CONTENT DEVELOPMENT TEAM

1. Ms. Manjit Kaur, PGT (Eco) PM SHRI KV INA Colony

2. Ms. Karishma Kapoor , PGT (Eco) PM SHRI KV NFC Vigyan Vihar Shift First
3. Mr. Rajdev Yadav, PGT (Eco) PM SHRI KV Cantt. No 1 Shift First
4. Ms. Nomita Bhardwaj, PGT (Eco) PM SHRI KV Paschim Vihar
5. Ms. Yogita Rani, PGT (Eco) PM SHRI KV Cantt No 1 Shift Second
6. Mr. Naveen Verma, PGT (Eco) PM SHRI KV NFC Vigyan Vihar Shift Second
7. Mr. Nitin Saini, PGT (Eco) PM SHRI KV CRPF Jharoda Kalan
8. Mr. Rajweshwar Singh, PGT (Eco) PM SHRI KV AFS Tughlaqabad
9. Mr. Vijender Kamia, PGT (Eco) PM SHRI KV R K Puram Sector 2
10. Ms. Suruchi Sharma , PGT (Eco) PM SHRI KV Pitampura
11. Ms. Nidhi Khurana, PGT (Eco) PM SHRI KV Tagore Garden

MODERATION TEAM

1. Mr. Akhilesh Kumar Yadav , PGT (Eco) PM SHRI KV Tagore Garden

2. Mrs. Archana Singh, PGT (Eco) PM SHRI KV Sainik Vihar
3. Mr. Rakesh Pandey, PGT (Eco) PM SHRI KV Cantt No 2
4. Mr. Girish Kumar, PGT (Eco) PM SHRI KV AGCR Colony
5. Mr. Rajender, PGT (Eco) PM SHRI KV Tagore Garden
 INDEX

S.no Chapter/content Page

No

Part A: introductory macroeconomics

1 Unit 1 : National income accounting 1-27

2 Unit 2 : Money and Banking 28-38

3 Unit 3 : Determination of income and employment 39-64

4 Unit 4 : Government budget and the economy 65-78

5 Unit 5 : Balance of Payments & Foreign exchange rate 79-90

Part B: Indian Economic Development

1 Unit 6: Development experience (1947-90) And Economic reforms since 1991 91-130

7 Unit 7: Current challenges facing Indian economy 131-171

8 Unit 4 : Development experiences of India- A comparison with Neighbours 172-183

9 Three Sample Papers with marking scheme 184-218

 ECONOMICS (Code No. 030)
(2024-25)

Rationale

Economics is one of the social sciences, which has great influence on every human being. As
economic life and the economy go through changes, the need to ground education in
children’s own experience becomes essential. While doing so, it is imperative to provide
them opportunities to acquire analytical skills to observe and understand the economic
realities.
At senior secondary stage, the learners are in a position to understand abstract ideas,
exercise the power of thinking and to develop their own perception. It is at this stage, the
learners are exposed to the rigour of the discipline of economics in a systematic way.
The economics courses are introduced in such a way that in the initial stage, the learners
are introduced to the economic realities that the nation is facing today along with some
basic statistical tools to understand these broader economic realities. In the later stage, the
learners are introduced to economics as a theory of abstraction.
The economics courses also contain many projects and activities. These will provide
opportunities for the learners to explore various economic issues both from their day-to-
day life and also from issues, which are broader and invisible in nature. The academic skills
that they learn in these courses would help to develop the projects and activities. The
syllabus is also expected to provide opportunities to use information and communication
technologies tofacilitate their learning process.
Objectives:
 Understanding of some basic economic concepts and development of economic reasoning
which the learners can apply in their day-to-day life as citizens, workers and consumers.
 Realisation of learners’ role in nation building and sensitivity to the economic issues
that the nation is facing today.
 Equipment with basic tools of economics and statistics to analyse economic issues. This is
pertinent for even those who may not pursue this course beyond senior secondary stage.
 Development of understanding that there can be more than one view on any economic
issue and necessary skills to argue logically with reasoning.
 ECONOMICS CLASS - XII (2024-25)

Theory: 80 Marks 3 Hours

Project: 20 Marks

Units Marks Periods

Part A Introductory Macroeconomics
National Income and Related Aggregates 10 30
Money and Banking 06 15
Determination of Income and Employment 12 30
Government Budget and the Economy 06 17
Balance of Payments 06 18
40
Part B Indian Economic Development
Development Experience (1947 -90) and Economic
Reforms since 1991 12 28
Current Challenges facing Indian Economy 20 50
Development Experience of India – A Comparison
with Neighbours 08 12
Theory Paper (40+40 = 80 Marks) 40

Part C Project Work 20 20

Part A: Introductory Macroeconomics

Unit 1: National Income and Related Aggregates 30 Periods
What is Macroeconomics?
Basic concepts in macroeconomics: consumption goods, capital goods, final goods,
intermediate goods; stocks and flows; gross investment and depreciation.

Circular flow of income (two sector model); Methods of calculating National Income - Value
Added or Product method, Expenditure method, Income method.

Aggregates related to National Income:

Gross National Product (GNP), Net National Product (NNP), Gross Domestic Product (GDP)
and Net Domestic Product (NDP) - at market price, at factor cost; Real and Nominal GDP
GDP Deflator, GDP and Welfare

Unit 2: Money and Banking 15 Periods

Money – meaning and functions, supply of money - Currency held by the public and net
demand deposits held by commercial banks.
Money creation by the commercial banking system

Central bank and its functions (example of the Reserve Bank of India): Bank of issue, Govt.
Bank, Banker's Bank, Control of Credit through Bank Rate, Cash Reserve Ratio (CRR),
Statutory Liquidity Ratio (SLR), Repo Rate and Reverse Repo Rate, Open Market
Operations, Margin requirement.

Unit 3: Determination of Income and Employment 30 Periods

Aggregate demand and its components
Propensity to consume and propensity to save (average and marginal)

Short-run equilibrium output; investment multiplier and its mechanism

Meaning of full employment and involuntary unemployment

Problems of excess demand and deficient demand; measures to correct them -changes in
government spending, taxes and money supply

Unit 4: Government Budget and the Economy 17 Periods

Government budget - meaning, objectives and components, Classification of receipts – revenue
receipts and capital receipts;
Classification of expenditure – revenue expenditure and capital expenditure

Balanced, Surplus and Deficit Budget – measures of government deficit

Unit 5: Balance of Payments 18 Periods

Balance of payments account - meaning and components;
Balance of payments – Surplus and Deficit
Foreign exchange rate - meaning of fixed and flexible rates and managed floating, Determination of
exchange rate in a free market, Merits and demerits of flexible and fixed exchange rate
Managed Floating exchange rate system
Part B: Indian Economic Development

Unit 6: Development Experience (1947-90) and Economic Reforms since 1991: 28 Periods
A brief introduction of the state of Indian economy on the eve of independence,Indian
economic system and common goals of Five Year Plans

Main features problems and policies of agriculture (institutional aspects and newagricultural
strategy), industry (IPR 1956; SSI – role & importance) and foreign trade
Economic Reforms since 1991:
Features and appraisals of Liberalisation, Globalisation and Privatisation (LPG policy);
Concepts of demonetization and GST

Unit 7: Current challenges facing Indian Economy 60 Periods

Human Capital Formation: How people become resource; Role of human capital in economic
development; Growth of Education Sector in India

Rural development: Key issues - credit and marketing - role of cooperatives;agricultural

diversification; alternative farming - organic farming
Employment: Growth and changes in work force participation rate in formal and
informal sectors; problems and policies
Sustainable Economic Development: Meaning, Effects of Economic Development on
Resources and Environment, including global warming

Unit 8: Development Experience of India: 12 Periods

A comparison with Neighbours : India and Pakistan, India and China

Issues: economic growth, population, sectoral development and other Human

Development Indicators

Part C: Project in Economics 20 Periods

Prescribed Books:

1. Statistics for Economics, NCERT

2. Indian Economic Development, NCERT
3. Introductory Microeconomics, NCERT
4. Macroeconomics, NCERT
5. Supplementary Reading Material in Economics, CBSE

Note: The above publications are also available in Hindi Medium.

 Suggested Question Paper Design
Economics (Code No. 030)
Class XII (2024-25)

Marks: 80 Duration: 3 hrs.

SN Typology of Questions Marks Percentage

Remembering and Understanding:

1 Exhibit memory of previously learned material by 44 55%
recalling facts, terms, basic concepts, and answers.
Demonstrate understanding of facts and ideas by
organizing, comparing, translating, interpreting,
givingdescriptions, and stating main ideas

2 Applying: Solve problems to new situations by 18 22.5%

applying acquired knowledge, facts, techniques and
rules in adifferent way.

Analysing, Evaluating and Creating:

Examine and break information into parts by
identifying motives or causes. Make inferences and
find evidence to support generalizations.
3 Present and defend opinions by making judgments 18 22.5%
about information, validity of ideas, or quality of
work based on a set of criteria.
Compile information together in a different way by
combining elements in a new pattern or proposing
alternative solutions.

Total 80 100%
Guidelines for Project Work in Economics (class XII)

The objectives of the project work are to enable learners to:

 probe deeper into theoretical concepts learnt in classes XI and XII
 analyse and evaluate real world economic scenarios using theoretical constructs
andarguments
 demonstrate the learning of economic theory
 follow up aspects of economics in which learners have interest
 develop the communication skills to argue logically

The expectations of the project work are that:

 learners will complete only ONE project in each academic session
 project should be of 3,500-4,000 words (excluding diagrams & graphs), preferably
hand-written
 it will be an independent, self-directed piece of study

Role of the teacher:

The teacher plays a critical role in developing thinking skills of the learners. A teacher should:
 help each learner select the topic based on recently published extracts from the news
media, government policies, RBI bulletin, NITI Aayog reports, IMF/World Bank
reports etc.,after detailed discussions and deliberations of the topic
 play the role of a facilitator and supervisor to monitor the project work of the
learnerthrough periodic discussions
 guide the research work in terms of sources for the relevant data
 educate learner about plagiarism and the importance of quoting the source of the
information to ensure authenticity of research work
 prepare the learner for the presentation of the project work
 arrange a presentation of the project file
Scope of the project:

Learners may work upon the following lines as a suggested flow chart:
Choose a title/topic

Collection of the research material/data

Organization of material/data

Present material/data

Analysing the material/data for conclusion

Draw the relevant conclusion

Presentation of the Project Work

Expected Checklist:

 Introduction of topic/title
 Identifying the causes, consequences and/or remedies
 Various stakeholders and effect on each of them
 Advantages and disadvantages of situations or issues identified
 Short-term and long-term implications of economic strategies suggested in the
course ofresearch
 Validity, reliability, appropriateness and relevance of data used for research
work andfor presentation in the project file
 Presentation and writing that is succinct and coherent in project file
 Citation of the materials referred to, in the file in footnotes, resources
section,bibliography etc.

Mode of presentation/submission of the Project:

At the end of the stipulated term, each learner will present the research work in the
Project Fileto the External and Internal examiner. The questions should be asked from
the Research Work/ Project File of the learner. The Internal Examiner should
ensure that the study submitted by the learner is his/her own original work. In
case of any doubt, authenticity should be checked and verified.
Marking Scheme:
Marks are suggested to be given as –

S. No. Heading Marks Allotted

1. Relevance of the topic 3
2. Knowledge Content/Research Work 6
3. Presentation Technique 3
4. Viva-voce 8
Total 20 Marks
 Class
XII
 Micro and Small Scale Industries  Food Supply Channel in India
 Contemporary Employment situation in  Disinvestment policy of the government
India
 Goods and Services Tax Act and its  Health Expenditure (of any state)
Impacton GDP
 Human Development Index  Inclusive Growth Strategy
 Self-help group  Trends in Credit availability in India
 Monetary Policy Committee and its  Role of RBI in Control of Credit
functions
 Government Budget & its Components  Trends in budgetary condition of India
 Exchange Rate determination – Methods  Currency War – reasons and repercussions
andTechniques
 Livestock – Backbone of Rural India  Alternate fuel – types and importance
 Sarva Shiksha Abhiyan – Cost Ratio Benefits  Golden Quadrilateral- Cost ratio benefit
 Minimum Support Prices  Relation between Stock Price Index
andEconomic Health of a Nation
 Waste Management in India – Need of  Minimum Wage Rate – Approach
thehour andApplication
 Digital India- Step towards the future  Rain Water Harvesting – A solution to
watercrisis
 Vertical Farming – An alternate way  Silk Route- Revival of the past
 Make in India – The way ahead  Bumper Production- Boon or Bane for
thefarmer
 Rise of Concrete Jungle- Trend Analysis  Organic Farming – Back to the Nature
 Aatmanirbhar Bharat  e-Rupee (e- ₹)
 Sri Lanka’s Economic Crisis  Sustainable Development Goals (SDG’s)
 Environmental Crisis  Comparative Study of
Economies(Maximum three
economies)
 New Education Policy (NEP) 2020:  G-20: Inclusive and Action Oriented
APromise for a New Education
System
 Amrit Kaal: Empowered and  Cashless Economy
InclusiveEconomy
 Any other newspaper article and its  Any other topic
evaluation on basis of economic
principles
 PART A: INTRODUCTORY MACROECONOMICS

CHAPTER 1: NATIONAL INCOME AND RELATED AGGREGATES (BASIC CONCEPTS)

It studies the behaviour of the economy as a whole. It studies national aggregates like Aggregate
Demand, Aggregate Supply, National Income etc. It also studies national economic problems like
inflation, unemployment, poverty and the issues connected with economic growth and economic
development.

Main tools of Macroeconomics are aggregate demand and aggregate supply (macroeconomic
variables)

Main subject matter of Macroeconomics is to determine income and employment level of the
economy. Examples of Macroeconomic studies – Estimation of national income, Determination of
income and employment level of the economy, Government budget.

FINAL GOODS: - Those goods which have crossed the boundary line of production and ready for use
by their final users.

INTERMEDIATE GOODS:- Those goods which are within the boundary line of production and yet not
ready for use by their final users .

Consumption Goods: These are those final goods and services which are used for the satisfaction of
wants by the consumers. They may be in durable use. E.g.: Washing Machine.

CAPITAL GOODS: These are those final goods and services which are used for producing other goods
and services. These are usually durable in nature E.g.: buildings, machinery etc.

Important Facts: The same good can be a consumption good and capital good depending upon the
end (ultimate) use of the good. For example: Car purchased by a household is a consumption good
since it is purchased for the direct satisfaction of wants by the consumer whereas car purchased by a
taxi driver/ firm is a capital good since it is purchased for the production (investment) purpose.

All capital goods are producer goods but all producer goods are not capital goods. Single use producer
goods like raw materials, coal, wood etc. which are completely used up in production process are
known as intermediate goods whereas durable use producer goods like plant, machinery etc. which
are repeatedly used in the production process for several years are called capital goods.

A commodity can be an intermediate as well as final good depending upon its nature of use (purpose
for use).

INVESTMENT: - Investment refers to increase in the stock of capital.

DEPRECIATION: - depreciation refers to fall in the value of fixed assets due to normal wear and tear,
accidental damages and expected obsolescence.

Value of Depreciation = (Value of fixed asset - Scrap value)/ Expected life span of fixed years (No. of
years)

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 FINAL GOODS INTERMEDIATE GOODS

1. Those goods which are used either for Those goods which are used either for
consumption or for investment. 5. They are resale or for further production.
ready for use by their final users i.e. no
value has to be added to the final goods.

2. They have a direct demand as they satisfy They have a derived demand as their
the want directly. demand depends on the demand for final
goods.

3. It is included in both National and Domestic It’s neither included in National nor in
Income. Domestic Income.

4. Crossed the production boundary. Still within production boundary.

5. They are ready for use by their final users They are ready for use by their final users
i.e. no value has to be added to the final i.e. no value has to be added to the final
goods. goods.

STOCK FLOW

It refers to that variable whose magnitude It refers to that variable whose magnitude is
is measured at a particular point of time. measured over a period of time.

It is a static concept which does not have It is a dynamic concept which has a time
time dimension. dimension.

E.g.: Capital, Money supply, Inventory, E.g.: National Income. Investment, Savings, Capital
National wealth etc. formation, Change in inventories etc.

Investment or Capital formation: It refers to the addition made to the stock of capital of the economy
during a period of time.

Components of Investment: There are two components of investment: (i) Investment in fixed capital
i.e. durable producer goods is called fixed investment and (ii) Investment in stocks of raw materials,
semi-finished goods and finished goods (inventories) is called inventory investment, also called
change in stock.

Gross Investment = Gross fixed investment + Inventory investment/ Change in stock

GROSS INVESTMENT- NET INVESTMENT= DEPRECIATION

Concept of domestic (economic) territory: - Domestic territory is a geographical territory

administered by a government within which persons, goods and capital circulate freely. (Areas of
operation generating domestic income, freedom of circulation of persons, goods and capital) Scope
identified as *Political frontiers including territorial waters and air space. Embassies, consulates,
2|Page
military bases etc. located abroad but including those locates within the political frontiers. *Ships,
aircrafts etc., operated by the residents between two or more countries.

NORMAL RESIDENTS – It refers to an individual or an institution who ordinarily resides in the

country and whose centre of economic interest also lies in that country.

It DOES NOT include- 1- Foreign tourist and visitors; 2- Foreign staff of embassies, officials, diplomats
and members of the armed forces of a foreign country; 3- International Organizations

CIRCULAR FLOW OF INCOME:

It refers to cycle of generation of income in the production process, its distribution among the factors
of production and finally its circulation from households to firms in the form of consumption
expenditure on goods and services by firms.

Types of Circular Flows: i. Real Flow (Physical/ Product flow): It refers to flow of factor services from
households to firms and the corresponding flow of goods and services from firms to households.

ii. Money Flow (Income/ Nominal flow): It refers to flow of money in the form of factor payments
from firms to households and the corresponding flow of consumption expenditure from households
to firms for purchase of goods and services produced by the firms.

Conclusion: Value of output produced = Value of income distributed = Value of expenditure incurred
in the economy. Accordingly, there are three methods of estimating National Income: Value added
method, Income method and Expenditure method

3|Page
 METHODS OF CALCULATING NATIONAL INCOME:

1. Value added Method

Production Method (Value Added Method): It refers to the sum total of valued added by
Primary sector, Secondary sector and Tertiary sector. Value added refers to the difference
between the total value of output of a firm and the value of intermediate consumption.

Value Added = Value of Output – Intermediate Consumption

Value of Output = Sales + Change in Stock

GVA MP = Gross Value of Output at Market Price – Intermediate Consumption

Problem of Double Counting - The problem of double counting arises when the value of
intermediate goods is counted in the estimation of national income along with the value of final goods
and services. It results in the overestimation of national income. For example: In the table given
below the final good is bread, which passes through various stages of production before it is
purchased by the consumer for final consumption.

