or a larger size of supporting services
like transport and banking, or an increase
in the efficiency of productive capital and
RE
 It is assessed by the market value of
goods and services produced in the
economy and it does not guarantee an
equitable distribution of the income
from this production.
What is equity?
 Equity reflects that the benefits of economic
prosperity reach the poor sections as well
instead of being employed only by the rich.
 It aims to provide every person his or her
basic needs such as food, a decent house,
education, and health care and inequality in
the distribution of wealth should be reduced
so that the benefits of higher economic
growth can be passed on to all sections of
the population to bring about social justice.
Growth with Equity
 Both growth and equity are the two
important goals of Indian planning.
Growth is desirable but in itself, it does not
guarantee the welfare of society.
 Hence, growth with equity is a rational
and desirable objective of planning. This
objective ensures that the benefits
of high growth are shared by all the
people equally and hence inequality of
income is reduced along with growth
in income.
63. Correct Option: (a)
Explanation:
 Option (a) is correct: In 1955, the Village
and Small-Scale Industries Committee, also
called the Karve Committee, noted the
possibility of using small-scale industries
for promoting rural development.
26
 Supplementary notes:
Karve Committee
 A committee on the village and small
scale industries were set up by Planning
Commission (now NITI AYOG) in 1955.
So it is also being called the Village and
Small Scale Industries Committee or Karve
Committee after its head Dattatreya
Gopal Karve.
 It was set up for the growth and
development of small scale industries
and rural development.
Small- Scale Industry
 A ‘small-scale industry’ is defined with
reference to the maximum investment
allowed on the assets of a unit.
Small-scale industries are more ‘labor-

intensive’ i.e., they use more labour than
the large-scale industries and, therefore,
generate more employment. But these
industries cannot compete with big
industrial firms.
 For this purpose, the production of a number
of products was reserved for the small-scale
O domestic industries.
industry.
 They were also given concessions such as
lower excise duty and bank loans at lower
interest rates.
SC
64. Correct Option: (c)
Explanation:
 Both statements are correct
Supplementary notes:
GS
Marketed Surplus
 The portion of agricultural produce which is
sold in the market by the farmers is called
marketed surplus. A good proportion of
the rice and wheat produced during the
Green Revolution period (available
as marketed surplus) was sold by the
farmers in the market. As a result, the
price of food grains declined relative
to other items of consumption.
 The low-income groups, who spend
a large percentage of their income
on food, benefited from this decline
in relative prices. The green revolution
enabled the government to procure a
sufficient amount of food grains to build a
stock which could be used in times of food
shortage
 The portion of agricultural produce which is
sold in the market by the farmers is called
marketed surplus.
 Impact of Marketed Surplus:
27
 Reduced prices: The price of food
grains declined relative to other items of
consumption.
 Impact on various income groups:
The low-income groups, who spend a large
percentage of their income on food, benefited
from this decline in relative prices.
65. Correct Option: (a)
Explanation:
 Statement 3 is incorrect: Tariff
barriers are imposed on the value of
goods, whereas Non-tariff barriers are
imposed on the quantity and quality of
goods.
Supplementary notes:
RE
Tariff and Non-tariff Barriers
Tariff Barriers:
 It refers to the tax imposed on the
imports by the country to protect its
 It includes custom duties, export-import
duties etc.
 It is imposed on physical units (like
per tonne) or on the value of the goods
imported.
 They are imposed at reasonable prices
by member countries of the World Trade
Organization.
 Tariff barriers are more explicit in
nature as compared to Non-tariff
barriers.
Non-tariff Barriers:
 It refers to the restrictions other than taxes,
imposed on imports by a country.
 It includes quotas and licenses.
 It imposed on the quantity and quality
of the goods imported.
 They are completely abolished (import
quotas and voluntary export restraints) by
the World Trade Organization.
66. Correct Option: (d)
Explanation:
 Statement 1 and 2 are incorrect: The
progress of the modern industry began
during the second half of the nineteenth
century. Britishers hardly developed
any capital goods industries in India.
PTS2020/PPP-7/092019/26
 Supplementary notes:
Industrial sector during British rule in
India
 The modern industry began to take
root in India during the second half
of the nineteenth century but its
progress remained very slow. Initially,
this development was confined to the
setting up of cotton and jute textile
mills.
 There was hardly any capital goods
industry to help Promote further
industrialization in India. The capital
goods industry means industries that can
produce machine tools which are, in turn,
used for producing articles for current
consumption.
67. Correct Option: (d)
Explanation:
 Statement 2 is incorrect: Privatization
has not been the goal of every five-year plan
in India.
Supplementary notes:
O 
Five Year Plans in India
 A plan spells out how the scarce resources of
SC
a nation should be put to use.
 It should have some general goals as well
as specific objectives that are to be achieved
within a specified period of time.
 In India, plans which are of five years
duration are known as the Five Year Plans
(this idea has been borrowed from the
GS
former Soviet Union).
 Every Five Year Plan has specified goals
which are the ultimate targets and their
achievement ensures the success of the
plans.
 Without specific goals, a plan would be
directionless and resources would not
be utilised in a proper manner without
wastage.
Following goals are focused in every Five
Year Plan:
 Growth: To increase the country’s capacity
to produce the output of goods and services
within the country. It implies either the
stock of productive capital, or a larger size
of supporting services like transport and
banking, or an increase in the efficiency of
productive capital and services.
 Modernisation: To increase the production
of goods and services, the producers have to
adopt new technology.
PTS2020/PPP-7/092019/26 28
 Self-reliance: To make India self-
sufficient, which means avoiding imports
of those goods which could be produced in
India itself. This goal aims to reduce India’s
dependence on foreign countries especially
for food and to retain India’s sovereignty
that was vulnerable to foreign interference
in our policies.
 Equity: To ensure the benefits of economic
prosperity reach the poor sections as well
instead of being employed only by the rich.
This goal aims to provide every Indian his
or her basic needs such as food, a decent
house, education, and health care and
inequality in the distribution of wealth
should be reduced.
68. Correct Option: (d)
RE
Explanation:
 Both statements are correct
Supplementary notes:
Bretton Woods System
The Bretton Woods Conference held in
1944 set up the International Monetary
Fund (IMF) and the World Bank (WB)
and reestablished a system of fixed
exchange rates.
 This was different from the international gold
standard in the choice of the asset in which
national currencies would be convertible.
A two-tier system of convertibility was
established at the center of which was the
dollar.
 The US monetary authorities guaranteed
the convertibility of the dollar into gold
at the fixed price of $35 per ounce of gold.
The second-tier of the system was the
commitment of the monetary authority
of each IMF member participating in the
system to convert their currency into dollars
at a fixed price. The latter was called the
official exchange rate.
 Under the Fixed Exchange Rate
system, when a government increases
the exchange rate making the
domestic currency cheaper, it is called
devaluation.
69. Correct Option: (c)
Explanation:
 Statement 1 is incorrect: During
Liberalisation, Privatisation, and
Globalisation (LPG) reforms import
duties on agricultural products were
reduced (not increased).
 Supplementary notes:
Liberalisation, Privatisation, and
Globalisation (LPG) Reforms in
Agriculture
 LPG Reforms have not been able to benefit
agriculture, where the growth rate has
been decelerating. Public investment
in the agriculture sector especially in
infrastructure, which includes irrigation,
power, roads, market linkages and research
and extension (which played a crucial role
in the Green Revolution), has fallen in the
reform period.
 Further, the removal of fertilizer subsidy has
led to an increase in the cost of production,
which has severely affected the small and
marginal farmers.
This sector has been experiencing
intermediaries (variously called jagirdars,
zamindars, etc.) who merely collected rent
from the actual tillers of the soil without
any contribution towards improvements in
the farm.
 Thus, the low productivity of the agricultural
sector in India promoted to land reforms.
 The main aim of land reforms was
to change in the ownership of
landholdings to tillers.
Green Revolution
 At independence, about 75% of the country’s
population was dependent on agriculture.
Productivity in agriculture was very low
because of the use of old technology and the
absence of an appropriate infrastructure for
the vast majority of farmers.


