MBA 2019-21

INDIAN INSTITUTE OF MANAGEMENT RANCHI

INDIA AND THE WORLD ECONOMY
Midterm Examination
AY 2020-21

TOTAL MARKS: 30 TIME: 90 minutes

INSTRUCTIONS (Read carefully!)

1. This is an open-book, open-notes examination.

2. Please check that the question paper has 3 pages in total, containing two questions, with sub-
parts. All parts in Question 1 are compulsory. In Question 2, you need to answer any one part.

3. While the examination duration is 90 minutes for writing the answers, an additional 15
minutes will be allotted for scanning and uploading the answer sheet in the AIS portal.

4. All answers must be written in A4-size plain white paper and uploaded as a single pdf file
in the AIS portal.

5. Students must write name and roll number at the top right corner of each page. The page
number and signature should be put at the bottom right of each page.

6. The exam is worth 30 marks in total. The weightage of the midterm examination component
in overall evaluation for this course is 30 percent.

7. Indicative length of the handwritten answers has been mentioned.

8. Follow the Institute’s examination rules, including any special instructions communicated
by the competent authority relating to conduct during online examination. Resorting to unfair
means will result in disciplinary action.
_________________________________________________
Good Luck!

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 MBA 2019-21

Question 1

Read the following excerpt, and answer the questions that follow:

Did India’s economic reforms lead to a sharp rise in inequality?

New research by French economists Lucas Chancel and Thomas Piketty, author of Capital,
the 2013 bestselling book on capitalism and increasing inequality, clearly points to this
conclusion.

They studied household consumption surveys, federal accounts and income tax data from 1922
- when the tax was introduced in India - to 2014.

The data shows that the share of national income accruing to the top 1% of wage earners is
now at its highest level since Indians began paying income tax.

The economists say “the top 1% of the earners captured less than 21% of the total income in
the late 1930s, before dropping to 6% in the early 1980s and rising to 22% today. India, in
fact, comes out as a country with one of the highest increase in top 1% income share
concentration over the past 30 years,” they say.

To be sure, India’s economy has undergone a radical transformation over the last three
decades. Up to the 1970s, India was a tightly regulated, straitlaced economy with socialist
planning. Growth crawled (3.5% per year); development was weak and poverty endemic.

Some easing of regulation, decline in tax rates and modest reforms led to growth picking up in
the 1980s, trundling at around 5% a year. This was followed by some substantial reforms in
the early 1990s after which the economy grew briskly, nudging close to double digits in the
mid-2000s.

Growth has slowed substantially since then, but India still remains one of the fastest-growing
economies in the world.

And the need for fast-paced growth, according to Nobel Prize winning economist Amartya Sen,
is “far from over since India, after two decades of rapid growth, is still one of the poorest
countries in the world”.

From their latest work on income inequality, Lucas Chancel and Thomas Piketty contend that
there has been a “sharp increase in wealth concentration from 1991 to 2012, particularly after
2002”. Also, they conclude, India has only been really shining for the top 10% of the population
- roughly 80 million people in 2014 - rather than the middle 40%.

The economists contend that the growth strategy pursued by successive governments has led
to a sharp increase in inequality. China also liberalised and opened up after 1978, and
experienced a sharp income growth as well as a sharp rise in inequality. This rise was however
stabilised in the 2000s and is currently at a lower level than India. In Russia, the move from a
communist to a market economy was “swift and brutal” and today has a similar level of
inequality to India.

“This shows that there are different strategies to transit from a highly regulated economy to a
liberalised one. In the arrays of possible pathways, India pursued a very unequal way but could
probably have chosen another path,” Dr Chancel told me.

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 MBA 2019-21

(a) Two conclusions can be drawn from Chancel and Piketty’s research work. First, the level
of income and wealth inequality is very high in India and cannot be disputed. Second, as a
corollary, the benefits of growth have been extremely skewed towards the rich. How did this
happen in India? Explain briefly. (10 marks; no more than 3 pages)

(b) According to the research, the income and wealth inequality has exacerbated in India after
the country began to liberalize since early 1990s. The conclusion appears to suggest that the
era of socialist planning in India was fair, distributionally speaking, and the era of pro-business,
market deregulation policies that followed, unfair. Do you agree to such conclusion? Is high
inequality an inevitable outcome of high growth or do you believe that liberalization in India
achieved what socialism could not? Explain your point of view.
(8 marks; no more than 2.5 pages)

(c) In order to reduce inequality in the country, should India go back to the pre-1991 economic
regime? Give 3 points in favour of your view. (4 marks; no more than 1 page)

Question 2

Write short notes on any one of the following: (8 marks; no more than 2 pages)

(i) Fiscal policy and wealth creation in India

(ii) Atmanirbhar Bharat – Import Substitution 2.0?

(iii) Monetary Policy in India – Adoption of Flexible Inflation Targeting (FIT) framework has
adversely impacted India’s growth

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