Two ways to avoid the problem of double counting –

a) Consider only the value of final goods and services

b) Consider the value added instead of value of total output

4|Page
Precautions to be taken while estimating national income using Value added method

(i) Value of intermediate goods should not be included in the estimation of national income
because value of these goods is already included in the value of final goods.

(ii) Own account production means output produced self-consumption and investment should
be included. For example, output produced by farmers for self-consumption.

(iii) Imputed value of production of goods for self-consumption should be included as they
contribute to the current output.

(iv) Sale and purchase of second-hand goods and property should not be included because they
were included in the year in which they were produced.

2) Income Method

In this method we first estimate factor incomes paid out (i.e., distributed) to the owners of factors of
production by the various industrial sectors. The sum of such factor payments equals Net Domestic
product at Factor Cost (NDPFC).

The components of NDPFC are:

(i) Compensation of employees (COE):

a) Wages and salaries in cash

b) Compensation in kind:

c) Social security contributions by the employers like casualty insurance, provident fund, gratuity and
pension provisions etc.

ii) Operating Surplus: RENT +INTEREST+PROFIT+ROYALTY

iii) Mixed income of self-employed–Mixed income arises for productive services of self-employed
persons, whose income includes wages, rent, interest and profit and these elements cannot be
separated from each other.

Profits = Corporation Tax + Dividends + Retained earnings

NDP FC = Compensation of employees + Operating surplus + Mixed income of self employed

NNP FC = NDP FC + NFIA

Precautions to be taken while estimating national income using Income method

(i) Since transfers (Gifts, donations, charities etc.) are not a reward for production
activity it should not be included in national income.

5|Page
 (ii) Capital gain refers to the income from the sale of second-hand goods like old cars,
old house, machinery; buildings etc. are not included in national income as they do
not add to the current flow of goods and services in the economy.

(iii) Income arising from the sale of financial assets like shares, bonds, debentures,
government securities etc. will not be included as these transactions are not related
to the production of goods and services.

(3) Expenditure Method

This method measures national income as sum total of final expenditures incurred by all the four
sectors of the economy in the form of consumption and investment. This sum equals GDPMP.

I. Private final consumption expenditure (PFCE): This is the sum of final consumption
expenditureby households and private non-profit institutions serving households.
II. Government final consumption expenditure (GFCE): This equals the imputed value of services
produced and provided by general government free to the people
III. Gross domestic capital formation = Gross domestic fixed capital formation + Change in stocks
GDPMP. This equals the expenditure incurred on acquiring goods for investment by
production units located within the domestic territory.
IV. Net Exports (X-M): This is the difference between export and imports of goods and services.

GDP at MP= Private final consumption expenditure (PFCE) + Government final consumption
expenditure (GFCE) + Gross domestic capital formation (GDCF) + Net exports (X-M)

NNPFC = GDPMP – Consumption of fixed capital – Indirect Tax + Subsidies+ NFIA

GDPMP = Private final consumption expenditure (PFCE)

+ Government final consumption expenditure (GFCE)

+ Gross domestic capital formation (GDCF)

+ Net exports (X-M)

Precautions to be taken while estimating national income using Expenditure method

(i) Intermediate expenditure is already a part of final expenditures. So expenditure on

intermediate products is necessary to exclude from estimation.

(ii) Expenditure on second hand goods should not be included as they have already been
accounted during the period of their production. However, any commission or brokerage paid in such
transactions is treated as final expenditure because it is a payment for the services purchased.

(iii) Expenditure on financial assets in the form of expenditure on buying shares, bonds,
debentures, government securities etc. will not be included as they are simply paper claims

6|Page
 National Income Aggregates

There are many aggregates in national income accounting. (TRY TO WRITE YOUR OWN FORMULAE
FOR THESE AGGREGATES USING THE HINT GIVEN BELOW)

1. GDPMP –

2. NDPMP-
3. GNPMP-

4. NNPMP –
5. Domestic Income (NDPFC) -

6. GDPFC

7. GNPFC-
8. National Income (NNPFC)-

GDPMP – Depreciation = NDPMP

GDPMP – Indirect Tax + Subsidies = GDPFC

GDPMP – Net Indirect Tax = GDPFC

NDPFC + NFIA = NNP FC

7|Page
 Summing up The three crucial adjustments required for deriving one aggregate
from the other are:

 Gross - Depreciation = Net

 Market price – NIT (Indirect Tax - Subsidies) = Factor cost

 Domestic + NFIA = National

Note: The basic among these is Gross Domestic Product at Market Price (GDP at MP) by making
adjustments in GDP at MP, we can derive other aggregates

NOMINAL AND REAL GDP

Nominal GDP is the market value of the final goods and services (Q) produced within the domestic
territory of a country during an accounting year, as estimated using the current year price (P).

Nominal GDP = Q x P (When nominal GDP rises, the flow of goods and services in economy may or
may not rise during an accounting year)

Nominal GDP = Q x P* suppose, the output of commodity- X during the year 2019 was 500 units. The
market of the commodity during the same year was Rs.50 per unit while the price in the base year
was Rs.40 per unit.

REAL GDP:- Real GDP is the market value of the final goods and services (Q) produced within the
domestic territory of a country during an accounting year, as estimated using the Base year price (*P).

So the Nominal GDP and Real GDP would be.

Nominal GDP = 500 x Rs 50 = Rs.25, 000.

Real GDP = 500 x Rs 40 = Rs.20, 000

Conversion of Nominal GDP into Real GDP

Real GDP = GDP at current price/ PRICE INDEX x 100

Nominal GDP = Real GDP x Price index/100

GDP AND WELFARE:

Real GDP is considered as an index of welfare of the people. Welfare of the people is measured in
terms of the availability of goods and service per person. Higher the growth of GDP, greater is the
flow of goods and services. Greater is the availability of goods and services per person.
8|Page
Sometimes even with the rise in GDP the welfare level does not rise . these could be possible reasons

LIMITATION OF GDP AS AN INDEX OF WELFARE

 Distribution of income:- If with every increase in the level of GDP, distribution of GDP is getting
more unequal, welfare level of the society may not rise.

 Composition of GDP:- Composition of GDP may not be welfare oriented even when the level of
GDP tends to rise. If GDP has risen owing largely to the increase in the production of defence goods.

 Does not include non-economic or non-monetary exchanges: There are many goods and
services which contribute to economic welfare but are not included in the GDP as no price is
attached to them, although they contribute to economic welfare.

 Does not include externalities: Externalities refers to benefits or harms accompanying the
production process for which no payment is made or received. They are excluded from the
estimation of GDP.

There are two types of externalities:

a) Positive externalities - They are not included in GDP although they result in increase in welfare.
For example, construction of flyovers or highways reduces transport cost and journey time.

b) Negative externalities- These are the negative effects which accompany the production process
and decrease the welfare of the people for which they are not penalized. For example: environmental
pollution caused by industrial plants.

IMPORTANT FORMULAS FOR SOLVING NUMERICALS

A. Value Added = Value of Output – Intermediate Consumption

B. Value of Output = Total Sales + Changes in Stocks (If the entire output is not sold)
C. Value of Output = Sales (If the entire output is sold)
D. Total Sales = Domestic Sales + Exports
E. Changes in Stocks = Closing stock - Opening Stock
F. Value of Output = Price x Quantity of output
G. Net Domestic Capital Formation = Net Domestic Fixed Capital Formation + Changes in stocks
H. Gross Domestic Capital Formation = Gross Domestic Fixed Capital Formation + Changes in
stocks
I. Compensation of Employees = Wages and Salaries in Cash and Kind + Employer‟s contribution
to social security schemes
J. Operating Surplus = Rent +Royalty+ Interest +Profits
K. Profits = Corporation Tax + Dividends + Undistributed Profits/ Retained Earnings/ Corporate
Savings
L. Net Exports = Exports – Imports

9|Page
Q. N QUESTION Marks
1 Journey of sugar candy 1
A Farmer grows sugarcane of ₹500 in his farm. The sugar factory owner purchases
these sugarcanes and produces the sugar of ₹750. The sweet shop purchases this sugar
to produce sugar candy of ₹ 1200 and sells these to the consumer.
What is the total value added in the Journey of sugar candy?
2 Which of the following is not included in the domestic territory of India? 1
1) Indian embassy in Australia
2) Branch of State bank of India in India
3) Indian consulates in France
4) Branch of State bank of India in France
3 Suppose in an economy GDP at Market Price in a particular fiscal year was 1
₹4000, National Income was ₹2500 crore, Net Factor Income paid by the economy to
Rest of the World was ₹400 crore and value of the Net Indirect Taxes is ₹450 crore.
Estimate the value of consumption of fixed capital for the economy from the given data.

4 New Delhi. The Centre on Thursday eased norms to offer 50% of salary for three 1
months as unemployment allowance to lakhs of workers who are members of the
Employees State Insurance Corporation and lost their jobs due to the corona virus
pandemic. Source: m.timesofindia.com, Aug 21, 2020

(i) Unemployment allowance is a (factor/transfer) income.

5 For a closed economy, which one of the following is correct? 1
a) NDP = NNP
b) NDP > NNP
c) NDP < NNP
d) None Of above
6 Assertion (A): The goods which are used either for resale or for further production in 1
the same year are Intermediate goods.
Reason (R): Intermediate goods are included in National Income Choose the correct
option from the following.

a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
c) Assertion (A) is true but Reason (R) is false.
d) Assertion (A) is false but Reason (R) is true
7 1
Assertion (A): Goods that meant for final use and will not pass through any more stages for
production or transformation is called a final good.
Reason (R): It will not under go any further transformation at the hands of any
producer, but many such final goods are transformed during their consumption.
8 NVAFC equals: 1
(a) ∑Factor Payments
(b) ∑ Current Transfer Payments
(c) ∑ Capital Transfer Payments
(d) Net Current Transfer from Rest of the World

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9 The difference between indirect tax and subsidy is known as . 1
(a) Net Factor Income from Abroad
(b) Capital Consumption Allowances
(c) Depreciation
(d) Net Indirect Taxa
10 Reeta’s Mother is a teacher. She also teaches Reeta. How will you treat this act of 1
teaching Reeta while calculating National Income and Domestic Income?

a. It will be included in the National Income but not in Domestic Income

b. It will not be included in the National Income but in Domestic Income
c. It will be included both in the National Income and Domestic Income
d. It will neither be included in the National Income and nor in Domestic Income

11 Mohan is a farmer. He produces wheat and sells for Rs 750 to a miller who grinds it into 1
flour and sells it to baker for Rs 1360. The baker sells bread to the consumers for Rs
1795. Calculate the value of total value added.
a)750 b)1350 c)1795 d)3900
12 In an economy, the value of Net Factor Income from Abroad is Rs. 300 crores and the 1
value of Factor Income to Abroad is Rs. 50 crores, identify the value of Factor Income
from Abroad.
a. Rs. 250 crores
b. Rs. 350 crores
c. Rs. 360 crores
d. Rs. 300 crores
13 Statement 1: Normal residents include both individuals and institutions. Statement 2: 1
International organizations are treated as normal residents. Choose the correct option
from the following.
a. Both the statements are true.
b. Both the statements are false
c. Statement-1 is true but Statement-2 is false
d. Statement-1 is false but Statement-2 is true

14 Statement 1: Money received from the sale of second-hand goods will be considered 1
while calculation National Income.
Statement 2: There value is already included and they do not contribute to current flow
of goods and services.
Choose the correct option from the following.
a. Both the statements are true.
b. Both the statements are false
c. Statement-1 is true but Statement-2 is false
d. Statement-1 is false but Statement-2 is true
15 Assertion (A): Domestic income is equal to National Income in case of a closed economy. 1
Reason (R): Closed economy has no economic relationship with rest of the world.
16 Assertion (A): The stock variable does not have a time dimension. Reason (R): The stock 1
variable is measured over a period of time. Choose the correct option from the
following.

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17 If factor cost is > market price, then it means that: 1
a. Indirect Taxes > Subsidies
b. Indirect Taxes =Subsidies
c. Indirect Taxes <Subsidies
d. Indirect Taxes ≥ Subsidies
18 Read the following statements- Assertion (A) and Reason (R) 1
Assertion (A): Savings is one the best way of capital formation and it helps a great deal
in the economic growth of a country.
Reason (R): Investment is also known as capital formation.
19 Assertion (A): In a two-sector model of circular flow of income, both real flow and 1
money flow exist as a result of one another.
Reason (R): The export earnings of an economy form a part of the real flow in 2-sector
circular flow of income.
20 Read the following statements and choose the correct alternatives among those given 1
below:
Statement 1: Gross investment includes only inventory investment.
Statement 2: Gross investment shows net addition to the existing capital stock.
Alternatives:
(i) Both the statements are true
(ii) Both the statements are false
(iii) Statement 1 is true and statement 2 is false
(iv) Statement 2 is true and statement 1 is false
21 “Macroeconomics emerged as a separate branch of economics after the “Great 1
Depression” which began in 1929 in the United States and impacted most of the
western European nations for about a decade.
J.M. Keynes the author of the book,” General Theory of Employment, Interest and
Money”, published in 1936 was instrumental in bringing about this schism. The
problem was not able to resolve itself going by the theories of the then
Classical Economic Thoughts. According to Keynes, certain interventions are required
to solve the short run disequilibrium occurring in an economy.”

The Great Depression of 1929 was caused due to

(i) Rising Aggregate Demand
(ii) Falling Aggregate Demand
(iii) Both (i) & (ii)
(iv) None of the above
22 “Net Factor income from Abroad is the excess of factor incomes earned from abroad 1
over factor incomes paid to abroad”.
Calculate the Net Factor Income from abroad (NFIA), if the Factor Income from Abroad
is ₹ 700 crores and Factor Income to Abroad is ₹ 400 crores.
23 A new machine is bought for ₹40 lakh. It has a useful life of 10 years, after which it 1
becomes obsolete and needs to be replaced. This means that the scrap value of the
machine will be zero after 10 years. Calculate the annual depreciation on the machine.
24 In the production of sugar, sugarcane is an 1
(a) Final Good (b)capital good
(c) Intermediate Good (d) none of these
25 Foreign embassies in India are a part of India 1
(a) Economic territory (b) Geographical territory
(c) both (d) none of these

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26 Goods purchased for satisfaction of wants are 1
a. Capital Goods b. Final Goods
c. Consumption goods d. Intermediate goods
27 National Income = Domestic income when: 1
a. NFIA is Positive b. NFIA is Negative
c. NFIA is Zero d. None of the above
28 Flow of goods and services across different sectors of the economy is called: 1
a. Real Flow b. Circular Flow
c. Monetary Flow d. Inventory Flow
29 Statement 1: Net investment is a stock concept. 1
Statement 2: Capital is a flow concept
A. Statement 1 is true and statement 2 is false
B. Statement 1 is false and statement 2 is true
C. Both statement 1 and 2 are true
D. Both statement 1 and 2 are false
30 With a rise in real national income ,welfare of the people : 1
a) Rises
b) falls
c) Remain unchanged
d) None of these
31 Read the following statements- Assertion (A) and Reason (R) 1
Assertion (A): Car purchased by taxi driver is to use a taxi is a consumer good.
Reason (R): Consumer good are those which directly satisfying the wants of consumers.
32 Increase in production of goods and services mean increase in GDP. If a country 3
increases its production of Guns, Tanks, and bombs, will it increase its welfare of
people? Give two arguments.
33 “Machine purchased is always a final good”, Do you agree? Give reasons for your 3
answer.
34 Classify the following as intermediate gods or final goods: 3
a) Paper purchased by publisher
b) Milk purchased by household
c) Computers installed in an office
d) Fees paid to the lawyer by a producer
35 Giving valid reasons explain which of the following will not be included in the estimation 3
of the National Income of India?
a. Purchase of shares of X Ltd. by an investor in the National Stock Exchange.
b. Salaries paid by the French Embassy, New Delhi to the local workers of the
housekeeping department.
c. Compensation paid by the Government of India to the victims of floods.
36 Read the following passage and answer the question given below: 3
Slower growth in OECD economies — especially in the high-tech sector in the United
States that could affect the demand for information technology (IT) workers and lead
to a diversion of formal remittances toward informal money transfer channels — is
likely to impact the flow of remittances this year.
India, which registered a growth of more than 24% to reach a record-high $111 billion
in remittances in 2022, is expected to post a growth of just 0.2% in remittance inflows
in 2023, according to the World Bank’s latest Migration and Development Brief.
Source : Indian Express, 27 June 2023
(i) Distinguish between factor income and transfer receipt. Is remittance a factor
income or transfer receipt?
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37 Which of the variable from ‘investment’ and ‘is a flow variable? Explain with an 3
illustration.
38 Which among the following are capital goods and which are consumer goods and why? 3
a) A car is used as a taxi
b) Refrigerator in a hotel
c) AC in a house
39 On 21st June, 2015, the first World Yoga Day was celebrated. In India, it was 4
significantly observed in Delhi, with more than 3500 people, including dignitaries from
84 nations and the Prime Minister Narendra Modi. It was organized by the Ministry of
AYUSH. It widely publicized through campaigns on various media to spread awareness
about the benefits of Yoga among the masses. T-shirts with the yoga day logo, yoga
mats and other related items were distributed to the enthusiasts. Trained yoga experts
were appointed to help beginners who participated in the event.
(a) Government’s expenditure to popularize yoga among the masses welfare.
(b) Government’s expenditure to popularize yoga among the masses has no effect on
GDP. (True/ False)
(c) The term ‘welfare ‘ refers to :
(i) Sense of pride in the nation
(ii) Increase in purchase of services
(iii) Sense of well-being among the people
(iv) Strict control by the government
(d) GDP at constant prices is also called (per capita GDP/real GDP).
40 Read the following statements and answer the questions. 4
a. Domestic/household services performed by a woman may not be considered as an
economic activity’. Defend or refute the given statement with a valid reason.
b. ‘Compensation to the victims of a cyclone is an example of a welfare measure taken
by the government’. State with a valid reason, should it be included/not included in the
estimation of the national income of India.

41 Explain why subsidies are added to and indirect taxes deducted from domestic product 4
at market price to arrive at domestic product at factor cost?
42 Classify the following into intermediate goods and final goods. Give valid reasons for 4
your answers:
(i) A sewing machine purchased by a household
(ii) Machinery used for production by a firm
(iii) Air conditioner purchased by a shopkeeper to be used in his shop Purchase of
ticket for train journey by an individual
43 Sale of petrol and diesel car is rising particularly in big cities. Analyse its impact on GDP 4
and welfare.
44 Giving reason, explain whether the following are included in domestic product of India. 6
1. Profits earned by a branch of foreign bank in India
2. Payment of salaries to its staff by embassy located in New Delhi
3. Interest received by an Indian resident from its abroad firms
45 ‘Circular flow of income in a two-sector economy is based on the axiom that one’s 6
expenditure is the other’s income’.
Do you agree with the given statement? Support your answer with valid reasons.