a number of policy changes such as
the reduction in import duties on
agricultural products, removal of
minimum support price and lifting of
quantitative restrictions on agricultural
products; these have adversely affected
Indian farmers as they have to face
increased international competition.
RE
 Dependence on monsoon was also a major
setback for Indian farmers. Thus, in this
scenario, the introduction of High Yielding
Varieties (HYV) of seeds and the increased
use of fertilizers, pesticides and irrigation
facilities was the major breakthrough and
the use of these measures was collectively


O
Moreover, because of export-oriented policy
strategies in agriculture, there has been
a shift from production for the domestic

known as the Green Revolution.
It was implemented to make India a
self-sufficient country by increasing
market towards production for the export the production of food-grains by using
SC
market focusing on cash crops in lieu of HYV seeds and to ensure food security
production of food grains. This puts pressure in India and to upgrade the mode of
on the prices of food grains. technology used in agriculture. It also
aimed to enhance marketed surplus in
70. Correct Option: (b) India.

Explanation: Import Substitution

GS

 Option (b) is correct:  The industrial policy adopted by India was

related to the trade policy. In the First Seven
List I List II
Five Year Plans, trade was characterized
by an inward-looking trade strategy. This
1. Land Reforms D. Aimed to shift
strategy is known as Import Substitution.
ownership to tillers
2. Green A. Aimed to increase  This policy aimed at replacing or
Revolution productivity in the substituting imports with domestic
agricultural sector. production.

3. Import B. Aimed to replace Industrial Policy resolution 1956 (IPR

Substitution or substitute 1956)
imports with
 IPR 1956 was adopted with the goal of the
domestic
state controlling the commanding heights
production.
of the economy. This resolution formed the
4. Industrial Policy C. Aimed to promote basis of the Second Five Year Plan, the
Resolution 1956 industries in the plan which tried to build the basis for a
backward regions. socialist pattern of society.
Supplementary notes:  This policy was used for promoting
the industry in backward regions; it
Land Reforms
was easier to obtain a license if the
 At the time of independence, the land industrial unit was established in an
tenure system in India was characterized by economically backward area.