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46 State which of the following items will be included in the estimation of national income. 6
Give valid reasons for your answers.
(i) Payment of interest by bank to its depositors/ payment of interest by a firm
to households.
(ii) Payment of corporate tax by a firm
(iii) Net addition to capital stock
(iv) Profit earned by foreign banks in India.
(v) Expenditure on fertilizers by a farmer
(vi) Imputed rent of self-occupied houses
47 State with valid reason, which of the following statement is true or false: 6
A. Intermediate goods are always durable in nature
B. The Indian embassy located in foreign country is a part of the domestic
territory
C. All capital goods are producer goods whereas all producer goods may not be
capital goods
D. Capital goods are used up to produce other goods
E. A water tanker containing 500 litres of water in the morning of a day is a
stock concept
F. Domestic territory is where there is free movement of goods, capital
and people without any hindrance.
48 Should the following be treated as normal resident of India ? Give reason for your 6
answer.
i) Foreigner working in Indian embassy in Taiwan
ii) Indian working in Asian Development bank in Philippines
iii) Indian student in UK who has been living there for five years

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ANSWER

1 ₹1200
2 Branch of State bank of India in France
3 Consumption of fixed capital = GDPMP-NDPMP
NDPMP=NNPFC-NFIA+NIT
=2500-(-400)+450=2500+400+450=3350
Consumption of fixed capital =4000-3350=₹650 crore
4 Transfer income
5 a) NDP = NNP
6 c) Assertion (A) is true but Reason (R) is false.
7 a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion
8 (a) ∑Factor Payments
9 (d) Net Indirect Tax
10 d. It will neither be included in the National Income and nor in Domestic Income
11 c.1795
12 b. Rs.350 crores
13 c.Statement-1 is true but Statement-2 is false
14 d.Statement-1 is false but Statement-2 is true
15 a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
16 c. Assertion (A) is true but Reason (R) is false
17 c. Indirect Taxes < Subsidies
18 (d) Assertion (A) is false, but Reason (R) is true.
19 (c) Assertion (A) is true, but Reason (R) is false.
20 (ii) Both the statements are false
21 (ii) Falling Aggregate Demand

22 Net Factor Income from abroad (NFIA) = Factor Income from Abroad - Factor Income to
Abroad i.e., ₹ 700 crores - ₹ 400 crores = ₹ 300 crores
23 Depreciation on capital (annual) = Cost of the capital asset – Scrap value
Estimated life of capital asset ( in years)
= 4000000 - 0
10
= ₹ 4 lakh per year
24 C. intermediate good
25 b. geographical territory
26 c. consumption good
27 c. NFIA is zero.
28 a. real flow
29 d.
30 a
31 d
32 It is partially true that increase in production of goods and services means increase in GDP
because if a country increases its production of Guns, Tanks, and bombs, it will increase the
size of GDP, but people need bread, butter, shelter, drinking water, etc, if guns are produced
people will be unable to purchase bread and butter. So production of weapons will reduce
welfare of people.

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33 Whether machine is a final good or it depends on how it is being used end use. If machine is
bought by a household then it is a final good. If machine is bought by a firm for its own use
then also it is a final good. If the machine is bought by a firm for resale then it is an
intermediate good.
34 Final goods: b & c intermediate goods: a & d
35 The following will not be included in the estimation of the National Income of India:
a. As such transactions are mere paper claims and do not lead to any value addition.
c. Compensation paid by the Government of India is a mere transfer payment and does not
lead to any flow of goods and services in an economy.
36 (i) Factor incomes are those payments which are received by households as a result of
certain factor services (land, labour, capital and entrepreneurship) provided by the
household for the production of goods and services to the firms. Whereas, transfer receipts
on the other hand are those payments which are received by the household without
rendering any factor services. In other words they are the unilateral unrequited payments /
transfers.
(ii) Remittance is a transfer receipt as these are the transfers from family members to those
who have not provided any factor services.
37 Capital is a stock variable as it is measured at a point of time. We often find producers
estimating their capital stock at the end of the year, which refers to a point of time or a
particular date.
Investment is a flow variable. Investment means addition to the stock of capital during an
accounting year. It is measured for the year. If a firm has a stock of 10 machines on 31 March
2022 and has 15 machines as on 31 March 2023, it has added 5 machines to the stock of its
capital during the year. This is its investment.
38 a) Capital goods, because it is used for producing services.
b) Capital goods, because it is used for providing services over a period of time to the hotel.
c) Consumer goods ,because it is used for satisfaction of a want by an household
39 (a) Increase (b)False (c)Sense of well-being among the people (d)Real GDP
40 a. The given statement is defended, as it is difficult to measure the monetary value of the
services performed by a woman (homemaker). Therefore, these activities may not be
considered as an economic activity.
b. Compensation given to the victims of a cyclone is an example of a social welfare measure
taken by the government. However, it is not included in the estimation of national income as
it is a transfer payment that does not lead to a corresponding flow of goods and services.
41 Subsidies by government are grants that decrease the price of a commodity, whereas
indirect taxes are paid by a firm and households that increase the final price of a commodity.
Hence, to derive Gross Domestic Product at Factor Cost from Gross Domestic Product at
Market Price, we deduct indirect taxes and add subsidies. Also subsidies are the income
received while indirect taxes are paid.
42 (i) It is a final good because the household is the final user of the sewing machine and no
value is to be added to the machine
(ii) It is an final good because a firm purchases a machine for further production of output
to be sold to final users
(iii) It is a final good because air conditioner in an investment expenditure as it adds to the
capital stock of the shopkeeper
It is a final good because it is a final consumption expenditure which the passenger
purchases for its own consumption i. e., travelling. No further value addition can be made on
it.
43 GDP will increase but due to negative externalities its reduces the welfare as the health of
the people gets badly affected by the population

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44 1. Profits earned by a foreign bank branch in India are included in India's domestic income
because they are earned within the country's borders.
2. Since the embassy in New Delhi is not part of India's domestic territory, salaries paid to its
employees will not be included in the country's domestic income.
3. Interest received by an Indian resident from his or her foreign enterprises is not included
in India's domestic income because it is a factor income.
45 Yes, the given statement is correct. In a two-sector economy, the firms produce goods and
services and make factors payments to the households. The factor income earned by the
households will be used to buy the goods and services which would be equal to the income of
firms. The aggregate consumption expenditure by the households in the economy is equal to
the aggregate expenditure on goods and services produced by the firms in the economy
(income of the producers).

Circular flow of income in a two-sector economy – Households are owners of factors of

production, they provide factor services to the firms (producing units). Firms provide factor
payments in exchange for their factor services. So, factor payments flow from firms
(producing units) to households.
Households purchase goods and services from firms (producing units) for which they make
payments to them. So, consumption expenditure (spending on goods and services) flows from
households to firms.
46 (i) Yes, it is included in national income. Because it is a factor income paid by a
production unit (bank or firm). Banks borrow for carrying out banking services. The firms
borrow money for carrying out production.
(ii) No, it is not included in national income as it is a transfer payment. Corporate tax
accrues to the government. It is not received by the owners of factors of production. Hence,
it is not a factor income.
(iii) Yes, it is included in national income by expenditure method. Because it is net
investment or net capital formation, which is an item of final expenditure.
(iv) No, it will not be included in national income of India. It will be included in domestic
income of India (since the factor income is earned within the domestic territory). But as it
is a factor income paid to abroad, it is subtracted from domestic factor income to get
national income.
(v) No, it is not included in national income. Because it is an intermediate
expenditure for the farmer and hence deducted from value of output while calculating
national income.
(vi) Yes, it will be included in the national income. Because self-occupied houses provide
housing service similar to those as rented house.

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47 (i) False, because intermediate goods are those goods which are used up completely in
the production of other goods they are not durable in nature
(ii) True, because the Indian embassy located elsewhere will allow the free movement of
goods, capital and people of India and so they are part of the domestic territory.
(iii) True. Capital goods are those goods which are durable in nature and which can be used
for the production of further goods. While these are used by producers to produce goods they
are also part of producer goods. But producer good contain raw materials and other items
which may be used up completely for production of other goods. So, all capital goods are not
producer goods.
(iv) False, because capital goods are used for the production of other goods but in the
process they themselves are not used up. Depreciation may occur to them with time but
they are not used up.
(v) True. Since the amount of water contained in the tanker is measured at a particular
point of time, it is a stock variable.
True. Domestic territory in economics is different from that of political or geographical
sciences. It is the territory within which there is free movement of goods and services, capital
and people of a particular country.

48 I) Not a normal resident of India as his economic interest does not lie in India
II) Normal resident of India as his economic interest lies in India
III) Normal resident of India as his economic interest lies in India

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 CHAPTER 2: National Income and Related Aggregates (Methods)

Q. N QUESTION MARKS
Choose the correct option from the following question Q1 to Q7.
a) Both Assertion (A) and Reason(R) are true and Reason(R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason(R) are true and Reason(R) is not the correct
explanation of Assertion (A).
c) Assertion (A) is true but Reason(R) is false.
d) Assertion (A) is false but Reason(R) is true.
Assertion (A): The goods which are used either for resale or for further
1 production in the same year are intermediate goods. 1
Reason(R): Intermediate goods are included in National Income.
Assertion (A): Value addition can also take place even when the commodity does not go
2 through any transformation. 1
Reason(R): It happens when a commodity is purchased for resale.
Assertion (A): Gross Domestic Capital Formation can be less than Gross fixed capital
3 formation. 1
Reason(R): Change in stock is negative.
Assertion (A): The problem of double counting leads to underestimation of the National
Income of the country.
4 Reason(R): Double counting arises when value of a good is counted more than once 1
while measuring the value of National Income.

Assertion (A): The problem of double counting leads to under estimation of the national
income of the country.
5 1
Reason (R): the double counting arises when value of a good is counted more than once
while measuring the value of national income.
Assertion (A): Nominal value is money value or value measured in term of prices that
6 prevail at the time of measurement. 1
Reason (R): GDP is measured at both current prices as well as constant prices.

Assertion (A): Compensation to flood victims is not included while national income.
7 Reason (R): Transfer income does not contribute to current flow of goods and services. 1

8 Value added method measures the contribution of which of the following within the 1
domestic territory of a country?
(a) Household consumers
(b) The producing enterprises owned by residents of the country
(c) The producing enterprises owned by the non-residents of the country
(d) Both (b) and (c)
9 Expenditure methods focuses on measurement of national income at: 1
(a) Phase of production of goods and services
(b) Phase of income distribution
(c) Phase of income disposition
(d) all the above

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10 Read the statements carefully and choose the correct alternative among those given 1
below:
Alternatives:
(a) Both the statements are true
(b) Both the statements are false
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false

Statement 1: Value added includes the value of intermediate goods used in production.
Statement 2: Contribution to provident fund by the employers is included in the national
income.
11 A growing country is one with: 1
(a) Rising GNP at constant price c) Constant GNP at constant price
(b) Rising GNP at current price d) None of these
12 Which of the given statement is incorrect? 1
(a)GDPMP=GDPFC + NIT
(b) NNPMP = NNPFC + Depreciation
(c) GNPMP=GDPMP+NFIA
(d) NNPFC = National income
13 Welfare of the people in an economy is measured in terms of............. 1
(a) Rise in National Income
(b) Availability of goods and services per person
(c) Overall price le and degree of profit maximisation
(d) Overall price level in an economy.
14 If in 2021-22 the real GDP of India is RS 1000 and price index (with base year=100) is Rs 3
120, Calculate nominal GDP.
15 How can estimates of GDP using income method and expenditure method be 3
identical when households do not spend their entire income on the purchase of
goods and services, and part of them remain unsold during an accounting year?
16 In an economy, industry P sells output to Q. Q sells output to R for Rs 600. Q’s value 3
added is ½ of P’s value added. Assuming P’s value of inputs are 0 (zero), calculate
how much P sells to Q.
17 Q1. A growing country is one with:
a) Rising GNP at constant prices c) Constant GNP at constant prices.
b) Rising GNP at current prices d None of these
Q2. Which of the following statements is correct
a) GDP is derived by subtracting taxes on products net of subsidies on
products to GVA at constant prices.
b) GDP is derived by adding taxes on products net of subsidies on products to GVA
at constant prices.
c) GDP is derives by adding subsidies net of taxes on products to NVA at
constant prices.
d) GDP is derives by adding taxes on products net of subsidies on products to GVA
at constant prices.
Q3. National product at current prices is higher than national product at constant prices
during a period of :
a. Rising prices b. Falling prices c. Constant prices d. Both a and b
Q4. Value added means value of:
a) Output at market prices c) Output less depreciation.
b) Output less intermediate cost d) Output plus intermediate cost

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18 Read the following hypothetical text and answer the given questions: 4
The Budget Estimate of total spending for 2021-22 is 34.83 lakh crore. The Revised
Estimate (RE) for total central spending in 2020-21 is 34.5 lakh crore. The Gross
Domestic Product (GDP) deflator — if one takes 14.4% nominal GDP growth projection
for 2021-22 given in the budget and 11% real GDP forecast given in the latest Economic
Survey — comes to 3.4%. This means that central spending should have increased to at
least 35.7 lakh crore to keep it unchanged in real terms. The fact that it has not
happened implies that the 2021-22 budget entails a negative fiscal stimulus to the
economy. To be sure, one could argue that 2020-21 was an abnormal year — and,
therefore, the government is justified in rolling back its welfare spending push, as the
economy gets unlocked and vaccination gains momentum.
Q-1 With the rise in real national income, the economic welfare of the people
(rises/falls). (Choose the correct alternative)
Q-2 If GDP Deflator = 125, Nominal GDP= 15000crs. then Real GDP is equal to
(10000crs / 12000crs/ 20000crs). (Choose the correct alternative)
Q-3 Read the following statements - Assertion (A) and Reason ( R)
Assertion (A): Real GDP is always equal to Nominal GDP.
Reason (R): Real GDP is a better measure to make periodic comparison in the physical
output of goods and services over different years. Select the correct alternative from the
following:
a) Assertion (A) is true and Reason (R) is false.
b) Assertion (A) is false and Reason (R) is true.
Q-4 State the significance of GDP Deflator. (Choose the correct alternative)
(a) GDP Deflator is a tool that shows changes in the price level of the economy over a
given period of time
(b) GDP Deflator is a tool that shows changes in the demand level of the economy over
a given period of time
19 Q1. Is it reasonable to treat a person's income level as his or her level of wellbeing? 4
YES/NO (Choose the correct alternative)

Q2.Nominal GDP is a true indicator of welfare? True / False

(Choose the correct alternative)

Q3. Which of the following are correct for Real GDP?

A. Current year production valued at current prices
B. Current year production valued at base year
C. Current year production valued at last year prices
D. Current year production valued at forecasted prices

Q4.Read the following statements – Assertion (A) and Reason (R).

Assertion (A): Increase in GDP all of the people have not benefited.

Reason (R): The distribution of GDP is not uniform.

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20 Calculate National Income by Income and Expenditure Method. 6

Sl. Rs. In
Particulars
No. crore
i Compensation of employees 600

ii Government final consumption expenditure 550

iii Net factor income from abroad (-) 10
iv Net exports (-) 15
v Profits 400
vi Net indirect taxes 60
vii Mixed income of self employed 350
viii Rent 200
ix Interest 310

x Private final consumption expenditure 1000

xi Net domestic capital formation 385
xii Consumption of fixed capital 65

21 Write down the steps of calculating National Income by Value Added method. 6

22 Giving reasons explain the treatment assigned to the following while estimating National 6
Income of India.
(a) Interest paid by banks on deposits by individuals.
(b) Payment of interest by a firm to a bank
(c) Payment of interest by an individual to a bank
(d) National debt interest
(e) Expenditure on free services provided by government
(f) Payment of interest by a government firm
(g) Pension paid after retirement
6
23 In a single day Raju, the construction worker, collects 500 from construction activities;
over this day, his equipment depreciates in value by ₹50. Of the remaining ₹ 450, Raju
pays sales tax worth ₹30, takes home ₹200 and retains
₹220 for improvement and buying of new equipment. He further pays ₹20 as income
tax from his income. Based on this in formation, complete Raju's contribution to the
following measures of income: (i) Gross Domestic Product at market price, (ii) NNP at
market price, (iii) NNP at factor cost.
6
24 Is it necessary to deduct Intermediate consumption from the value output? What
happen if not deducted? Illustrate with proper example. Also, suggest measures to
avoid this problem.

23 | P a g e
25 Calculate (a) Gross National product at Market Price by Income Method, and (b) 6
National Income by Expenditure Method on the basis of the following data:

Items Rs. in lakh

i Net Export 10
ii Rent 20
Private final consumption expenditure
iii 400
iv Interest 30
v Dividend 45
vi Undistributed profit 5
(vii Corporate tax 10
Govt. final consumption expenditure
viii 100
ix Net domestic capital formation 50
x Compensation of employees 400
xi Consumption of fixed capital 10
xii Net indirect tax 50
xiii Net factor income from abroad (-) 10

ANSWER

1 C
2 A
3 A
4 D
5 D
6 B
7 A
8 (d) Both (b) and (c)
(c) Phase of income disposition
9

10 (d) Statement 2 is true and Statement 1 is false

11 (a) Rising GNP at constant price
12 (b) NNPMP = NNPFC + Depreciation
13 (b) Availability of goods and services per person
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃 = 𝑅𝑒𝑎𝑙 𝐺𝐷𝑃 𝑥 Price index/100
14 = 1000 x 120/100 = 1200

Goods which remain unsold during the year are treated as a part of change in stock
during the year. These goods become a part of inventory investment of the producers.
15
Accordingly," income method and expenditure method must yield identical estimates
of GDP.
24 | P a g e
 Suppose, sales by P to Q = x

Firm Value of output Intermediate Value added

consumption
P Sales to Q = x Value of inputs= 0 x-0
16 Q Sales to R= 600 Value of inputs= x 600-x

Value added by firm P = x-0

Value added by firm Q = 600-x
Given, Q’s value added is ½ of P’s value added
It means: 600-x = ½ x
x = Rs 400
1–A
2–D
17
3–A
4–C
1 - Rises
2 - 12,000 crores
18 3 - b) Assertion (A) is false and Reason (R) is true.
4 - (a) GDP Deflator is a tool that shows changes in the price level of the economy over a
given period of time
1 - NO
2 - False
19 3 - B] Current year production valued at base year
4 - (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)
Income Method:
NDPFC = i + (v + viii + ix) + vii
= 600 + (400 + 200 + 310) + 350
= 600 + 910 + 350
= 1860
NI or NNPFC = NDPFC + NFIA
= 1860 – 10
= 1850 crore
20 Expenditure Method:
GDPMP = x + (xi + xii) + ii + iv
= 1000 + 65 + 385 + 550 – 15
= 1985 crore
NI or NNPFC = GDPMP – Depreciation + NFIA – NIT
= 1985 – xii + iii – vi
= 1985 – 65 – 10 – 60
= 1850 crore

25 | P a g e
 Steps for calculating National Income:
Value Added Method:
Step-1: Identify various sectors of the economy as Primary, secondary and
tertiary Step-2: Calculate GVAMP in all sectors by
GVAMP = Sales + Change in Stock – Intermediate cost
Step-3: Subtract the value of depreciation from GVAMP and find NVAMP
NVAMP = GVAMP – Depreciation
21
Step-4: Add the value of NFIA with NVAMP and get NNPMP
NNPMP = NVAMP + NFIA
Step-5 : Subtract the value of Net Indirect Taxes from NNPMP and get NNPFC or the
National Income
National Income or NNPFC = NNPMP – NIT
Step-6: Add the National income of all sectors and find the National Income of the
economy
Answer:
(a) It will be included while estimating the National Income of India because bank is a
productive unit.
(b) It will be included while estimating the National Income of India because Firm is a
productive unit and it has taken loan for production purposes
(c) It will not be included while estimating the National Income of India because
Individual has taken loan for consumption purposes
(d) It will not be included while estimating the National Income of India because it the
22
debt on the loan which government took for its consumption expenditure.
(e) It will be included while estimating the National Income of India because it is a
part of the Government final consumption expenditure
(f) It will be included while estimating the National Income of India because
Government Firm is a productive unit and it has taken loan for production purposes
(g) It will be included while estimating the National Income of India because it is a part
of compensation of employees.