29 PTS2020/PPP-7/092019/26
71. Correct Option: (b)
Explanation:
 Statement 1 is incorrect: China did not
have any compulsion to introduce economic
reforms introduced by the International
Monetary Fund.
Supplementary notes:
Structural Reforms in China
 China did not have any compulsion to
introduce reforms as dictated by the World
Bank and International Monetary Fund to
India and Pakistan.
 The new leadership at that time in China
was not happy with the slow pace of growth
and lack of modernization in the Chinese
economy under the Maoist rule.
 They felt that Maoist vision of economic
development based on decentralisation,
self sufficiency and shunning of foreign
technology, goods and capital had
failed.
Despite extensive land reforms,

O
collectivisation, the Great Leap Forward
and other initiatives, the per capita grain
output in 1978 was the same as it was in
the mid-1950s.
SC
72. Correct Option: (c)
Explanation:
 Both statements are correct
Supplementary notes:
GS
Non Farming Activities
 All non- agricultural activities are deemed
to be non-farming activities. The non-
farm economy has several segments in
it. Some possess dynamic linkages that
permit healthy growth while others are in
subsistence, low productivity propositions.
 The dynamic sub-sectors include agro-
processing industries, food processing
industries, leather industry, tourism, etc.
 The sectors which have the potential but
lack infrastructure and other support
include traditional home-based industries
like pottery, crafts, handlooms, etc.
 non-farming activities also include various
ventures like handicrafts, household
as well as non-household small-scale
manufacturing, construction, mining,
quarrying, repair, transport, community
service, etc. in the rural area.
PTS2020/PPP-7/092019/26 30
Need for Non-Farming Activities
 Agricultural employment activities are
concentrated in the Kharif season. During
Ravi (rabi) season areas with inadequate
irrigation facilities have difficulties to
provide gainful employment to the farmers.
 Non-farm sectors can provide
supplementary gainful employment
to the farmers so that they can realize
higher levels of income to overcome
poverty and other tribulations.
 There is a need to focus on allied activities,
non-farm employment and other emerging
alternatives of livelihood.
73. Correct Option: (d)
RE
Explanation:
 All statements are correct
Supplementary notes:
Infrastructure
 It provides support services in the
main areas of industrial (secondary)
and agricultural production (primary),
domestic and foreign trade and
commerce (tertiary).
 These services include roads, railways,
ports, airports, dams, power stations, oil and
gas pipelines, telecommunication facilities,
the country’s educational system including
schools and colleges, health system including
hospitals, a sanitary system including clean
drinking water facilities and the monetary
system including banks, insurance, and
other financial institutions.
 Some of these facilities have a direct impact
on the production of goods and services while
others give indirect support by building the
social sector of the economy.
 Infrastructure is a network of physical
facilities and public services.
Categories of Infrastructure
 Economic infrastructure: It supports
the economic system from inside.
Infrastructure associated with energy,
transportation, and communication is
included in this category.
 Social infrastructure: It supports
the economic system from outside.
Infrastructure related to education,
health, and housing are included in
this category.
74. Correct Option: (d)
Explanation:
 Statements 1 is incorrect: Its proportion
is higher in rural areas.
 Statement 2 is incorrect: Workforce
participation is higher in rural areas. People
in rural areas have limited resources to earn
a higher income and they tend to participate
more in the employment market.
Supplementary notes:
Worker-Population ratio
 It is defined as the percentage of the total
population which is engaged in productive
activity. It is that proportion of the
population of any country which is actively
contributing towards the production of goods
RE
and services. It indicates the employment
situation of the country.
 It is also called the workforce participation
rate.
 The high work population ratio means
that major part of a population of O expenditure directly increases the supply of
the country is actively contributing
towards the GDP of the country.
 It is calculated as below –
 Worker-Population Ratio = (Workforce /
76. Correct Option: (d)
SC
Total population) x 100
Rural-Urban divide
 The workforce participation rate is lower in
urban areas. Urban people study in various
educational institutions and they have a
variety of employment opportunities. They
look for the appropriate job to suit their
GS
qualifications and skills
 The workforce participation is higher
in rural areas. People in rural areas
have limited resources to earn a higher
income and they tend to participate
more in the employment market.
 The economic conditions in rural areas do
not allow people to stay at home. Many
do not go to schools, colleges, and other
training institutions. Even if some go,
they discontinue in the middle to join the
workforce.
75. Correct Option: (a)
Explanation:
 Statement 2 is incorrect: Health
expenditure includes the cost of preventive
medicine, curative medicine, social medicine
and provision of clean drinking water and
good sanitation.
31
Supplementary notes:
Sources of Human capital
 Investments in health, education,
on- job training, migration, and
information are the sources of human
capital formation.
Health Expenditure
 Health is considered as an important input
for the development of a nation as much as
it is important for the development of an
individual.
 A sick laborer without access to medical
facilities is compelled to abstain from work
and there is a loss of productivity. Hence,
expenditure on health is an important
source of human capital formation.
Preventive medicine (vaccination),

curative medicine (medical
intervention during illness), social
medicine (spread of health literacy)
and provision of clean drinking water
and good sanitation are the various
forms of health expenditures. Health
healthy labor force and is, thus, a source of
human capital formation.
Explanation:
 Both statements are correct
Supplementary notes:
Reforms related to Energy Crisis
 Energy is very vital for rapid economic
growth. There is a big gap between consumer
demand and supply of electricity in India,
which creates the problem of an energy
crisis.
 Following are some of the reforms initiated
by the Government of India:
 Privatization: Power Generation sector
has been opened up for private sectors like
Tata Power and Reliance Energy along
with Power and Corporation of India for
constructing transmission networks and
look after the distribution of power supply
and the government monopoly in the
generation and distribution of electricity
has been eliminated.
 Regulatory Mechanism: The Central
Electricity Regulatory Commission
(CEERC) along with State Electricity
Regulatory Commissions (SERCs) has
been established in 19 states under the
Electricity Regulatory Commissions
Act, 1998 to regulate tariff, promote
efficiency and competition.
PTS2020/PPP-7/092019/26
  Rationalization of Tariff rates: They
have been revised upwards to discourage
wasteful consumption of power and bring
down the losses of SEBs.
 Encouraging FDI in Power Sector:
In order to meet the growing demand for
electricity, India’s commercial energy
supply needs to grow at about 7%. In order
to achieve this target, the Ministry of
Power aimed at attracting the US $ 250
billion of investment into the power
sector. As domestic Investment in power
sector is not sufficient and thus FDI is being
encouraged to supplement it.
 Accelerated Power Development and
Reform Programme (APDHP): APDRP
was initiated in the year 2000-01 with the
objective of improving financial viability,
reducing transmission and distribution
losses and promoting transparency through
computerization.
 Enhancing Efficiency
 Creating Awareness:
 Save Electricity: LED (Light Emitting
Diode) bulbs have been promoted across
O
the country to save energy. These bulbs
use 1/10th energy as an incandescent bulb
and half as much as a CFL to produce the
same amount of light. UJALA scheme aims
to replace incandescent bulbs with LEDs
SC
and this will save 5,905 MW in power
generation.
77. Correct Option: (d)
Explanation:
 Both statements are correct
GS
Supplementary notes:
Consumption pattern of commercial
energy
 In India, commercial energy contributes
the largest share to the total energy
consumed in India.
 India’s energy demand outpaced global
demand growth in 2018 according to the
International Energy Agency. The higher
energy demand was driven by a global
economy that expanded by 3.7 percent
in 2018, a higher pace than the average
annual growth of 3.5 percent seen since
2010. China, the US, and India together
accounted for nearly 70 percent of the rise
in energy demand.
 According to the IEA’s Global Energy &
CO2 status report, India saw primary
energy demand increase 4 percent or over
35 million tonnes of oil equivalent. This
accounts for 11 percent of global demand
growth.
PTS2020/PPP-7/092019/26
 The critical feature of India’s energy sector
and its linkages to the economy is the
import dependence on crude and petroleum
products, which is likely to grow rapidly in
the near future.
 The transport sector was the largest
consumer of commercial energy in 1953-
54. However, there has been a continuous
fall in the share of the transport sector while
the shares of the household, agriculture and
industrial sector have been increasing. The
share of oil and gas is the highest among all
commercial energy consumption. With the
rapid rate of economic growth, there has
been a corresponding increase in the use of
energy.
78. Correct Option: (a)
RE
Explanation:
 Statement 2 is incorrect: There are rules
and regulations but these are not followed.
Supplementary notes:
Unorganised Sector
 The unorganised sector is characterized
by small and scattered units which
are largely outside the control of the
government.
 There are rules and regulations but
these are not followed. Jobs here are low-
paid and often not regular.
 There is no provision for overtime, paid
leave, holidays, leave due to sickness, etc.
Employment is not secure.
 People can be asked to leave without any
reason. When there is less work, such as
during some seasons, some people may be
asked to leave.
 A lot also depends on the whims of the
employer.
 This sector includes a large number of
people who are employed on their own doing
small jobs such as selling on the street or
doing repair work.
 Similarly, farmers work on their own and
hire labourers as and when they require.
79. Correct Option: (b)
Explanation:
 Statement 2 is incorrect: It is given
to all poor (rural, semi-urban and
urban areas) for enabling them to raise
their income levels and improve living
standards.
32
 Supplementary notes:
Microcredit
 Microcredit is “Loan of the very small
amount”. It is defined as the provision
of parsimony, credit and other
financial services and product to poor
in rural, semi-urban and urban areas
for enabling them to raise their income
levels and improve living standards to
raise their income levels and improve
living standards. Individuals who lack
collateral, steady employment, and
verifiable credit history and therefore
cannot gain access to traditional credit
are provided microcredits.
 Microcredit is a part of microfinance.
 The institutional structure of rural banking
today consists of a set of multi-agency
institutions, namely, commercial banks,
regional rural banks (RRBs), cooperatives
and land development banks.
 They dispense adequate credit at cheaper
rates. However, the above mentioned
formal credit system did not fully integrate
into the rural economy. The requirement
O 
of collateral isolated rural households from
the formal credit system.
80. Correct Option: (c)
SC
Explanation:
 Both statements are correct
Supplementary notes:
Bilateral Trade
 It refers to a trade agreement between
GS
the two countries.
 Equal trade opportunity is given to
both countries.
 Individual negotiation is necessitated
by each country.
 It promotes economic cooperation between
the two countries.
81. Correct Option: (d)
Explanation:
 Option (d) is correct: People who are
always poor and those who are usually
poor but who may sometimes have a little
more money (example: casual workers) are
grouped together as the chronic poor.
Supplementary notes:
Categorising Poverty
There are many ways to categorise
poverty.
33
 People who are always poor and those
who are usually poor but who may
sometimes have a little more money (for
example: casual workers) are grouped
together as the chronic poor.
 The churning poor are those who regularly
move in and out of poverty (example: small
farmers and seasonal workers) and the
occasionally poor who are rich most of
the time but may sometimes have a patch of
bad luck. They both are called the transient
poor.
 There are those who are never poor and
they are the non-poor.
82. Correct Option: (a)
Explanation:
RE
 Option (a) is correct: Primary and
Secondary activities are involved in the
given question.
Supplementary notes:
Economic Activities