(i) GDPMP = ₹500 (Raju's contribution to GDP)

(ii) NNPMP = GDPMP - Depreciation
= ₹500- ₹50
23 = ₹450 (Raju's contribution to NNPMP)
(iii) NNPFC = NNPMP- Net indirect taxes
= ₹450- ₹30
= ₹420 (Raju's contribution to NNPFC).]

26 | P a g e
 Yes. If not deducted double counting problem may arise. This leads to overestimation of
the value of goods and services produced. Thus, the importance of avoiding, double
counting lies in avoiding overestimating the value of domestic product.
For example, a farmer produce one ton of wheat and sells it for Rs 400 in the market to a
flour mill. The flour mill sells it for Rs 600 to the baker. The baker sells to the bread
shopkeeper for rs 800. The shopkeeper sells the entire bread to the final consumers for
Rs 900. Yhus,
Value of output=400+600+800+900
24 = 2700
Infact, the value of the wheat is counted four times. To avoid the problem of double
counting two methods are used:
(a) Final output Method: According to this method, the value of intermediate goods is not
considered. Only the value of final goods and services is considered. In the above
example, the value of final goods i.e., Bread is Rs 900.
(b) Value added method: Another method to avoid the problem of double counting is
to estimate the total value added at each stage of production. In the above example,
the value added at each stage of production is 400+200+200+100=900.
(a) Income method
GNPMP= 400+20+30+45+5+10+10+50+(-)10
= 560 lakh
25
(b) Expenditure Method
National Income = 400+100+50+10-50+(-)10
= 500 lakh

27 | P a g e
 UNIT 2: Money and Banking

Anything which acts as a medium of exchange, measure of value and store of value is called money.
Example – A rupee in India is money, as it is a commonly accepted medium of exchange.

Functions of Money

1. Medium of Exchange - Money has general acceptability so, everybody is ready to accept payments
in money. Thus money acts as a medium of exchange.

2. Measure of Value- The value of all Goods and Services is expressed in terms of money. So in terms
of money we can maintain account of all economic transactions.

3. Store of Value- Money is an asset and can be stored for future. We can save money as cash and as
bank deposits. It is easily portable from one place to another.

4. Standard for deferred payments : Deferred payments refer to payments made in future. Money as a
standard of deferred payments has facilitated market transactions of buying, selling, borrowing etc.

SUPPLY OF MONEY

Money supply refers to the total quantity (stock) of money in circulation in the economy at the given
point of time.

Measures of money supply:- In India, there are four alternative measures of money supply . known as
M1 , M2 , M3 and M4 of these, only M1 measure is discussed here.

COMPONENTS :- according to M1 measure, money supply includes the following components :

M1 = C + DD+OD

C: It refers to currency held by the public .It includes coins as well as paper notes. .

The basic measure of money supply (M1) has two components.

1. Currency held by the public: - Money supply of currency notes and coins held by the public outside
the banks.

DD : Demand deposits of the people with the commercial bank

OD : Demand deposits with RBI of public financial institutions like NABARD, deposits with RBI of
foreign central bank and demand deposits of international financial institutions like world bank, 2.
Net demand deposits held by commercial banks:- Demand deposits are the deposits which can be
withdrawn on demand by the depositors from banks , e.g. current account and saving account.

 Demand deposits are created by the commercial banks and are called ‘Bank money’.

Demand deposits:-Demand deposits are the deposits which can be withdrawn on demand by the
depositors from banks, e.g. current account and saving account.

28 | P a g e
 MONEY CREATION OR CREDIT CREATION –

Money creation by the commercial banks is determined by

(1) The amount of the initial deposit and (2) The Legal Reserve Ratio (LRR) –

PROCESS - Let the LRR be 10% and there is a fresh deposit of Rs.1,000. As required the banks keep
10% i.e. Rs 100 as cash. Suppose the banks lend the remaining Rs 900 those who borrow use this case
money for making payments as assumed those who receive payments put the money back into the
banks in this way banks receive fresh deposits of Rs 900. The banks again keeps 10% i.e. Rs 90 as
cash and lend Rs 810 which is also 90% of the last deposit the money again comes back to the banks’
lending to a fresh deposit of Rs 810. The money goes on multiplying in this way and ultimately total
money creation is Rs 10000.

DEPOSITS CASH RESERVES LOANS

Round -1 1,000 100 900

Round -2 900 90 810

Round -3 810 81 729

Round -4 … …. …

Round -5 …. … …

TOTAL 10000 1000 9000

Money Multiplier or Credit Multiplier – It is the Number of times commercial bank can create credit of
per unit of cash reserves.

Money Multiplier = 1/LRR

Money Creation = Money Multiplier X Initial Deposit

CENTRAL BANK AND ITS FUNCTIONS

29 | P a g e
 The central Bank is the apex institution of a country’s monetary system. It controls the entire banking
system of the country. Reserve bank of India (RBI) is the central bank of India.

FUNCTIONS OF THE CENTRAL BANK

1. Bank of Issue:- Central bank is of a country has the exclusive right (monopoly right)of issuing
notes.
A. Uniformity in Note Issue.
B. Exercise a better control over money supply.
C. Saves the Economy from danger of over issue.
D. Monetary management.
2. Banker to the Government: - Central bank is a banker, agent and financial advisor to the
government • As a banker to the government, it manages accounts of the government. • As an agent to
the government, it buys and sells securities on behalf of the government. • As an advisor to the
government, it frames to policy to regulate the money market. • It gives loan to the government.

3. Banker’s Bank: - As a Bankers’ Bank it has almost the same relation with other banks in the
country as a commercial bank has with its customers.
A. As a banker’s bank :- • Custodian of cash reserves. • Clearing house function. • It provides
additional Fund those Bank temporary difficulties.
B. As a supervisor: - • Periodic inspection of banks.

4. Credit Control – Central bank plays an important role during the times of economic fluctuations. It
influences the money supply Through Bank Rate, Open Market Operations, Cash reserve Ratio,
Statutory Liquidity ratio and Margin Requirements etc. Instruments of credit control. • Bank Rate It
refers to the rate of interest at which the central bank lends money to commercial banks for long
period. Central Bank increases the bank rate during inflation (excess demand) and reduces the same
in times of deflation (deficient demand).

Repo Rate – It is the rate at which the central bank (RBI) offers short period loans to the commercial
banks by buying the government securities in the open market. It is increased to control inflation.

Reverse Repo Rate – The rate at which RBI accepts deposits from the commercial banks(thorough
government securities). It is increased to control inflation.

Cash Reserve Ratio (CRR) - It refers to the minimum percentage of a bank’s total demand deposits
to be kept with the RBI. Reserve Bank increases CRR during inflation and decreases the same during
deflation.

Statutory Liquidity Ratio (SLR) - It refers to minimum percentage of net demand and time liabilities
which commercial banks required to maintain with themselves in the form of specified liquid assets
including cash, gold and govt. securities. SLR is increased during inflation or excess demand and
decreased during deflation or deficient demand.

Open Market Operations - It refers to the buying and selling of securities by the Central Bankfrom/
to the public and commercial banks. It sells government 41 securities during inflation/excess demand
and buys the securities during deflation/deficient demand.

30 | P a g e
Margin Requirements - It is the difference between the amount of loan and market value of the
security offered by the borrower against the loan. Margin requirements are increased during inflation
and decreased during deflation

Q. QUESTION
N
1 If the total deposits created by commercial banks is Rs 10000 crores and LRR is 1
40% then amount of initial deposits will be
a) Rs 2000 crore b) Rs 3000 crore
c) Rs 4000 crore d) Rs 14000 crore
1
2 “The deposit forms a part of M1 measure of money supply and are payable on demand
by the commercial bank.”
Identify the type of deposit :

1. Demand deposit
2. Time deposit
3. Post office deposits
4. None of these
1
3 In the COVID-19 times Indian Economy have been Experiencing the deflationary
shocks many small and medium scale industries closed Many Economists opined that
without support (availability of chief credit) from government and monetary authority
it is difficult to revive

Suppose you are a member of the high powered committee constituted by the Reserve
Bank of India (RBI).

You have suggested that the Repo rate should be (reduced/increased)

(Choose the correct alternative).
1
4 Supply of money refers to… ........................ (Choose the correct alternative)

a. currency held by the public

b. currency held by Reserve Bank of India (RBI)

c. currency held by the public and demand deposits with commercial banks
5 Assertion (A): To boost the falling demand in the economy. Reserve bank of India 1
recently reduced repo rate and bank rate.
Reason (R): Decrease in repo rate and bank rate causes decreases in the rate of
interest which leads to rise demand of credit because of which more money flows into
the economy.
Choose the correct option from the following.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is the not correct
explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false
(d) Assertion (A) is false but Reason (R) is true.

31 | P a g e
6 Assertion (A): Anything will be called money if the law of country proclaims it to be 1
money. It will be commonly accepted measure of value as it will be endowed with legal
tender power (Limited and unlimited).Thus “money is what the law says it is”
Reason (R): Limited legal tender money can be accepted up to a certain limit. For
example, in India, coins up to Rs1000 only (as per coinage bill, August 2011) can be
accepted legally in payment. All currency notes have unlimited legal tender.

7 When value of money multiplier is 25 and value of CRR is 1%, the value of SLR is …………. 1
a) 1% b) 2% c) 3% d) 4%
8 Assertion (A): Money supply is a flow concept. 1
Reason (R): Money Supply always measured at a particular point of time.

9 1
The role of RBI has been changed from ……………. to ............................... under
New Economics Policy 1991.
a) Facilitator to Regulator b) Supervisor to facilitator
c) Regulator to facilitator d) Facilitator to supervisor
10 Assertion (A) - Credit creation process increases the money supply in economy. 1
Reason (R) - Through the credit creation process commercial banks can distribute loans
many times as compare to their primary deposits.

11 Supply of money refers to 1

(a) currency held by the public
(b) currency held by Reserve Bank of India
(c) currency held by the public and demand deposits with the commercial banks
(d) currency held by Reserve Bank of India and demand deposits with
commercial bank
12 Two friends Akash and Amit were discussing about the features of central bank. “This 1
features saves the commercial banks from possible breakdown”
The above mentioned statement was given by Akash, identify the feature was he
taking about…
(a) Banker’s bank
(b) Lender of the last resort
(c) Controller of credit
(d) Financial advisor
13 Assertion (A): Central Bank as a banker to the government, works as a custodian of 1
cash reserves.
Reason(R): The Central Bank acts as a clearinghouse for the transfer and settlement
of mutual claims of commercial banks.
14 The amount of initial deposits is 3000cr and LRR is 25%. Calculate the amount of 1
total deposits created by commercial banks
(a) 10000 crore
(b) 11000 crore
(c) 12000 crore
(d) 13000 crore

32 | P a g e
15 Ms. Sakshi, an economics teacher, was explaining the concept of ‘minimum percentage of 1
the total deposits to be kept by any commercial bank with the Central Bank of the
country, as per norms and statute prevailing in the country’. From the following, choose
the correct alternative which specifies towards the concept explained by her?
a) Cash Reserve Ratio
b) Repo Rate
c) Bank Rate
d) Statutory Liquidity Ratio
16 Credit Control means 1
(a) Contraction of credit only (b) Extension and contraction of money supply
(c) extension of credit only (d) supply of money remains the same
17 is responsible for issuing ₹1 currency note in India. 1
a) Reserve Bank of India.
b) Ministry of commerce.
c) Ministry of finance.
d) Niti Aayog.
18 The value of deposit multiplier is equal to . 1
a) 1/CRR.
b) 1/SLR.
c) 1/LRR.
d) None of these.
19 The ratio of total deposits that a commercial bank has to keep with Reserve bank of India 1
is called.
a) Statutory Liquid Ratio.
b) Deposit Ratio.
c) Cash Reserve Ratio.
d) Legal Reserve Ratio.
20 If the reserve ratio is 20%, what will be the amount of total reserves after an initial 1
deposit of ₹200?
a) 4,000 b. 200 c. 1,000 d. 400
21 Statement 1: Primary deposits indicate savings of the depositors with the banks. 1
Statement 2: Secondary deposits indicate borrowing of the depositors from the banks.
a) Both statements are true.
b) Both statements are false.
c) Statement 1 is true and Statement 2 is false.
d) Statement 1 is false and Statement 2 is true.
22 Statement 1: A fall in SLR increases money supply on the economy. Statement 2: Fall in 1
SLR enhances capacity of the commercial banks to create credit
a) Both statements are true.
b) Both statements are false.
c) Statement 1 is true and Statement 2 is false.
d) Statement 1 is false and Statement 2 is true.
23 Suppose all the customers of a commercial bank demand for their deposits at the same 3
time then how does central bank help to commercial bank in this situation?

33 | P a g e
24 Central bank has several important functions. It issues the currency of the country. It 4
controls money supply of the country through various methods, like bank rate, opens
market operations and variations in reserve ratios.
It acts as a banker to the government. It is the custodian of the foreign exchange
reserves of the economy. It also acts as a bank to the bankingsystem, which is discussed
in detail later
1. What is the name of Indian central bank?
(A) Reserve Bank of India (B) Federal Reserve
(C) State Bank of India (D) None of the above
2. Who determine the Case Reserve Ratio?
(A) Central Bank (B) Federal Reserve
(C) Commercial Bank (D) Government
3. Who is the official ‘Lender of the Last Resort’ in India?
(A) PNB (B) RBI (C) SBI (D) CBI
4. In order to discourage credit in the economy, the central bank may
(A) Increase Bank rate (B) Decrease Bank rate
(C) Buy securities in the open market (D) Decrease CRR
25 How will Reverse Repo rate control money supply at the time of inflation in an economy? 4

26 How does a central bank control the availability of credit by open market operation 4

27 1. Which of the following tools are used by the central bank to control the flow of 4
money in domestic economy?
(a) Fiscal tools(b) Quantitative monetary tools
(c) Qualitative monetary tools (d) Both (b) and (c)

2. Dear money policy of central bank, which is used to keep the growth steady and in-
line with other economic factors, refers to
a) Tighten the money supply in the economy
b) Ease the money supply in the economy
c) Allow commercial banks to work under less strict environment
d) Both (b) and (c)
3. Which of the following steps should be taken by the central bank if there is an
excessive rise in the foreign exchange rate?
(a) Supply foreign exchange from its stock
(b) Demand more of other foreign exchange
(c) Not intervene in the market as the exchange rate is determined by the market
forces
(d) Help central government to stabilize the foreign exchange rate
4. The central bank does not perform the following functions.
(a) conducts sale and purchase of securities for foreign govt. securities.
(b) acts as a lender of the last resort.
(c) controls money supply and credit.
(d) manages the nation’s reserves of international currency.

34 | P a g e
28 The following hypothetical Case Study, carefully and answer the question numbers 4
1-4 on the basis of the same.
Repo (repurchase) rate also known as the benchmark interest rate is the rate at which
the RBI lends money to the commercial banks for a short-term (a maximum of 90 days).
When the repo rate increases, borrowing from RBI becomes more expensive. If RBI
wants to make it more expensive for the banks to borrow money, it increases the repo
rate similarly, if it wants to make it cheaper for banks to borrow money it reduces the
repo rate. If the repo rate is increased, banks can’t carry out their business at a profit
whereas the very opposite happens when the repo rate is cut down.
1.What kind of tool Repo rate is:-
a) Qualitative tool b) Quantitative tool
c) Fiscal tool c) None of these
2.Why Repo rate is called Repurchasing rate:-
a) Commercial bank has to mortgage its securities with RBI
b) Commercial bank has to make an agreement to repurchase the securities mortgage with
RBI
c) Commercial banks have to pay interest on borrowings
d) None of These
3. If inflationary conditions persist in economy then what should be done with Repo rate:
a) Repo rate should be reduced
b) Repo rate should be increased
c) Does not change Repo rate
d) None of above
4. On which type of borrowing Repo rate is charged by RBI
a) On short term borrowings
b) No long term borrowings
c) Borrowings to maintain reserves
d) Borrowings to purchase assets
29 Analyze the role of Central Bank as ‘Banker’s Bank’. 6
30 How does money solve the problem of double coincidence of wants? Explain with an 6
example.
31 (i) What is meant by Cash Reserve Ratio? How does it increase the money Supply in the 6
economy? (ii) What is meant by Open Market Operation? How does it reduce the money
supply in the economy?
32 The Government of India launched ‘Jan-DhanYojna’ aimed at every household in the 6
country to have at least one bank account. Explain how deposits made under the plan are
going to affect the national income of the country.

35 | P a g e
 ANSWER

1 c
2 1. Demand deposit
3 Reduced
4 Currency held by the public and demand deposits with commercial banks
5 a
6 a
7 3%
8 d
9 Regulator to facilitator
10 a
11 ( c) currency held by the public and demand deposits with the commercial banks
12
(b) Lender of the last resort
13
(b) Both A and R are true, but R is not the correct explanation of the Assertion(A)

14 (c) 12000 crore

15 a) Cash Reserve Ratio

16 b) Extension and contraction of money supply
17 (c).
18 (c).
19 (c).
20 (b).
21 (a).
22 (a).
23 1. As banker to the banks, the central bank acts as the lender of the last resort.
2. In other words, in case the commercial banks fail to meet their financial requirements
from other sources, they can, as a last resort, approach to the central bank for loans and
advances.
3. The central bank assists such banks through discounting of approved securities and bills
of exchange. Value: Analytic.
24 1- A 2- A 3- B 4- A
25 Reverse Repo rate is the rate at which commercial bank park their excess fund with central
bank. At the time of inflation, there is a need to reduce money supply in the economy. If
central bank increases Reverse Repo rate , commercial bank will park more money with
central bank . As a result they will have less amount to issue loan to general public & hence
money supply will be reduced.
26 Open market operation is the policy of the central monetary authority to sell and buy the
government securities in the market. RBI purchases government securities from
commercial banks and general public in a bid to increase the stock of high-powered money
in the economy. Similarly, RBI sells government securities to commercial banks and general
public in a bid to decrease the stock of high-powered money in the economy.
27 1. (d) Both (b) and (c)
2. (a) Tighten the money supply in the economy
3. (a) Supply foreign exchange from its stock
4. a)conducts sale and purchase of securities for foreign governments securities.

36 | P a g e
28 1-(b) 2-(b) 3-(b) 4-(a)

29 1. Custodian of cash reserve - Each commercial bank is required to keep a

certain fraction of their deposits as reserve with central bank .
2. Lender of last resort - When commercial banks fails to meet its financial
requirements from all possible sources, it approaches central bank as the last option
Clearing House - central bank settles the inter-bank claims by making debit & credit
transactions in their respectives .
30 Money acts as an intermediary in the exchange transactions of goods and services. It removes
the difficulty of double coincidence of want by separating the act of sell and purchase.
For example, if a vegetable grocer wants a cart but the cart manufacturer wants clothes,
and not vegetables, then the grocer can use money to buy a cart. Similarly, the cart
manufacturer can then use the money to buy clothes. Thus, everyone's wants can be
satisfied as money acts as a medium of exchange.
Money is also called a bearer of options or generalised purchasing power. This indicates the
freedom of choice that the use of money offers. This function can only be performed
properly if the value of money remains constant.
31
Cash Reserve Ratio:
(a) It refers to the minimum percentage of a bank’s total deposits, which it is required to
keep with the central bank. Commercial banks have to keep with the central bank a certain
percentage of their deposits in the form of cash reserves as a matter of law.
(b) For example, if the minimum reserve ratio is 10% and total deposits of a certain bank is
?100 crore, it will have to keep Rs 10 crore with the central bank.
(c) To increase Money supply in an economy, cash reserve ratio (CRR) falls to 5 per cent, the
bank will have to keep Rs 5 crore with the central bank, which will increase the cash
resources of commercial bank and increasing credit availability in the economy, which will
increase the money supply in an economy.
2. Open Market Operation:
(a) It consists of buying and selling of government securities and bonds in the open market
by central bank.
(b) To reduce Money Supply in an economy, central bank sells government securities and
bonds to commercial bank. With the sale of these securities, the power of commercial bank
of giving loans decreases, which will reduce the money supply in an economy.

32 Due to launch of “Jan- DhanYojna” people start depositing their money in banks, which will
increase the initial deposits with the commercial bank, which will increase the total
deposits. Let us assume that the entire commercial banking system is one unit. Let us call
this one unit simply “banks’.
Let us also assume that all receipts and payments in the economy are routed

37 | P a g e
through the banks. One who makes payment does it by writing cheque. The one who
receives payment deposits the same in his deposit account.

1. Suppose initially people deposit ?1000. The banks use this money for giving loans.
But the banks cannot use the whole of deposit for this purpose. It is legally compulsory
for the banks to keep a certain minimum fraction of these deposits as cash. The fraction
is called the Legal Reserve Ratio (LRR). The LRR is fixed by the Central Bank.

2. Let us now explain the process, suppose the initial deposit in banks is ₹1000 and the
LRR is 10 percent. Further, suppose that banks keep only the minimum required, i.e.,
100 as cash reserve, banks are now free to lend the remainder? 900. Suppose they lend
₹900. What banks do to open deposit accounts in the names of the borrowers who are
free to withdraw the amount whenever they like. Suppose they withdraw the whole of
amount for making payments.

3. Now, since all the transactions are routed through the banks, the money spent by the
borrowers comes back into the banks into the deposit accounts of those who have
received this payment. This increases demand deposit in banks by Rs 900. It is 90 per
cent of the initial deposit. These deposits of Rs 900 have resulted on account of loans
given by the banks. In this sense the banks are responsible for money creation. With this
round increase in total deposits is now Rs 1900 (=1000 + 900).

4. When banks receive new deposit of Rs 900, they keep 10 per cent of it as cash
reserves and use the remaining ₹810 for giving loans. The borrowers use these loans for
making payments. The money comes back into the accounts of those who have received
the payments. Bank deposits again rise, but by a smaller amount of Rs 810. It is 90 per
cent of the last deposit creation. The total deposits now increase to Rs 2710 (= 1000 +
900 + 810). The process goes on till the total deposit creation comes to Rs 10000, ten
times the initial deposit.

38 | P a g e
 UNIT 3: Determination of Income and Employment
Aggregate demand : Aggregated demand means the total demand for final goods in an
economy. It also means the aggregate expenditure on final goods in an economy. (OR) AD is
the sum total of expenditure that the people plan to incur on the purchase of goods and
services produced in the economy during the period of an accounting year corresponding to
their different levels of income.
Components of Aggregate Demand: -
AD= C+ I + G + (X-M)
1. C = Demand for goods and services for private consumption also called private final
consumption expenditure.
2. I = Demand for private investment
3. G= Demand for goods and services by the government
4. (X-M) = Net exports.
Since the determination of income and employment is to be studied in the context of two
sector model, the third and fourth components of aggregate demand are not discussed in
detail. The two sectors taken are households and firms.

BEHAVIOUR OF Aggregate Demand (AD): AD is measured in terms of aggregate

expenditure in the economy.

Behaviour of AD is studied in terms of the behaviour of aggregate expenditure at different

levels of income (Y).
AD Schedule: - This table is showing AD corresponding to different levels of Y in the
economy. AD is positively related to Y.
Y AD
0 150
100 200
200 250
300 300
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 400 350
OBSERVATION: - 1. There is always some minimum level of expenditure in the economy even
when Y=0. Thus, AD = 150 when Y = 0 called negative saving.
2. AD increases as Y increases. Thus, AD is positively related to Y. AD = C + I + G + (X – M) AD
= C + I (In two sector economy)
3. After a certain level of Y is reached, AD lags behind Y. Thus, when Y = 400, AD= 350. This,
happens because, at higher levels of Y, people start saving a part of their income.

CONCEPT OF AGGREGATE SUPPLY (AS):

AS (Y) refers to flow of goods and services as planned by the producers during an accounting
year. OR It refers to the total production of commodities in the economy at a given point of
time which is measured in terms of value added or the total income generated. It is assumed
that in the short run the prices of goods do not change and the elasticity of supply is infinite.

Components of Aggregate Supply (AS):

AS (Y) = C+S
The Diagram shows that aggregate supply (AS) an income (Y) is equal to each other.
Therefore, AS is indicated by a 45 degree line from the origin.

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Propensity to consume: It shows consumption expenditure at different levels of income in
an economy.
Consumption function (propensity to consume) Two algebraic quantities that can be
measured are:

(A) Average propensity to consume (APC) =C/Y

Points about APC: 1. APC can never be zero: because even at zero level of national income,
there is autonomous consumption.
2. APC = 1, at the break-even point, consumption is equal to national income.
3. APC is more than 1: If consumption is more than national income before the break-even
point APC > 1.
4. APC is less than 1: beyond the break-even point. Consumption is less than national income.
5. APC falls with increase in income.
(B) Marginal propensity to consume (MPC) = Change in Consumption (Δ C) / Change in
Income (ΔY)
MPC = (Δ C) /(ΔY

Important Points about MPC:

1. Value of MPC varies between O and 1.
2. MPC is the slope of consumption curve and remains constant throughout in the short run.
3. Value of APC > MPC.
4. If the entire additional income is consumed, then ΔC = ΔY, making MPC = 1.
5. However, if entire additional income is saved, then ΔC = 0, making MPC = 0.

PROPENSITY TO SAVE: Saving function refers to the functional relationship between saving
and national income.
S = f (Y) Where S = saving, Y = National Income and f = Functional relationship.
Propensity to save
Two different algebraic expressions can be found
(A) Average Propensity to Save (APS)
Average Propensity to Save (APS) = Saving / Income APS = S/Y Important Points about APS:

41 | P a g e
1. APS can never be 1 or more than 1: As saving can never be equal to or more than income.
2. APS can be zero: At breakeven point C = Y, hence S = 0
3. APS can be negative: At income levels which are lower than the break-even point, APS can
be Negative when consumption exceeds income.
4. APS rises with increase in income.
(B) Marginal Propensity to Save (MPS):
Marginal propensity to save refers to the ratio of change in savings to change in total income.
Marginal Propensity to Save (MPS) = Change in Saving/ Change in Income MPS= ΔS /ΔY
Relationship between APC and APS:
The sum of APC and APS is equal to one. APC + APS = 1
Relationship between MPC and MPS:
The sum of MPC and MPS is equal to one. MPC+MPS =1

Consumption function:
Consumption function expresses functional relationship between aggregate consumption
and national income. Thus, consumption (C) is a function of income (Y). C = f (Y) Where, C =
Consumption; f= Function; Y = Disposable income Consumption at a point of time can be
measured with the equation: C=c +b Y.

According to Keynes, as income increases consumption expenditure also increases but

increase in consumption is smaller than the increase in income. This is called Keynes’
Psychological law of Consumption. According to Keynes, propensity to consume of the people
remains stable in the short period.
Break-even point: Break-even point refers to that point in the level of income at which
consumption is just equal to income. In other words, whole of income is spent on
consumption and there is no saving. Below this level of income, consumption is greater than
income but above this level, income is greater than consumption.

DETERMINATION OF EQUILIBRIUM INCOME AND OUTPUT (GDP)

Two approaches to study the determination of equilibrium income and output.
(1) AS-AD approach

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 (2) Savings and Investment approach (S=I approach)

1. AD & AS Approach
Equilibrium level of income and output is that level of income or output at which ex-ante
Aggregate demand becomes equal to ex- ante Aggregate supply’. AS=AD It is also called
‘Effective demand’. Since AS=Y, therefore the economy is in equilibrium if Y = AD or Y= C+I.
Effective demand: - Refers to that level of AD where AS = AD. Thus, effective demand always
corresponds to the equilibrium level of income in the economy. It is called effective as it is
this level of AD which determines the equilibrium between AS and AD. AS just coincides with
AD. Because AS is assumed to be perfectly elastic.

ADJUSTMENT MECHANISM:
AD and AS approach
(i) AD > AS (Ex-ante AD > AS Ex-ante AS)
(ii) AD < AS (Ex-ante AD < AS Ex-ante AS)
AD > AS (Ex-ante AD > AS Ex-ante AS): -
If AD > AS, flow of goods and service in the economy tends to be less than their demand.
As result: (i) The existing stocks of the producers would be sold out and
The producer would suffer the loss of unfulfilled demand
To rebuild the desired stocks and avoid the loss of unfulfilled demand.
The producer would plan greater production. AS would increase to become equal to AD.

AD < AS (Ex-ante AD < AS Ex-ante AS): -

If AD < AS, flow of goods and service in the economy tends to exceed their demand. As result: (i)
Some of the goods would remain unsold. (ii) To clear unwanted stocks. (iii) The producer
would plan a cut in production. (iv) Consequently, AS would reduce to become equal to AD.

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 Savings and Investment approach
(S=I approach or Planned S = Planned I)
Income Consumption Saving Investment Remarks
0 40 -40 40 S<I
100 120 -20 40 S<I
200 200 0 40 S<I
300 280 20 40 S<I
400 360 40 40 S=I
500 440 60 40 S>I
600 520 80 40 S>I

Equilibrium is struck when: S = I = 20 and equilibrium income = 100 at the level AS =AD
(100each)
ADJUSTMENT MECHANISM:
(i) S > I (Planned Saving > Planned Investment)
(ii) S < I (Planned Saving < Planned Investment)

S > I (Planned Saving > Planned Investment): -

In such situation, following changes will occur.
(i) Stock of the producer would be more than desired limit.
(ii) Profits will start shrinking.
(iii) Planned output for the subsequent year will fall.
(iv) Level of income and employment will tend to shrink to the point where S=I.
(v) The economy will come back to the state of equilibrium.

S < I (Planned Saving < Planned Investment):

In such situation, the following changes will occur.
(i) Existing stock of the producers will not be enough to cope with the level of AD.
(ii) Profits will not be maximum because the desired level of stock is not available.
(iii) Producers will plan higher level of output for the subsequent years.
(iv) Level of income and employment will rise to drive the economy to the point of
equilibrium.
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 INVESTMENT MULTIPLIER AND ITS MECHANISM

Investment multiplier is the ratio of a change in income (∆Y) to a given change in investment
(∆I). K = (∆Y) / (∆I)
Here: K = Multiplier ∆Y = Change in income ∆I = Change in investment
RELATIONSHIP BETWEEN MULTIPLIER AND MPC: -
There is direct relationship 55 between investment multiplier and MPC. Higher the MPC, greater
is the size of multiplier and vice versa. In fact, multiplier is often estimated with reference to
MPC, as under:
K= 1 / 1-MPC (K= 1/MPS). This equation establishes a direct relationship between MPC and K.

WORKING OF MULTIPLIER: Example assuming that increase in investment is Rs. 1,000 crore and
MPC is 0.9. Explain the working of multiplier. Multiplier is the ratio of a change in income (∆Y) to
a given change in investment (∆I). K = (∆Y) / (∆I)
K = 1 / 1-MPC = 1 / 1-0.9 = 1 / 0.1 =10
Given that ∆I = 1,000, K= 10 ∆Y = 10 x 1,000 = Rs 10,000 crore.

Round Change in Change in Change in Change in saving

investement income consumption

1 1000 1000 900 100

2 - 900 810 90

3 -- 810 729 81

4 -- 729

Total 1000 10000 9000 1000

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 PROBLEM OF DEFICENT DEMAND AND EXCESS DEMAND

SOME BASIC CONCEPTS: -

Full Employment Equilibrium: - Refers to the situation in the economy when AS=AD or S=I along
with fuller utilization of resources. There is no excess capacity or unemployment in the economy.
Underemployment Equilibrium: - Refers to the situation in the economy when AS=AD or S=I but
without fuller utilization of resources. Accordingly, there is unutilized capacity or excess capacity in
the economy even in a state of equilibrium.

Problems of Deficient Demand and Deflationary gap: - ‘Deficient demand (Deflationary gap)
refers to situation when Aggregate Demand is less than Aggregate Supply (AD < AS) corresponding
to full employment level in the economy’.

Measures to correct Deficient demand (Deflationary gap)

1. Fiscal measures:
(i) Public (Government) Expenditure:
(a) Government expenditure is Increased (b) Cause an overall Increased in aggregate demand.
(c) So that less aggregate demand is corrected. (d) Deficient demand (Deflationary gap) situation
eliminated.
(ii) Taxes: (a) By Lowering (Reduced) the tax burden on households. (b) The government increases
their disposable income. (c) Accordingly, AD is raised and Deficient demand (Deflationary gap)
situation managed.
(iii) Public borrowing (Public Debt): By borrowing from the public, the government create
public debt in the situation of Deficient demand (Deflationary gap) AD needs to be increased. (a)
The government reduces its borrowing from the public. (b) So that people with greater liquidity.
(c) Accordingly, aggregate expenditure remains high and Deficient demand (Deflationary gap)
situation managed.
(iv) Borrowing from RBI (The Central Bank): Borrowing by the government from the RBI
Correction of Deficient demand (Deflationary gap situation: (a) Increased amount of borrowing by
government. (b) Higher borrowing releases greater liquidity in the economy (c) As required to
correct Deficient demand (Deflationary gap) situation.

2. Monetary Measures: These measures are adopted by the Central Bank of a country to control
46 | P a g e
Deficient demand (Deflationary gap. There are two methods or instruments of monetary policy.
(A)Quantitative Methods or General methods: Which refer to the control of quantity of Money
supply through credit control. The following instruments are used in Quantitative method: (a) The
RBI (CB) Reduced the bank rate and Repo rate. (b) Which leads to reduce in rate of interest. (c) This
leads to reduce the savings & raised the demand for loans (d) There is increase in purchasing
power & further raised in AD and correct and Deficient demand (Deflationary gap) situation.
(2) Reverse repo rate: This induces the commercial bank to park their surplus funds with the RBI
for short period of time.
(i)Reverse repo rate is Decreased.
(ii) As a follow-up action, the commercial bank will be reduce their deposits with the RBI (CB) (iii)
This, in turn, will increase their ability to land money. (iv) Consequently, consumption and
investment expenditure will be increased (v) Implying a increased in AD correct and Deficient
demand (Deflationary gap) situation.
(3) Open Market Operations: It refers to the process to sale & purchase of securities by the RBI
(CB) in the economy. Correction Deficient demand (Deflationary gap) situation (i) The RBI
purchase the bonds & securities in the market which is sale by the banks, individuals and other
financial institutions of the economy. (ii) This helps to inject liquidity into the system (iii) There is a
increased in purchasing power of the people. (iv) Consequently, the AD increased, this helps in
Deficient demand (Deflationary gap) situation
(4) Cash Reserve Ratio: It is indicating some percentage of demand deposits of the commercial
banks to be kept as cash reserves with RBI. The CRR is an important tool which is used to correct
the Deficient demand (Deflationary gap) situation: (i) As the Decrease in CRR leads to rise (ii) Leads
to rise in the lending capacity of the banks. (iii) This results in rise in money supply & further rise in
AD. (iv) The rise in AD leads correct Deficient demand (Deflationary gap) situation.

(5) Statutory Liquidity Ratio (SLR): SLR refers to liquid assets of the commercial banks which
they are required to maintain as a minimum percentage of their total deposits.
SLR is an important tool which is used to correct the Excess demand / inflationary situation:
(i) As the Decrease in SLR leads to rise in the lending capacity of the banks. (ii) This results in rise in
money supply & further rise in AD. (iv) The rise in AD leads correct and Deficient demand
(Deflationary gap) situation.

Problem of Excess Demand (inflationary gap )

Excess demand (Inflationary gap) refers to situation when Aggregate Demand is more than
Aggregate Supply (AD > AS) corresponding to full employment level in the economy’.