Cotton Fibres are produced through natural
process – Primary Activity
 Cloth is weaved through these fibres –
Secondary Activity
 Using cotton fibre from the plant, we spin
yarn and weave cloth. Using sugarcane as
a raw material, we make sugar or gur. We
convert earth into bricks and use bricks to
make houses and buildings. In all these
examples both primary and secondary
activities are involved.
83. Correct Option: (a)
Explanation:
 Pair 1 is incorrectly matched: In a
capitalist society, the goods produced are
distributed among people not on the basis
of the need of people but on the basis of
purchasing power.
Supplementary notes:
Capitalist Economy
 In a capitalist society, the goods
produced are distributed among people
not on the basis of what people need
but on the basis of Purchasing Power—
the ability to buy goods and services.
Hence, money is more important in
this economy.
 Example: Low-cost housing for the poor is
much needed but will not count as demand
in the market sense because the poor do
not have the purchasing power to back the
demand.
PTS2020/PPP-7/092019/26
  As a result, this commodity will not be
produced and supplied as per market
forces.
 This society did not appeal to Jawaharlal
Nehru, our first Prime Minister, for it
meant that the great majority of people of
the country would be left behind without
the chance to improve their quality of life.
Socialist Economy
 In a socialist society, the government
decides what goods are to be produced
in accordance with the needs of society.
It is assumed that the government
knows what is good for the people
of the country and so the desires of
individual consumers are not given
much importance.
 The government decides how goods are
to be produced and how they should be
distributed. In principle, distribution under
socialism is supposed to be based on what
people need and not on what they can afford
to purchase.
 Unlike capitalism, for example, a socialist
nation provides free health care to all its
O
citizens. Strictly, a socialist society has no
private property since everything is owned
by the state.
Mixed Economy
SC
 In a mixed economy, the market will
provide whatever goods and services it
can produce well, and the government
will provide essential goods and
services which the market fails to do.
 There were many states of the world that
opted for a mixed economy in the post-
Second World War period after coming out
GS
of the colonial rule, such as India, Malaysia,
Indonesia, etc., to name a few.
 After Independence, India opted for a mixed
economy when the state-market dilemma
was at its peak globally.
84. Correct Option: (c)
Explanation:
 Both statements are correct
Supplementary notes:
Underemployment
 Underemployment is a kind of
employment where people are
apparently working but all of them are
made to work less than their potential.
This kind of underemployment is hidden
in contrast to someone who does not have
a job and is clearly visible as unemployed.
Hence, it is also called disguised
unemployment.
PTS2020/PPP-7/092019/26
 There are more people in agriculture than is
necessary. So, even if a few people move out,
production will not be affected. In other
words, workers in the agricultural
sector are underemployed.
85. Correct Option: (c)
Explanation:
 Both statements are correct
Supplementary notes:
Infrastructure
 It provides support services in the main
areas of industrial and agricultural
production, domestic and foreign trade and
commerce.
RE
 These services include roads, railways,
ports, airports, dams, power stations, oil and
gas pipelines, telecommunication facilities,
the country’s educational system including
schools and colleges, health system including
hospitals, a sanitary system including clean
drinking water facilities and the monetary
system including banks, insurance, and
other financial institutions.
Two categories of Infrastructure:
 Economic Infrastructure: It supports the
economic system from inside. Infrastructure
associated with energy, transportation, and
communication is included in this category.
 Social Infrastructure: It supports the
economic system from outside. Infrastructure
related to education, health, and housing
are included in this category.
 The economic growth attained due to
perfect economic infrastructure will not be
sustainable if the social infrastructure is
not properly developed.
 Economic infrastructure improves
the quality of economic resources and
raises production. But it can’t be possible
until the population is literate to use them
efficiently. It is incomplete without
human development.
 On the other hand, social infrastructure
is incomplete without money or economic
support. Thus, one infrastructure supports
the other. Hence, they both are
interdependent and are complementary
to each other. They are also necessary for
economic growth and development.
86. Correct Option: (d)
Explanation:
 All statements are correct
34
 Supplementary notes:
Loans
 Credit (or loans) refers to an agreement in
which the lender supplies the borrower with
money, goods or services in return for the
promise of future payment.
Types of Loans
 Loans can be categorized as formal sector
loans and informal sector loans.
 Among the former are loans from banks
and cooperatives. Informal lenders include
moneylenders, traders, employers, relatives,
friends, etc.
 Compared to the formal lenders, most
of the informal lenders charge much
higher interest on loans. Thus, the cost
to the borrower of informal loans is
much higher.
 The higher cost of borrowing means a larger
part of the earnings of the borrowers is used
to repay the loan. Hence, borrowers have
less income left for themselves.
 In certain cases, the high-interest O
rate for borrowing can mean that the
amount to be repaid is greater than
the income of the borrower. This could
lead to increasing and debt trap.
SC
 Getting a loan from a bank is much more
difficult than taking a loan from informal
sources as bank loans require proper
documents and collateral.
87. Correct Option: (c)
Explanation:
GS
 Both statements are correct
Supplementary notes:
Trade and Investment Policy Reforms:
During Liberalisation, Globalisation and
Privatisation Period
 Liberalization of trade and investment
regime was initiated to increase the
international competitiveness of industrial
production and also foreign investments
and technology into the economy. The aim
was also to promote the efficiency of the
local industries and the adoption of modern
technologies.
 In order to protect domestic industries,
India was following a regime of quantitative
restrictions on imports. This was
encouraged through tight control over
imports and by keeping the tariffs very
high. These policies reduced efficiency
and competitiveness which led to the slow
growth of the manufacturing sector. To face
35
the above challenges, trade policy reforms
were introduced.
The Trade Policy Reforms
 The Trade Policy Reforms Aims at:
 Dismantling of quantitative restrictions
on imports and exports
 Reduction of tariff rates, and
 Removal of licensing procedures for
imports.
 Import licensing was abolished
except in the case of hazardous and
environmentally sensitive industries.
Quantitative restrictions on imports
of manufactured consumer goods and
agricultural products were also fully
removed from April 2001.
Export duties have been removed
RE