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 Measures to correct Excess demand (inflationary gap)
Fiscal measures:
1. Public (Government) Expenditure: During this situation general price level to rise, causing a
rise in the rate of interest fall in investment and fall GDP. Correction of Excess demand /
inflationary situation: (i) Cut (Reduce)government expenditure. (ii) Cause an overall cut in
aggregate demand. (iii) So that excess aggregate demand is corrected. (iv) Excess demand /
inflationary gap situation eliminated.
2. Taxes: - Taxes are a compulsory payment made to government by the household. Correction of
Excess demand / inflationary situation: (i) By increasing the tax burden on households. (ii) The
government reduces their disposable income. (iii) Accordingly, AD is reduced and Excess demand /
inflationary situation managed.
3. Public borrowing (Public Debt): By borrowing from the public, the government steps up public
borrowing. In the situation of Excess demand / inflationary gap AD needs to be reduced. Correction
of Excess demand / inflationary situation: (i) The government steps up public borrowing by
offering attractive rate of interest. (ii) This reduces liquidity with the people. (iii) Accordingly,
aggregate expenditure also reduces and Excess demand / inflationary situation managed.
4. Borrowing from RBI (The Central Bank): Borrowing by the government from the RBI. (i)
Reduced amount of borrowing by government. (ii) The amount of liquidity in the economy also
reduced (iii) As desired to correct and Excess demand / inflationary situation.
Monetary Measures: These measures are adopted by the Central Bank of a country to control
Excess demand / inflationary gap. There are two methods or instruments of monetary policy.
Quantitative Methods or General methods: - which refer to the control of quantity of Money
supply through credit control. The following instruments are used in Quantitative method:
(i) Bank Rate and Repo Rate Policy: It refers to the rate of interest charged by the Central Bank
on the loans & advances given to the Commercial Banks. (a) The RBI may Raise the bank rate and
Repo rate. (b) Which leads to rise in rate of interest. (c) This leads to raise the savings & reduce the
demand for loans (d) There is a fall in purchasing power & further fall in AD and correct and Excess
demand / inflationary situation.
(ii) Reverse repo rate: This induces the commercial bank to park their surplus funds with the RBI
for short period of time. (a)Reverse repo rate is increased. (b) As a follow-up action, the commercial
bank will be increase their deposits with the RBI (CB) (c) This, in turn; will reduce their ability to
lend money. (d) Consequently, consumption and investment expenditure will be reduced. (e)
Implying a reduction in AD correct and Excess demand / inflationary situation.
(iii)Open Market Operations: It refers to the process to sale & purchase of securities by the RBI
(CB) in the economy. Correction of Excess demand / inflationary situation (a) The RBI sells the
48 | P a g e
bonds & securities in the market which is purchased by the banks, individuals, and other financial
institutions of the economy. (b) This helps in wiping out the excess of money supply from the
society. (c)There is a fall in purchasing power of the people. (d) Consequently, the AD falls, this
helps in reducing the price level and correct and Excess demand / inflationary situation.
(iv) Cash Reserve Ratio: It is indicating some percentage of demand deposits of the commercial
banks to be kept as cash reserves with RBI. The CRR is an important tool which is used to correct
the Excess demand / inflationary situation: (a) As the rise in CRR leads to fall in the lending
capacity of the banks. (b) Leads to fall in the lending capacity of the banks. (c) This results in fall in
money supply & further fall in AD. (d) The fall in AD leads to fall in price level and correct and
Excess demand / inflationary situation.
(v) Statutory Liquidity Ratio (SLR): SLR refers to liquid assets of the commercial banks which
they are required to maintain as a minimum percentage of their total deposits. The SLR is an
important tool which is used to correct the Excess demand / inflationary situation: (a) As the rise in
SLR leads to fall in the lending capacity of the banks. (b) Leads to fall in the lending capacity of the
banks. (c) This results in fall in money supply & further fall in AD. (d) The fall in AD leads to fall in
price level and correct and Excess demand / inflationary situation.

Q. QUESTION MAR
NO KS
1 Assertion (A): APS can never be one or more than one. 1
Reason (R): APC increases with increase in income. Choose the correct option from the
following
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
2 Assertion (A): MPC of poor is more than that of rich. 1
Reason (R): MPC falls with successive increase in Income.

3 Assertion (A): Multiplier explains how many times the income increases as a result of an 1
increase in the investment.
Reason (R): There is an inverse relationship between the value of marginal propensity to
save and investment multiplier.
4 Assertion (A): Full employment is that situation in the economy when AS = AD along with 1
fuller utilization of the resources. But it does not mean a situation of zero unemployment
in the Economy.
Reason (R): Full employment means absence of unemployment in the economy.
5 Assertion (A): When Investment Multiplier is 1, the value of MPC is also 1. 1
Reason (R): Consumption can exceed Income but Savings cannot.

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6 Assertion (A): Higher the value of Marginal Propensity to Consume, higher the value of 1
multiplier and more chances of economic growth and increase in National Income.
This happens when marginal propensity to save falls and marginal propensity to
consume rises.
Reason(R): Investment generates income and this additional income causes a change in
consumption. Additional consumption expenditure generates additional income for
producers of goods and services. This process keeps repeating till the total increase in
income equals the product of multiplier and change in investment: ΔY=Kx ΔI
7 Assertion (A): Unplanned inventories accumulates when planned investment is less than 1
planned savings i.e. producers are left with unsold stock of goods as planned savings are
more than planned investments.
Reason(R): In a situation of deficiency of AD in relation AS, Aggregate Demand is less
than Aggregate Supply when buyers (consumers and firms) are consuming less and
thus spending less. It means that they are planning to buy less than what sellers are
planning to sell implying fall in marginal propensity to consume.
8 Assertion (A): There is direct relationship between Saving and demand for goods and 1
services in the economy.
Reason(R): As people save more and more, the demand for goods and services fall in
the economy.
9 Assertion (A): J M Keynes emphasized more on Investment. 1
Reason(R): As saving increases, it leads to more and more investment in the economy
and hence more demand for goods and services in the economy
10 Assertion (A): There is always full employment equilibrium in the economy. 1
Reason (R): The equilibrium in the economy, where AD=AS may strike even when
there is underemployment.
11 Read the following statement carefully: 1
Statement 1 : AD is a flow concept
Statement 2: AD and AS are the major tools of macroeconomics analysis.
In the light of the given alternatives, choose the correct alternative from the following:
(a) Statement 1 is true and statement 2 is false.
(b) Statement 1 is false and statement 2 is true
(c) Both statements 1 and 2 are true
(d) Both statements 1 and 2 are false.
12 The value of MPC varies between . 1
(i) -9 and 0
(ii) 1 and 9
(iii) 0 and 1
(iv) -1 and 9
13 Negative savings is also termed as : 1
(a) Dissaving
(b) Savings
(c) Individual savings
(d) Break-even point
14 Why does the consumption curve of an individual not start from origin? 1
15 At the break-even point, 1
(i) Y>C
(ii) Y=C
(iii) Y<C

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16 Categorise the following as induced investment and autonomous investment. 1
(a)Government has set up public health centres in rural areas.
(b)Government has decided to invest Rs. 1,000 crore to save Forests.
(c) TATA has invested Rs 1,000 crore to improve its services.
17 Out of the following which can have a value more than one? 1
a. MPC
b. MPS
c. APC
d. APS
18 Statement 1: When investment multiplier is 1, the value of MPC is zero. Statement 1
Statement 2: When investment multiplier is zero, the value of MPC is one.

19 In the relationship between an initial increment in investment and the resulting increase 1
in aggregate income.
a. MPC
b. MPS
c. Investment Multiplier
d. All of these.
20 When the economy decides to save the whole of its additional income, then the value of 1
investment multiplier will be:
a. 0
b. -1
c. 1
d. 2
21 Which one of the following saving function corresponds to the investment multiplier of 1
5?
a. S= -28+0.25Y
b. S=-40+0.75Y
c. S=-75+0.30Y
d. S=-60+0.20Y
22 Choose the correct pair of statement. 1
Column I Column II
A. Ex-ante saving Actual savings
B. AS<AD Some of the goods remain
unsold
C. Savings Negatively related with
income
D. C=100+0.75Y MPS=0.25
23 Which of the statement is correct about the relationship between the APS and APC? 1
a. Both APS and APC rise in case of an increase in the National Income.
b. Both APS and APC fall in case of an increase in the National Income.
c. APC rises, but APS falls in case of an increase in the National Income.
d. APS rises, but APC falls in case of an increase in the National Income.

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24 Find out the value of MPC in the saving function S=100+0.80Y. 1
a. 0.80
b. 0.20
c. 100
d. 1
25 Mr Mahesh has a income of Rs 20000 a month,out of which he spends Rs 12000 in 1
consumption and rest he saves.Find out his Average Propensity to Save?
26 In a given situation when AD>AS in an economy then . 1
a) General price level in the economy will decrease.
b) Inventory stock will increase beyond desired level.
c) Situation of excess demand arises.
d) Producers will increase planned output.
27 Assertion (A): At Break-even point, consumption is equal to National Income. 1
Reason(R): APC falls continuously with an increase in income as the proportion of
income spent on consumption keeps on decreasing.
28 When average propensity to consume (APC) is 1, can be saving 0? Show with the help 3
of consumption function schedule.
29 From the following data calculate investment expenditure. 3
(a) MPS = 0.2
(b) Equilibrium level of income = Rs 22,500
(c) Autonomous consumption = Rs 500
30 3

I. Write the Breakeven point from the above diagram.

II. Derive the saving function from the consumption function i.e C=50+0.8Y.
III. Find the value of Investment Multiplier from the above diagram.

31 What is the difference between ex-ante and ex-post investment? 3

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32 Read the following news report and answer the following question on the basis of the 4
same.
India’s record pump prices of gasoline and diesel are the newest threat to the
economy's nascent recovery, as high local taxes on retail fuel risk fanning inflation and
driving a wedge between the objectives of fiscal and monetary policymakers . Gasoline
prices were at an all- time high of 97.6rs ($1.3 ) a liter in Mumbai Tuesday, while diesel
sold for a record 88.6 rs, data from state run - Indian oil corporation show . Taxes make
up more than half of that cost and represent a score point for the inflation targeting
RBI , which has vowed to keep borrowing costs low for as long as needed to support
economic growth .
a) Fiscal policy is a policy undertaken by:
i) Central bank ii) Government iii) Both of these iv) None of these
b) To reduce the price level of petrol , government should:
i) Increase Taxes
ii) Decrease Taxes
iii) Increase Borrowing
iv) All of the above

c) Monetary policy tool used by the central Bank to curtain inflation is :

i) Sell bonds ii) Increase CRR iii) Increase repo rate iv)All of the above
d) When an inflationary gap persists in the economy, what is the impact on price, output
and employment level?
i) Rise in prices, output and employment
ii) Fall in prices , output and employment
iii) Rise in price , No change in output and employment
iv) Fall in prices , No change in output and employment

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33 Read the passage given below and answer the following question 4
Government expenditures and receipts have an important effect on the
economy. Government budget has two sides viz. the expenditure side and the
receipt side. Money inflows in the receipt side of the budget are of three types,
i.e. taxation, public borrowing and sales of goods and services; money outflow
in the expenditure side of the budget are also of three types i.e. purchase of
goods and services, transfer payment and repayment of debts. Taxation is a
compulsory contribution made by the people to the government against which
no direct payments are made by the government.
1. If government increases its expenditure on the infrastructural project, how
will this impact the aggregate demand?
( A) Increase
(B) Decrease
(C) Remains constant
(D) Increase in a three sector closed economy
2. What will be the impact on the aggregate demand, if the government
increase tax rates as it is a main source of government’s revenue?
(A) Increase
(B) Decrease
(C) Remains constant
(D) Either Increase or decrease
3. Public borrowings by the government will lead to --------------
(increase/decrease) money supply in the economy.
4. Suppose government gives subsidies to an industry to share its cost and
help the industry to establish it in the long run. This represents which of the
following objectives of the government budget?
(A) Reducing income inequality
(B) Reallocation of resources
(C) Social Welfare
(D) Fiscal Discipline
34 Government of India’s ₹20 lakh crore ‘AatmaNirbhar Bharat’ package which 4
aimed at reviving the economy, includes major fiscal measures like free food for
the poor, direct cash transfer, money for rural job guarantee scheme, MGNREGA
and credit guarantees to MSMEs. RBI has also taken steps to slash lending rates
and add more liquidity into the markets. To induce liquidity RBI must have.
a) Increased cash Reserve Ratio
b) Reduced Repo Rate
c) Increased Reverse Repo Rate
d) Kept statutory liquidity Ratio constant

35 Given the aggregate consumption expenditure function C=100+0.75 Y ( Where 6

Y= national income and C= aggregate consumption expenditure) and
autonomous investment expenditure(Io)=Rs 1000 Crore, Calculate equilibrium
level of Y?
36 In an economy, 60% of increased income is spent on consumption. If 2 crores 6
are invested in a project then find: (a) Increase in income, and
(b) Increase in savings.
37 (a) Distinguish between inflationary and deflationary gap. 6

Explain how deficient demand should be corrected using monetary policy.

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 38 Differentiate between inflationary and deflationary gap.Show deflationary gap on 6
a diagram. Can this gap exists at equilibrium level of income? Explain
39 What is fiscal policy?How does the following affect AD in an economy : 6
I) Changes in government expenditure
II) Changes in tax rates.
39 Give the MPC=0.8 and investment at all levels of incomes is Rs. 40 crores, 6
complete the following table

Income Consumption Saving investment AD AS=Y

0 60 - - - -
100 - - - - -
200 - - - - -
300 - - - - -
400 - - - - -
500 - - - - -
600 - - - - -

ANSWER

1 (c) Assertion (A) is true but Reason (R) is false

2 (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
3 (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
4 (c) Assertion (A) is true but Reason (R) is false
5 (d) Assertion (A) is false but Reason (R) is true.
6 (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
7 (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
8 (d) Assertion (A) is false but Reason (R) is true.
9 (c) Assertion (A) is true but Reason (R) is false
10 (d) Assertion (A) is false but Reason (R) is true.
11 (c) Both statements 1 and 2 are true.
12 (iii) 0 and 1
13 (a) Dissaving
14 Because even at zero level of income, the consumption is not zero.
15 (ii) Y = C
16 (i) & (ii) are Autonomous Investment: Establishment of public health centres and government
investment on saving forests. These investments are not done with profit motive.
(iii) is Induced Investment : TATA investment is driven by profit motive
17 c. APC
18 Statement 1 is true and statement 2 is false.
19 Investment Multiplier
20 c. 1
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21 d. S=-60+0.20Y
22 d. C=100+0.75Y, MPS=0.25
23 d. APS rises, but APC falls in case of an increase in the National Income.
24 b. 0.20
25 Given,
Consumption(C)=12000 and Income(Y)=20000 Saving=Y-C=8000
We know that APS=S/Y
=8000/20000
=0.4
26 Situation of excess demand arises
27 Both A and R is correct but R is not the correct explanation of A
28 Ans: Short answer type question
when average propensity to consume (APC) is 1 it means total consumption C is equal to total
income , C = Since APC= C/Y. APC + APS =1 so when APC is 1 APS must be 0 because
APS=S/Y=0. So when APCis 1,saving is 0.This is called breakeven point
29 Given,
Marginal Propensity to Save (MPS ) = 0.2, Income (Y) = 22,500, and autonomous consumption
= 500
We know that,
MPC = 1 – MPS = 1 – 0.2 = 0.8.
At equilibrium level,
Y=C+I
Therefore, 22,500 = 500 + (0.8) 22,500 + I
Or I = 22,500 – 500 – 18,000 = Rs.4,000
Hence we have Investment Expenditure equal to Rs. 4000.
30 I-At point E.
II-S=50+.20Y
III-5
31 By planned (ex-ante) investment we mean the level of investment which the investors plan to
invest at different levels of income and employment in the economy. Planned investment
refers to the amount of planned or derived investment given by the investment demand
function. However actual (ex-post) investment may differ from the planned investment when
actual sales differ from the plan
sales and the firms thus face unplanned addition or reduction in inventories.
32 a) ii) Government
b) ii) Decrease taxes
c) iv) All of the above
d) iii) Rise in price ,no change in output and employment
33 1 ( A) Increase
2 (B) Decrease
3 Decrease
4 (B) Reallocation of resources
34 Option b
35 Ans: We know that at the equilibrium national output(Y)
Y=C+Io
=100+0.75Y+Io
Y-,75Y=100+1000
Y (1-0,75 )=1100
Y=1100/(1-0,75)
Y= 1100/0,25
=Rs 4400

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36 (a) Change in income = 5
(b) Change in savings = 2
37 (a) Differences on the basis of concepts of AD and AS. Answers will vary based on
student’s understanding.
(b) There are two broad instruments to correct deficient
demand 1.Quantative instruments
⮚ Decrease in Bank Rate
⮚ Purchase of securities
⮚ Decrease in LRR
2, Qualitative instruments
⮚ Decrease in margin requirements
⮚ Advice to encourage lending
Withdraw credit rationing
38 The execess of aggregate demand over aggregate supply at the full employment level is known
as inflationary gap.
The excess of aggregate supply over aggregate demand at the full employment level is known
as deflationary gap.

The deflationary gap doesn’t exist at equilibrium level of income OY0 .It exists at full
employment level of output.
In this diagram OYf is the full employment level of output for which (C+I)0 should have been
the aggregate demand. But the actual demand is (C+I)1 which corresponds to point G an
aggregate demand resulting in a deflationary gap of FG.The deflationary gap is thus,a measure
of deficiency aggregate demand.
39 Fiscal Policy is the policy concerning taxation and expenditure of the government.
Fiscal Policy and Excess Demand: Excess demand refers to a situation when AD>AS at full
employment level. Following fiscal policy measures can be used to correct the situation of
excess demand:
I) Increase in taxes-The government should impose new taxes and raise the rate of
existing taxes.It will reduce the disposable income which further leads to a fall in both
investment and consumption expenditure and consequently AD is reduced and thus the
problem of excess demand can be solved.
II)Reduction in government’s expenditure-The government should reduce its expenditure
on non-essential and non-developmental items.Transfer payments such as old age
pensions,subsidies etc. should be reduced.Reduction in government’s expenditure will help
in reducing aggregate demand and thus the problem of excess demand can be solved.

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 Fiscal Policy and Deficient Demand:Deficient demand refers to a situation in when AD<AS at
full employment level.Following fiscal measures can be used to correct the situation of
deficient demand:
I) Decrease in taxes-The government should reduce the taxes to increase the purchasing
power of the people. The government should also cut the taxes particularly the corporate
taxes and the income taxes to encourage private investment.If the tax rate is reduced,it will
increase the level of aggregate demand and thus will remove the problem of deficient
demand.
II) Increase in government expenditure-The government should increase its expenditure on
public works programmes, public health and education should make large investments. If the
governments expenditure is increased,it will increase the level of aggregate demand and thus
the problem of deficient demand can be solved.
40
Income Consumption Saving investment AD AS=Y
0 60 -60 40 100 0
100 140 -40 40 180 100
200 220 -20 40 260 200
300 300 0 40 340 300
400 380 20 40 420 400
500 460 40 40 500 500
600 540 60 40 580 600

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 Problems of excess demand and deficient demand

Q. NO QUESTION MARKS
1 Choose the correct alternative from the below: 1
Statement 1: Excess demand leads to a rise in general price level.
Statement 2: Excess demand does not affect the output level as full employment is
already attained.
Alternatives:
a) Both the statements are true.
b) Both the Statements are false.
c) Statement 1 is true and statement 2 is false.
d) Statement 1 is false and statement 2 is true.
2 Read the following Assertion (A) and Reasons(R) 1
Assertion (A): Due to excess demand, employment increases in the economy.
Reason(R): Output level increases in the economy due to excess demand.
3 In April 2023, the RBI announced its quarterly monetary policy and decided to 1
increase Cash reserve ratio by 25% basis point. How will it affect the aggregate
demand of the country?
4 The RBI has sold Govt securities worth Rs. 8,710 Crore in the secondary market, 1
over the last four weeks, to drain out excessive liquidity’- The Economic Times 26
Dec 2021.
What may be the likely cause of the action?
a) Curbing inflation
b) Boosting the money market
c) Boosting the share market
d) All of the above
5 Identify the correct sequence of alternatives given in Column II by matching them 1
with respective items in Column I:
Column I Column II

(a) Full Employment equilibrium (i) Inflationary gap in the economy

(b) Structural Unemployment (ii) Underemployment equilibrium
(c) Excess of demand (iii) Change in the technique
(d) Shortage of demand of production
(iv) No excess capacity
6 By increasing the tax burden on the households, the government intends to: 1
(a) correct the situation of deficient demand
(b) correct the situation of inflationary gap
(c) correct the situation of excess demand
(d) both (a) and (b)

7 If the level of AD is to be raised (implying an upward shift in AD curve) there should 1

be:
(a) increase in autonomous investment
(b) increase in autonomous consumption expenditure
(c) both (a) and (b)
(d) none of these

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8 To reduce credit availability in the economy, the Central Bank may 1
(Choose the correct alternative).
(a) Buy securities in the open market
(b) Sell securities in the open market
(c) Reduce reserve ratio
(d) Reduce repo rate
9 1

On the basis of the above diagram, what does point Q indicate?

(a) Point of underemployment equilibrium
(b) Point of full employment equilibrium
(c) Point of over employment equilibrium
(d) None of these
10 Statement-1: The inflationary gap is the amount by which the actual aggregate 1
demand exceeds the level of aggregate demand required to establish the full-
employment equilibrium.
Statement-2: The deflationary gap is a measure of the amount of the excess of
aggregate demand.
(a) Both Statement 1 & 2 are True
(b) Both Statement 1 & 2 are False
(c) Statement-1 is True but Statement-2 is False
(d) Statement-2 is True but Statement-1 is False
11 The effect of excess demand in the economy are: 1
a) Increase in output, employment and price level
b) Decrease in output, employment and price level
c) Increase in price level but no change in output and employment
d) Increase in output but no change in employment and price level

12 Read the following Assertion (A) and Reasons(R) 1

Assertion (A): Monetary measures are adopted by the central bank to control
deficient demand.
Reasoning(R): Fiscal measures are adopted by the government through budget to
control excess demand.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
13 Programmes like ‘Make in India’ or ‘Start Up’’ initiated by the Indian Govt can help 3
correct the problem of deficient demand. Defend or refute the statement with valid
reasons.

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14 Read the following news report and answer Questions the following on the basis 4
of the same :
The Reserve Bank of India (RBI), cut Repo Rate to 4.4%, the lowest in at least 15
years. Also, it reduced the Cash Reserve Ratio (CRR) maintained by the banks for
the first time in over seven years. CRR for all banks was cut by 100 basis points to
release ` 1.37 lakh crores across the banking system. RBI governor Dr. Shaktikanta
Das predicted a big global recession and said India will not be immune. It all
depends how India responds to the situation. Aggregate demand may weaken and
ease core inflation. The Economic Times; March 27th, 2020
1. Cut in Repo rate by RBI is likely to.................. (Increase/decrease) the demand
for goods and services in the economy. (choose the correct alternative)
2. Decrease in Cash Reserve Ratio will lead to.................. (choose the correct
alternative)
(i) fall in aggregate demand
(ii) rise in aggregate demand
(iii) no change in aggregate demand
(iv) fall in general price level
3. . The difference by which actual Aggregate Demand exceeds the Aggregate
Demand, required to establish full employment equilibrium is known as...
. .............. (inflationary gap/deflationary gap). (choose the correct alternative)
4. . The impact of ‘Excess Demand’ under Keynesian theory of income and
employment, in an economy are : (choose the correct alternative)
(i) decrease in income, output, employment and general price level
(ii) decrease in nominal income, but no change in real output
(iii) increase in income, output, employment and general price level
(iv) No change in output/employment but increase in general price level.
15 Case Study : 4
Along with the weakening of global economic activity, inflation the world over
also remained muted in 2019.Inflation softened in advanced and emerging
economies reflecting a slack in consumer demand. From the supply side, lower
energy prices in 2019 also contributed to softening of inflation. In India, inflation
slightly, lowers energy prices in rose to 4.1per cent in April-December 2019, after
a sharp decline from 5.9per cent in 2014 to 3.4 per cent in 2018.
Based on case study given above, answer the following questions:
1: Due to weakening of global economic activity, level of aggregate demand in the
economy:
a. Increases b. decreases c. fluctuate d. constant
2: The impact of above situation under Keynesian theory of income and
employment, in an economy is:
(A) Decrease in income, output and employment.
(B) Decrease in nominal income, but no change in real output.
(C) Increase in income, output and employment.
(D) No change in output and employment but increase in general price level.

3: Decrease in government expenditure is required to combat:

a) Inflation b )deflation (c) unemployment (d) poverty

4: Inflation leads to:

(A) unemployment (B) wage-price spiral
(c) both (A) and (B) (D) none of these
16 Critically examine the effectiveness of quantitative and qualitative monetary 6
measures to control the situation of deficient demand.
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17 In a three-sector economy, explain the problem of excess demand. 6
How can aggregate demand be reduced by an amount equal to inflationary gap?
18 Read the following statements carefully and identify the policy measure as 6
indicated in each. Also, state the use of this policy measure.
(i) RBI raises cost of borrowing for the commercial banks. Consequently, market
rate of interest is raised by the commercial banks.
(ii) RBI purchases securities in the open market.
(iii) Restricting loans only for priority sectors of the economy.
(iv) Government borrows? 20 crores from the public.
(v) Difference between the value of collateral and the value of loan is increased.
(vi) GST increases from 10% to 15%.
19 (vii) In the given figure, what does the gap ‘KT’ represent? State and discuss any 6
two fiscal measures to correct the situation.

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 ANSWER

1 Both the statements are true

2 d)
3 Aggregate demand may be reduced slightly
4 Curbing Inflation
5 a - (iv), b - (iii) , c (i) , d (ii)
6 (d)both (a) and (b)
7 (c) both (a) and (b)
8 (b) Sell securities in the open market
9 (a) Point of underemployment equilibrium
10 (c) Statement-1 is True but Statement-2 is False
11 c) Increase in price level but no change in output and employment
12 (b) Assertion and reason both are true but reason is not the correct explanation of assertion.
13 I would like to defend the given statement.
a) The programmes like Make in India or Start Ups will induce domestic as well as
foreign investors for new investment.
b) It may increase capital flow in the market.
It will create additional purchasing power within the economy.
14 1. increase
2. (iii) rise in aggregate demand
3. Inflationary gap
4. (iv) No change in output/employment but increase in general price level.
15 1 (B)
2 (A)
3 (A)
4 (B)
16 In correcting the deficient demand situation, quantitative credit control measures and
qualitative credit control measures separately or jointly are very much effective.
Under quantitative credit control measures the followings are applied:
a) To decrease the cash reserve ratio.
b) To decrease the bank rate.
c) To purchase Govt securities under open market operation.
Under qualitative credit control measures, the followings are applied during deficient
demand situation:
a) Selective credit control
b) Decrease in Margin requirements Relaxation in credit quotas

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17 a) In a three sector model there is Household, Firm & Govt sectors are there and Govt
expenditures play an important role in correcting the abnormalities like excess or
deficient demand. The aggregate demand equation becomes AD= C+I+G compared to
closed economy model of AD= C+I (Diagram of excess demand to be given).
b) In order to correct the excess demand situation, the Govt needs to use its fiscal
measures of reducing expenditures, Decrease in Govt expenditures will reduce aggregate
demand and remove the inflationary gap. (Use appropriate diagram).

18 (i) Policy of Bank rate/Repo rate (Increase in bank rate or repo rate increases the cost of
borrowing for the commercial banks). This monetary measure is used to correct excess
demand.
(ii) Open market operations (Purchase of securities in open market). This monetary
measure increases liquidity to correct deficient demand.
(iii) Policy of credit rationing. This monetary measure is used to correct excess demand.
(iv) Public borrowing (Borrowing from the public). This fiscal measure is used to correct
excess demand by soaking liquidity.
(v) Policy of margin requirement (Increase in the margin). This monetary measure is
used to correct excess demand.
(vi) Fiscal policy (Increase in taxes). This fiscal measure is used to correct excess demand.
19 In the above-given Income and Aggregate Demand graph, KT represents the inflationary
gap. An inflationary Gap is a gap by which the actual aggregate demand exceeds the
aggregate demand required for the establishment of full employment equilibrium. This
gap or excess demand happens due to the rise in money supply and availability of credit at
easy terms. The inflationary gap can occur because of various reasons such as a rise in the
propensity to consume, reduction in taxes, increase in investment, increase in government
expenditure, deficit financing, etc and can have an impact on the output, employment, and
general price level.

The fiscal measures (fiscal measures or policies are the measures of the Central
Government) to correct the situation of inflationary gap or excess demand are as follows:

1) Decrease in Government Spending: Government spends a huge amount of money

on infrastructural and administrative activities. To control the situation of inflationary gap,
it should reduce its expenditure to the maximum possible limit. It should give more
emphasis on the reduction of expenditure on defence and unproductive works. It is
because expenditure on these activities rarely helps in the growth of a country. Hence, a
reduction in government spending will reduce the level of aggregate demand in the
economy and will ultimately help in correcting inflationary pressures in the economy.

2) Increase in Taxes: When there is an inflationary gap, the Government increases the tax
rates and even imposes some new taxes to reduce the level of aggregate expenditure in
the economy. The rise in taxes ultimately helps in controlling the situation of excess
demand or inflationary gap.

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 UNIT 4: Government Budget and the Economy

Government Budget: - A government budget is an annual statement of estimated receipts expenditure

of the government during a financial year. The financial year begins (1April to 31 March of next year)

TYPES OF BUDGET

(A) Balanced (B) Surplus (C) Deficit Budget

A) Balanced budget: A balanced budget is a budget in which government receipts are equal to
government expenditures. Balanced budget: Government Receipt = Government Expenditure Merits of
a balanced budget 1) A balanced budget shows that the government is not making any wasteful
expenditures. 2) A balanced budget shows financial stability, it means the absence of inflation and
deflation in an economy.

OBJECTIVES OF GOVERNMENT BUDGET

(1) Allocation/Reallocation of resources:- The govt. makes a proper allocation of resources through
its budgetary policy so as to make a balance between the goals of profit maximization & social welfare.
The government may influence the allocation of resources through : (a) Taxation Policy:-Imposition of
heavy tax Production of goods which are injurious to health like: Cigarettes, Liquor, Tobacco etc. is
discouraged through heavy taxation. Subsidies and Tax concessions On the other hand production of
socially useful goods like: Khadi is encouraged through subsidies. (b) Expenditure Policy:- There are
many non-profitable economic activity which are not undertaken by the private sector either due to
lack of profits or due to huge investment expenditure involved e.g. water supply, sanitation minting law
and order national defiance etc. are called public goods. Therefore, government can directly produce
these goods and services in the public interest in order to create social welfare.

(2) Redistribution of Income or Reduction in Income inequalities: The budget of the government
shows its comprehensive exercise on the taxation and subsidies .The government uses fiscal
instruments of taxation and subsides with the view to improving the distribution of income and wealth
in economy : (a) Taxation policy:- (i) The Redistribution of income and wealth is to be achieved through
progressive income tax. (ii) In which higher the income, higher the tax rate . (iii) The government puts
the higher rate of taxation on income of the rich people.(iv) Lower rate of taxation on lower income

65 | P a g e
groups.(v) this will reduce the inequalities of income (vi) Giving to the poor. (b) Expenditure policy
(Transfer payment and subsides):- (i) Providing free services like education and health to the poor. (ii)
Providing essential items of food grains almost free the families living BPL. (iii) Free LPG gas
connections and subsidized LPG gas to the BPL.

(3) Economic Growth (GDP Growth) :- GDP growth is the central objective of the government
budgetary policy.

(a) Taxation Policy and Subsides:- (i) If government provides tax rebates and other budgetary
incentives , it will stimulate saving and investment in the economy and thus, economic growth.(ii) Tax
concessions aim at reducing cost and thus, making profit.

(b) Expenditure Policy: - (i) Spending on infrastructure in the economy to promotes the production
activities across different sector

(ii) Government expenditure is a major factor that generates demand (iii) By inducing private
investment expenditure through tax rebates and subsidies. (c )Economic Stability :- Economic stability
menace of large- scale fluctuations in general price level in the economy . Government can exercise
control over price fluctuations through its taxation policy and expenditure policy. (d) Under Inflationary
Situations:- Inflationary situation emerge due to AD > AS .During period of inflation government: (i)
Increase taxes to discourage demand. And (ii) Reducing its on expenditure (iii) This will decrease AD to
correct inflationary situation. e) Under Deflationary Situations:- During periods of recession ( AD < AS)
government : (i) Reduce taxes to encourage demand and (ii) Increase its on expenditure. (iii)
Government can also use subsidies to encourage spending by people.(iv) This will raise the level of AD
to correct deflationary situation.

(4) Balanced Regional Growth: - The budgetary policy places priority on the development of
backward region in the country. This is achieved through : (i) Liberal tax laws for the backward region
in the country. (ii) Establishment of special economic zones (SEZ) in the backward regions.

(5) Employment Opportunities: - Budgetary policy focuses on the generation of employment

opportunities through: (i) Investment in public enterprises. (ii) Budgetary provisions are made for
employment schemes like MGNREGA. (iii) Offering employment to the poorer sections of the society.

Broad components of the government budget are:

(i) Budget Receipts:- (a) Revenue receipts (b) Capital receipts.

(ii) Budget Expenditure: - (a) Revenue expenditure (b) Capital expenditure.

Budget Receipts: -
Budget receipts are classified as: (1) Revenue receipts (2) Capital receipts.
(1) Revenue Receipts: -

‘Revenue receipts are receipts that neither create any liability nor reduce any asset’ (neither, nor) For
the government. Tax revenue or non-tax revenue are revenue receipts as they neither create any
liability nor reduce any asset. The following two characteristics: (i) These receipts do not create any
corresponding liability for the government. (ii) ‘These receipts do not cause any reduction in assets of
the government’ Example: Tax receipts: - Income tax Corporation tax, Gift tax, Excise duty, Customs
duty, GST . Non-tax receipts:- Fees, Fines, Grants/Donations, Income from public enterprises. Tax
66 | P a g e
Receipts:- ‘A tax is a compulsory payment to the government by the households, firms or another
institution unit’.

(2) Capital Receipts :-

‘Capital receipts are those receipts of the government which either create a liability for the government
(for example - borrowings) or cause reduction in its asset (for example disinvestment of PSU)’. The
following two characteristics :- (i) These receipts create a liability for the government. For example,
loans by the government are a liability. (iii) These receipts cause reduction in the assets of the
government. For example, money received by the government by selling its shares would cause a
reduction in the assets of the government.

Capital Receipts:- (i) Recovery of loans:- The central government offers loans to the state government to
cope with financial crises. When these loans are recovered, assets are government reduced. (ii)
Borrowings and other liabilities: - Borrowing creates liability. (iii) Other receipts (Disinvestment):-
‘Disinvestment occurs when the government sells off its shares of public sector enterprises to private
sector’. Its involves transfer of ownership of public sector entrepreneurs, to private entrepreneurs. It
causes reduction of assets of the government.

Budget Expenditure ‘Budget expenditure refers to estimated expenditure of the government during the
fiscal year’

Budget Expenditure is classified as:

(1) Revenue Expenditure (2) Capital expenditure

(1)Revenue Expenditure :- Estimated expenditure of the government in a fiscal year which does not
create assets or causes a reduction in liabilities.( neither creates an asset nor reduces liability) for
example interest payment, subsidies, grants given to states even if some of these may be for creation of
assets. The following two characteristics (I) It does not create any asset for the government. For
example: expenditure by the government on old-age pensions, salaries, scholarships. (II) It does not
cause any reduction in liability of the government. For example – Grants to the state government to
cope with natural calamities.

Capital expenditure:- Capital expenditure refer to the estimated expenditure of the government in a
fiscal year which creates assets or causes a reduction in liabilities (that either creates asset or reduces a
liability) for example construction of school building etc, or reduces a liability for example repayment of
loan.

The following two characteristics (i) It creates assets for the government. For example- Expenditure on
land and building, Expenditure on machinery and equipment, purchase. (ii) It causes reduction in
liabilities of the government. For example- Repayment of loans.

BALANCED & UNBALANCED BUDGET

Balanced Budget : It is a budget in which estimated receipts equal estimated expenditure.

Balance budget: - Government Receipts = Government

Unbalanced Budget:-
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 (i) Surplus Budget : It is a budget in which estimated receipts exceed estimated expenditure.
Estimated government receipts > estimated government expenditure.
(ii) Deficit Budget: It is a budget in which estimated receipts fall short of estimated expenditure.
Estimated government expenditure > estimated government receipts.

Budget Deficit = Total expenditure (Revenue expenditure + Capital expenditure) –Total receipts
((Revenue receipts + Capital receipts) Types of

Revenue Deficit (ii) Fiscal deficit (iii) primary deficit.