to increase the competitive position
of Indian goods in the international
markets.
88. Correct Option: (c)
Explanation:
 Both statements are correct
Supplementary notes:
Privatization
 It implies shedding of the ownership or
management of a government-owned
enterprise. Government companies are
converted into private companies in two
ways:
 By withdrawal of the government from
ownership and management of public
sector companies and/or
 By outright sale of public sector
companies.
Strategic Sale
 It involves the sale of a minimum 51 %
stake of a Public Sector Unit (PSU) to the
private sector.
 The control and management of PSU are
transferred to the private sector.
 It is done through a process of competitive
bidding and subsequent sales to the
partner.
Minority Sale
 It involves the sale of less than a 49%
stake of a PSU to the private sector.
 The control and management of PSU
remain with the government as it holds
the majority stake.
 Minority disinvestments are made via
public offers.
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89. Correct Option: (a)
Explanation:
 Statements 2 is incorrect: Women
engaged in household activities do not
come under worker category.
Supplementary notes:
Distribution of working women
 Women’s participation is higher in
rural area than urban areas.
 Rural women are more insecure than urban
women because the family size in rural
areas is bigger than urban areas and the
source of earning is limited.
 Rural women mostly work in fields and
other activities related to agriculture and
such activities do not require a high degree
of specialization as the jobs in the urban
sector do. The poverty rate of rural sector is
higher than the urban sector.
Sex Worker-Population Ratio in India,
2011-12
Total Rural Urban
Men 54.4 54.3 54.6
O than 4.2 million early deaths -- of these,
Women 21.9 24.8 14.7
Total 38.6 39.9 35.5
 Women engaged in household activities
SC
are not categorized as workers as they
are not paid wages in cash or in the
form of grains. The activities they are
involved in are cooking, fetching water and
fuel wood and participate in farm labour.
90. Correct Option: (c)
GS
Explanation:
 Statement 1 is incorrect: Collateral is an
asset that the borrower owns and uses it
as a guarantee to a lender until the loan
is repaid.
Supplementary notes:
Collateral
 Every loan agreement specifies an interest
rate which the borrower must pay to the
lender along with the repayment of the
principal. In addition, lenders may demand
collateral (security) against loans.
 Collateral is an asset that the borrower
owns (such as land, building, vehicle,
livestock, deposits with banks) and uses
this as a guarantee to a lender until the
loan is repaid.
 If the borrower fails to repay the loan, the
lender has the right to sell the asset or
collateral to obtain payment.
PTS2020/PPP-7/092019/26
 Property such as land titles, deposits with
banks, livestock are some common examples
of collateral used for borrowing.
91. Correct Option: (b)
Explanation:
 Statement 2 is incorrect: In India,
more than half of the Global Burden
of Diseases (GBD) is accounted for by
communicable diseases like diarrhea,
malaria, and tuberculosis.
Supplementary notes:
Global Burden of Diseases (GBD)
 GBD is an indicator used by experts
to gauge the number of people dying
prematurely due to a particular
disease, as well as, the number of years
RE
spent by them in a state of ‘disability’
owing to the disease, injuries, and risk
factors.
 Recently, new estimates of the GBD
has been released by the US-based
Health Effect Institute (HEI). Globally,
air pollution is estimated to cause more
1.1 million deaths occur in India alone.
This is more than a quarter of the global
deaths.
 India now nearly equals China which
scores the highest number of early
deaths due to PM2.5. Worse, India now
tops the dubious list of highest number
of early deaths due to ozone pollution.
 In India, more than half of GBD is
accounted for by communicable
diseases such as diarrhea, malaria,
and tuberculosis. Every year around
five lakh children die of water-borne
diseases.
 The danger of AIDS is also looming large.
 Malnutrition and inadequate supply of
vaccines lead to the death of 2.2 million
children every year.
 India along with China, Nigeria, Pakistan,
Indonesia, and the USA face the largest
burden of childhood cancer among countries
with the highest population of children, the
first Global Burden of Disease Study (GBD)
to assess childhood and adolescent cancer
burden in 195 countries in 2017, published
recently in The Lancet Oncology journal.
 The country’s disease patterns have shifted
-- mortality due to communicable, maternal,
neonatal, and nutritional diseases
has declined substantially, while non-
communicable diseases and injuries are
increasingly contributing to overall disease
burden.
36
92. Correct Option: (b)
Explanation:
 Statement 2 is incorrect: the Indian
industry was well diversified by 1990. It
was no longer restricted to textiles.
Supplementary notes:
Indian Industry
 The achievements of India’s industrial sector
during the first seven plans are impressive.
 The proportion of GDP contributed by
the industrial sector increased in the
period from 11.8 percent in 1950-51 to
24.6 percent in 1990-91 and this is an
important indicator of development.
 There was a six percent annual growth rate
of the industrial sector during this period.
 No longer was the Indian industry restricted
largely to cotton textiles and jute; in fact,
the industrial sector became well-
diversified by 1990, largely due to the
public sector.
 The promotion of small-scale industries
gave opportunities to those people who did

get into the business.
O
not have the capital to start large firms to
Protection from foreign competition enabled
the development of indigenous industries
SC
in the areas of electronics and automobile
sectors.
93. Correct Option: (d)
Explanation:
 All statements are correct
GS
Supplementary notes:
Economic Reforms in India
 It has compromised the welfare and identity
of people belonging to poor countries.
 Market-driven globalisation has widened
the economic disparities among nations and
people.
 The crisis that erupted in the early 1990s
in India was basically an outcome of the
deep-rooted inequalities in Indian society
and the economic reform policies initiated
as a response to the crisis by the
government, with externally advised
policy package, further aggravated the
inequalities.
 Further, it has increased the income
and quality of consumption of only
high-income groups and the growth has
been concentrated only in some select
areas in the services sector such as
telecommunication, information technology,
37
finance, entertainment, travel and
hospitality services, real estate and trade,
rather than vital sectors such as agriculture
and industry which provide livelihoods to
millions of people in the country.
94. Correct Option: (a)
Explanation:
 Option (a) is correct: The correct
chronological order is:
 Establishment of the World Bank: 1944
 Smithsonian Agreement: 1971
 Creation of the European Monetary
Union: 1999
 Adoption of dollarization by Ecuador:
2000
RE
Supplementary notes:
World Bank (WB)
 The Bretton Woods Conference held in
1944 set up the International Monetary
Fund (IMF) and the World Bank (WB) and
reestablished a system of fixed exchange
rates.
Smithsonian Agreement (1971)
 It widened the permissible band of
movements of the exchange rates to 2.5
percent above or below the new ‘central
rates’ with the hope of reducing pressure
on deficit countries, which lasted only 14
months.
 The developed market economies, led by
the United Kingdom and soon followed by
Switzerland and then Japan, began to adopt
floating exchange rates in the early 1970s.
 In 1976, revision of IMF Articles allowed
countries to choose whether to float their
currencies or to peg them (to a single
currency, a basket of currencies, or to the
SDR). There are no rules governing pegged
rates and no de facto supervision of floating
exchange rates.
European Monetary Union
 Many countries currently have fixed
exchange rates. The creation of the
European Monetary Union in January
1999, involved permanently fixing the
exchange rates between the currencies
of the members of the Union and the
introduction of a new common currency,
the Euro, under the management of the
European Central Bank.
 From January 2002, actual notes and
coins were introduced. So far, 12 of the
25 members of the European Union have
adopted the euro.
PTS2020/PPP-7/092019/26
 Adoption of dollarization by Ecuador
 Ecuador adopted dollarization in 2000 when
it abandoned the domestic currency and
adopted the US dollar.
 All prices are quoted in dollar terms and
the local currency is no longer used in
transactions. Although uncertainty and risk
can be avoided, Ecuador has given control
over its money supply to the Central Bank
of the US – the Federal Reserve – which will
now be based on economic conditions in the
US.
95. Correct Option: (d)
Explanation:
 Statement 5 is incorrect: Motilal Nehru
did not estimated India’s per capita
income during the British period.
Supplementary notes:
Income Estimation During Colonial
Period
 The Nationalist did economic critique using
O
the arguments like Drain Theory, a critique
of Railways, the deindustrialization of
India. Among the notable nationalists,
some are Dadabhai Naoroji, William
Digby, Findlay Shirras, V.K.R.V. Rao
SC
and R.C. Desai.
 Some examples are UnBritish rule in
India by Dadabhai Naoroji, The Economic
History of India by R.C.Dutt.
96. Correct Option: (a)
GS
Explanation:
 Statement 2 is incorrect: Sometimes,
credit makes a person worse off and pushes
him into the debt trap.
Supplementary notes:
Credit
 Credit refers to an agreement in which the
lender supplies the borrower with money,
goods or services in return for the promise
of future payment.
 The credit helps to increase earnings
and therefore, the person is better off
than before.
 However, in some situations, because of
crop failure, credit pushes the person
into a debt trap. This makes a person
much worse off than before.
 Whether credit would be useful or not,
therefore, depends on the risks in the
situation.
PTS2020/PPP-7/092019/26 38
97. Correct Option: (a)
Explanation:
 Statement 2 is incorrect: Workers
are not only those who are paid by their
employer for their work. It also includes
those who are self-employed.
Supplementary notes:
Workers
 People who are engaged in economic
activities are called workers. The
activities which contribute to the Gross
National Product are called economic
activities.
 Gross National Product (GNP) is an
estimate of the total value of all the final
products and services turned out in a given
RE
period by the means of production owned by
a country’s residents.
 Net exports represent the difference between
what a country exports minus any imports
of goods and services.
 Workers also include all those who
help the main workers in economic
activities. Workers are not only those
who are paid by their employer for
their work. Self-employed are also
termed as workers.
 Women who are engaged in household
activities are not categorized as
workers as they are not paid wages
in cash or in the form of grains. The
activities they are engaged in include
cooking, fetching water and fuelwood
and participation in farm labor.
 The definition of a worker remains intact
even if some of them temporarily abstain
from work due to illness, injury or other
physical disability, bad weather, festivals,
social or religious functions.
98. Correct Option: (a)
Explanation:
 Pair 3 is incorrectly matched: Transport
comes under the tertiary sector.
Supplementary notes:
Primary Sector
 When we produce a good by exploiting
natural resources, it is an activity of
the primary sector. This is because it
forms the base for all other products that
we subsequently make.
 Most of the natural products we get are
from agriculture, dairy, fishing, forestry,
this sector is also called agriculture and
related sector
 Secondary Sector
 Some of the examples of secondary Sector
activities are using cotton fiber from the
plant, spinning yarn and weave cloth, using
sugarcane as raw material, we make sugar
or gur, converting the earth into bricks and
use bricks to make houses and buildings.
Tertiary Sector
 Transport, storage, communication,
banking, trade are some examples of tertiary
activities.
99. Correct Option: (d)
100. Correct Option: (b)
Explanation:
 All statements are correct
Supplementary notes:
RE
Foreign trade during British rule in
India
 Britain held the monopoly over India’s
imports and exports during its rule in
India. Therefore, most of the foreign trade
was restricted only to Britain while the rest
O reaches the households is known as PDI,
was allowed with a few other countries like
China, Ceylon (Sri Lanka) and Persia(Iran).
The restrictive policies of commodity
production, trade, and tariff pursued by
SC
the colonial government adversely affected
the structure, composition, and volume of
India’s foreign trade.
 This resulted in India becoming an
exporter of primary products such as
raw silk, cotton, wool, sugar, indigo,
jute, etc. and an importer of finished
consumer goods like cotton, silk and
GS
woolen clothes and capital goods
like light machinery produced in the
factories of Britain.
 The opening of the Suez Canal further
intensified British control over India’s foreign
trade. The most important characteristic of
India’s foreign trade throughout the British
era was the generation of a large export
™™™™™
39
surplus. But this surplus came at a huge
cost to the country’s economy.
 The essential commodities like food grains,
clothes, kerosene, etc. were scarcely available
in the domestic market. Furthermore, the
export surplus did not result in any flow
of gold or silver in India. Rather, this was
used to make payments for the expenses
incurred by an office set up by the colonial
government in Britain, expenses on the war
fought by the British government, and the
import of invisible items, all of which led to
the drain of Indian wealth.
Explanation:
 Statement 1 is incorrect: Personal
Disposable Income (PDI) excludes all
personal and non-personal tax payments.
Supplementary notes:
Personal Disposable Income (PDI)
 Out of Personal Income (PI), what finally
which excludes personal tax payments
and non-personal tax payments.
 It is the part of the aggregate income
which belongs to the households for
disposal. They may decide to consume a
part of it and save the rest.
 PI = National Income (NI) – Undistributed
Profits – Net interest payments made by
households – Corporate tax + Transfer
payments to households from the
government and firms.
 PDI = PI – Personal tax payments –
Non-tax payments
 The government sector affects the PDI
of households by making transfers and
collecting taxes. It is through this that the
government can change the distribution of
income and bring about a distribution that
is considered ‘fair’ by society.
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