(1)Revenue Deficit:- ‘Revenue deficit refers to the excess of revenue expenditure over revenue
receipts’. It is the difference between the (Plan revenue expenditure and Non-Plan revenue
expenditure) and (Tax revenue + Non-tax revenue). Revenue Deficit = Revenue expenditure – Revenue
receipts( RD= RE – RR, when RE > RR )

(2) Fiscal deficit:- Fiscal deficit refers to the excess of total expenditure overTotal Receipts excluding
borrowings. Fiscal Deficit = total Expenditure (Revenue expenditure + Capital expenditure) – Total
Receipts (Revenue receipts + Capital receipts) other than Borrowings. FD = BE – Brother than
Borrowings, when BE > BR other than borrowing.

(3)Primary deficit: - Primary deficit is the deference between fiscal deficit and interest.

Primary Deficit = Fiscal Deficit – Interest Payments.

PD = FD – IP

Q. NO QUESTION MARKS

1 "In the Annual Budget 2023-24, the Government of India set up disinvestment targets 1
of 65,000 crore".
Such proceeds from disinvestment can be classified as……… ………. receipts in the
Government Budget as it leads to…………. of the Government. (Choose the correct
alternative)

(a) capital, decrease in assets

(b) revenue, increase in assets
(c) capital, increase in liabilities
(d) revenue, decrease in liabilities
2 In order to tackle the problem of rising general price level (inflation) in an economy. 1
Government may come up with a surplus budget to achieve the budget objective
of……………
I. reallocation of resources
II. price stability
III. redistribution of income
Choose the correct option from the following.

(a) (i) only

(b) (iii) only
(c) (ii) only
(d) (i) and (iii)
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3 Read the following statements - Assertion (A) and Reason (R): Choose the correct 1
alternative among those given the below:
Assertion: In the process of development, construction of dams, new schools, new
plants, and repayment of loans is essential.
Reason: Capital expenditure creates the assets of the government and causes reduction
in the liabilities of the government.
Choose the correct option from the following.
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true,
4 Read the following statements - Assertion (A) and Reason (R): Choose the correct 1
alternative among those given the below:
Assertion: High Fiscal deficit throws a country into the debt trap and enhances foreign
dependence.
Reason: Fiscal discipline of any country establishes the credibility of country's
creditworthiness.

5 “Free distribution of LPG connection to poor people is a sign of social justice”. Identify 1
the Objective of Government Budget' from the above-mentioned statement.
(a) Promote Economic Growth
(b) Management of public enterprises
(c) Create equitable distribution of income
Create fluctuation in revenue of the government
6 Read the following statements carefully and choose the correct alternative: 1
Statement 1: Fiscal deficit is always greater than primary deficit.
Statement 2: Fiscal deficit indicates borrowing requirements of the government.
(a) Both the statements are true.
(b) Both the statements are false.
(c) Statement 1 is false, but statement 2 is true.
(d) Statement 2 is false, but statement 1 is true
7 From the set of statements given in column I and column II, choose the correct pair of 1
statements:
Column I Column II
(a) Payments of salaries (i) Capital Expenditure
(b) Giving loan to Nepal (ii) Revenue Expenditure
(c) Getting grants from IMF (iii)Capital Receipts
(d) Providing free covid (iv)Revenue Receipts
vaccine to public

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8 Fiscal deficit in Government Budget indicates……… 1
a) Excess of capital expenditure over capital receipt (excluding borrowings)
(b) Excess of revenue expenditure over revenue receipt
(c) Borrowing requirement of the State Governments only
(d) Excess of total expenditure over revenue receipts and non-debt creating
capital receipts
9 'Govt. of India spends 2.5 crore for Olympic medallist Mirabai Chanu in 5 years; 1
This will be categorized as
(a) Revenue Nature Income
(b) Capital Nature Income
(c) Capital Nature Expenditure
(d) Revenue Nature Expenditure
10 According to ‘Pradhan Mantri Garib Kalyan Anna Yojana': During the period May- 1
November 2021, more than 1.35 crore people will be provided 5 kg free wheat/rice
per person/month along with 1 kg free whole chana to each family per month to
safeguard the interest of poor section during Covid-19 pandemic.
Which objective does the government aim to satisfy with this?
(a) Economic Stability
(b) Reallocation of Resources
(c) Economic Growth
(d) Reducing inequalities in income and wealth
11 Assertion (A): Borrowings are capital receipts but payment of interest on borrowings is 1
revenue expenditure.
Reason (R):borrowings creates liability but payment of interest does not reduce liability

12 Assertion (A): Through the changes in expenditure & taxes, government brings 1
economic stability.
Reasoning(R): In case of deflation, the government can give tax concession or increase
expenditure to leave more disposable income in the hands of the people. In case of
inflation, government can reduce its expenditure or increase in tax rate.

13 If primary deficit is 3500 and interest payment is 500, then fiscal deficit is 1
a) 2900 b) 4000 c) 4100 d) 4200
14 Which of the following conditions satisfy the concept of revenue receipt? 1
a)Does not create liability b) Does not reduce asset
c) Create liability d) Both a) and b)
15 Disinvestment is which type of receipt for the Government? 1
a) Capital Receipt
b) Revenue Receipt
c) Both a and b
d) None of these

16 receipts are non-recurring in nature. 1

a) Revenue
b) Capital
c) Both a and b
d) None of these

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17 Statement 1- Fiscal deficit includes borrowings to create loan 1
Statement 2- Fiscal deficit depicts borrowings required to meet current year budget
expenditure
a) Both are correct
b) Both are wrong
c) Statement 1 is correct and statement 2 is wrong
d) Statement 1 is wrong and statement 2 is correct
18 Under Ujjwala Yojana, the Government of India is providing free LPG kitchen gas 1
connections to the families living 'below the poverty line'. Identify the objective that
the government is trying to fulfill here.
(a) Allocation of resources
(b) Reducing distribution of income inequalities
(c) Economic growth
(d) Financial stability

19 Choose the correct 1

alternatives to be
filled in given blanks
A, B and C.

(a) A - Revenue receipts, B- Capital receipts C - Government budget

(b) A - Capital receipts, B - Government budget, C- Revenue receipts
(c) A - Capital receipts, B - Revenue receipts, C-Government budget
(d) A-Government budget, B Revenue receipts, C-Capital receipts

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20 Read the following data and identify the correct value of fiscal deficit from the options 1
given below:
Sr. Item Amount
( ₹ in billion)
(i) Capital receipts 68
(ii) Revenue expenditure 160
(iii) Interest payment 20
(iv) Borrowing 32
(v) Tax revenue 50
(vi) Non Tax revenue 10

Alternatives
(a) ₹ 32 billion
(b) ₹ 64 billion
(c) ₹ 20 billion
(d) ₹ 46 billion

21 Identify which objective of the government budget should we 1

use to tackle the issue depicted in the image given below.

Alternatives:
(a) Allocation of resources
(b) Reducing income inequalities
(c) Economic stability
(d) Reducing regional disparities
22 Assertion (A): If primary Deficit is Zero, Fiscal Deficit = Interest Payments. 1
Reasons(R): Primary deficit is the difference between fiscal deficit of the current year
and interest payments on the previous borrowings.

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23

Identify the budgetary situation in the economy.

a) Deficit budget
b) Surplus budget
c) Balanced budget
d) None of the above.
24 Fill the blank areas in the given diagram with any 4 important indirect taxes that 1
replaced /subsumed into GST regime.

25 The fee of the government college is a part of revenue receipts because. 1

a) It creates liabilities of the government

b) It increases assets of the government
c) It neither creates any liability nor reduces any assets of the government
d) It either creates liability or reduces any assets of the government
26 Fill the blank area with any four objectives of government budget: 1

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27 Giving reasons, categorise the following into revenue expenditure and capital 3
expenditure:
(i) Grants given to state government.
(ii) Repayment of loans
(iii) Construction of school building.
28 On the basis of the given information, calculate the value of: 3
(a) Fiscal deficit
(b) Primary deficit
(c) Revenue Deficit

S. No. Items 2023-24 (₹in crore)

(i) Revenue Receipts 35,000
(ii) Revenue expenditure 45,000
(iv) Debt creating capital receipts 12,000
(v) Interest Payments 30% of Revenue Deficit
From the information given in the diagram, categorize the items into revenue receipts
and capital receipts, stating valid reasons.

29 4

30 Two friends, Deepak and Mohan were discussing the impact of increase in GST rates 4
on luxury items, as recently undertaken by the Government. Mohan was of the view
that most of the luxury items (like foreign travel, imported cigarettes, etc.) should be
taxed exorbitantly, while the items related to daily consumption of poor and middle
class should be tax-free.
31 4

a) Interpret the given image on source of revenue of government of India (as

per union budget 2020-21) and write the inference.
b) Distinguish between revenue receipts and capital receipts with examples.

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32

a) On the basis of given chart, interpret the trend of deficit as a percentage of

GDP.
b) Discuss briefly the major difference between fiscal deficit, revenue deficit
and primary deficit.
33 Study the given picture carefully: 6
Sources of State and Local government tax revenues for a financial year 2023-
24.

(a) Answer the following questions based on common knowledge and picture:
(b) Categorise the given items in the picture into tax /non-tax receipts.
(c) "Government has started spending more on providing free services like
education and health to the poor." In the light of above statement, explain how
the government can use. the budgetary policy in reducing inequalities of income.

ANSWER

1 a) capital, decrease in assets

2 (ii) only
3 (a) Both A and R are true and R is the correct explanation of A.
4 (a) Both A and R are true and R is the correct explanation of A.
5 (C) Create equitable distribution of income
6 (c) Statement 1 is false, but statement 2 is true.
7 c)
8 (d) Excess of total expenditure over revenue receipts and non-debt creating capital receipts
9 (d) Revenue Nature Expenditure--- (iv) Revenue Receipts
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 10 (d) Reducing inequalities in income and wealth
11 A
12 A
13 B
14 D
15 A
16 B
17 D
18 b) Reducing distribution of income inequalities

19 (d)A-Government budget, B Revenue receipts, C-Capital receipts

20 (a) ₹ 32 billion
21 (c) Economic stability
22 (a) Both Assertion (A) and Reason (R) are true and Reason (R) are true and Reason (R) is
the correct explanation of Assertion (A)
23 a)
24 Value Added Tax (VAT)
Central Sales Tax (CST)
Central Excise Duty
Entertainment Tax
25 c) It neither creates any liability nor reduces any assets of the government
26 1. Growth of the economy
2. Economic stability
3. Generation of employment opportunities
4. Reducing income inequality
27 (i) Grants given to state government--- Revenue expenditure
(ii) Repayment of loans ---- capital expenditure
(iii) Construction of school building -- capital expenditure
28 a. 12,000
b. 9,000
c. 10,000
29 Revenue Receipt – Corporation tax, customs, GST and other taxes, income tax Neither
Create Assets, Nor Reduce Liability
Capital Receipts- Recovery of loan, borrowings -- Either Create Assets, Or Reduce Liability
30 Re-allocation of Resource: - Through the budgetary policy, Government aims to reallocate
resources in accordance with the economic (profit maximisation) and social (public
welfare) priorities of the country. Government can influence allocation of resources through:
● Tax concessions or subsidies: To encourage investment, government can give tax
concession, subsidies etc to the producers. For example -Government discourages
the production of harmful consumption goods (like liquor, cigarettes etc.) through
heavy taxes and encourages the use of 'Khadi products by providing subsidies.
Directly produce goods and services: -There are many non-profitable economic
activities, which are not undertaken by the private sector like, water supply, sanitation, law
and order, national defence, etc.

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31 a) Tax and borrowings are the major sources of revenue of the government by which the
government funds its expenditures. In 2020-21, while the net tax revenue of the
government is 64 paise out of 1 rupee earning and borrowings and liabilities is 20 paise.
Besides this, the government also generates revenue from non-tax sources and via capital
receipts. Non-tax revenue is 10 paise. On debt capital receipts is 6 paise. Tax revenue
constitute 64 % of its receipt, borrowing was the second-biggest source of revenue at
20%.
b)
Capital Receipt Revenue Receipt

They either create liability or They neither create liability nor

reduce the assets of the reduce the assets of the
government government
Non-Recurring in nature Recurring in nature
Borrowings from public, GST, income tax, corporate tax,
Receipts from sale of shares of a fees ,fines etc
public sector undertaking etc

32 a) The actual fiscal deficit in 2020-21 stood at 9.2 % after that it shows a decreasing
trend. The Fiscal Deficit in 2022-23 is estimated at 6.4 per cent of GDP. the Revised
Fiscal Deficit in the current year is estimated at 6.9 per cent of GDP as against 6.8 per
cent projected in the Budget Estimates.
The revenue deficit and primary deficit also showing the similar decreasing trend. In
2022 -23 budget estimate it stood at 3.8% and 2.6% respectively.
The decrease in the overall deficit in recent years is a good sign of fiscal discipline as
mentioned in FRBMA 2003.
b)
i) Fiscal deficit is defined as the excess of total expenditures over the total
receipts, excluding the borrowings in a year. In other words, this can be
defined as the amount that the government needs to borrow to meet all
expenses. The more the fiscal deficit, the more will be the amount borrowed.
Fiscal deficit = Total expenditures – Total receipts excluding borrowings
ii) Revenue Deficit is defined as the excess of total revenue expenditure over the
total revenue receipts. In other words, the shortfall of revenue receipts as
compared to that of the revenue expenditure is known as revenue deficit.
Revenue deficit = Total revenue expenditure – Total revenue receipts
iii) Primary deficit is said to be the fiscal deficit of the current year subtracted by
the interest payments that are pending on previous borrowings. In other words,
the primary deficit is the requirement of borrowing without the interest
payment.
Primary deficit = Fiscal deficit – Interest payments

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33 (A) yes, it is possible in the following situations:
(1) When revenue budget is balanced and capital budget shows a deficit.
(2) When there is a surplus in the revenue budget but the deficit in capital budget is greater
than this surplus.
(B) The given statement is appropriate. The government may impose higher taxes (both
direct and indirect taxes) on the richer class, reducing their purchasing power. Government
may
use the same tax revenue to provide goods and services (free or at subsidized price) to the
poorer section of society to support them.
a. Tax receipts—corporate tax, income tax, property tax, sales tax
No tax receipts- fines , License fee
Spending on free services to the poor raises their standard of living and at the same time
helps in reduction in income inequalities. It also helps in raising production potential of the
country by raising the efficiency level of the working class among the poor.

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 UNIT 5 : BALANCE OF PAYMENTS

Balance of payments (BoP):

• Meaning “Balance of payments is an accounting statement that provides a systematic record of

all the monetary or economic transactions, between Residents of a country and the rest of the world
during a period of time, generally one year.”

• Balance of payments accounting uses the ‘Double Entry System’ for recording the transactions
with the rest of the world.

A typical business account, BOP account also has two sides:

(i) Credit side: All inflows or sources of foreign exchange are recorded on the credit side.

(ii)Debit side: All outflows or uses of foreign exchange are recorded on debit side.

• In the accounting sense, BOP is always balanced like Trial Balance as it is prepared as per double
entry system.

However, in economic sense, BOP need not be always equal. It means, BOP can be: • Balanced BOP:
receipts of foreign exchange = payments of foreign exchange.

Surplus BOP: receipts of foreign exchange > payments of foreign exchange.

• Deficit BOP: receipts of foreign exchange < payments of foreign exchange.

Components or Structure of Balance of Payments

BoP account includes: A. Current account B. Capital account C. Official reserves account

A. Current Account

Current account records receipt and payment of foreign exchange on account of such transactions
which do not impacts asset – liability status of a country in relation to rest of the world.

B. Current account
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Current account transactions do not give rise to ‘future claims’.

Components

(i) Visible Items or Merchandise Transactions :

A major part of transactions in foreign trade is in the form of export and import of goods (visible
items). Payment for import of goods is written on the negative side (debit items) and receipt from
exports is shown on the positive side (credit items).

Balance of these visible exports and imports is known as balance of trade (or trade balance).

Trade Balance can be of two types:

• Trade Deficit: It refers to the excess of the payments for imports of visible items over the value of
receipts of exports of visible items.

• Trade Surplus: It refers to the excess of the receipts of exports of visible items over the value of
payments for imports of visible items.

(ii) Invisible items:

In the invisible account, there are three broad categories namely:

(a) Non-factor Services: Non- factor services includes Insurance, Travel, Transportation Banking and
Shipping and miscellaneous services. Payments are either received or made to the other countries
for use of these services. Payments for these services are recorded on the negative side and receipts
on the positive side.

(b) Current Transfers (Unilateral transfers): Unilateral transfers include gifts, donations, personal
remittances and other „one-way‟ transactions. These refer to those receipts and payments, which do
not involve any value in exchange. Receipt of unilateral transfers from rest of the world is shown on
the credit side and unilateral transfers to rest of the world on the debit side.

(c)Income: Under income, two types of transactions are recorded namely, compensation of
employees and investment income. Investment income covers receipts and payments of dividends
and profits on foreign investment, and receipts and payments of interest and other income.

Current Account Surplus (CAS) arises when credit items are more than debit items. It indicates net
inflow of foreign exchange. CAS signifies that the nation is a lender to the rest of the world.

• Current Account Deficit (CAD) arises when debit items are more than credit items,i.e.when
foreign exchange receipts in the current account fall short of foreign exchange payments, it leads to
current account deficit. It indicates net outflow of foreign exchange CAD signifies that the nation is a
borrower from rest of the world

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 Capital account of BOP records all those transactions, between the residents of a country and the
rest of the world, which cause a change in the assets or liabilities of the residents of the
country or its government. It is related to Future claims and liabilities of financial nature.

Capital account is concerned with financial transfers. So, it does not have direct effect on
income, output and employment of the country.

Principal components of Capital Account are:

(i) Borrowing : Borrowings of rest of the world or lending to abroad are recorded as negative or debit
item.

Borrowing is split as:

(a) External commercial borrowing: external commercial borrowing is available at the market rate of
interest (in the international money market)

(b) External assistance (EA): external assistance is available at the concessional rate of interest.
Borrowings from rest of the world are recorded on the positive (credit) side.

(ii) Foreign Investment : Foreign Investment is split as

(a) Portfolio Investment : Relates to foreign institutional investment (FII). It is investment by rest of
the world in shares and bonds of the domestic companies.

(b) Foreign Direct Investment (FDI): Relates to ownership of enterprises (in the domestic economy) by
rest of the world. Example: Walmart stores in India.

(iii) Official Reserves Account: (Indicating Reserves of Forex with the RBI ) The overall balance is
finally reflected in the Official Reserves Account of the RBI . Because, RBI is the custodian of forex
reserves of the country, and all forex transactions in the country are routed through the RBI .

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 Sometimes , Official Reserves Account is shown as a part of the capital account BoP, rather than a
separate account. If official reserves are shown as a part of the capital account BoP, then BoP
always balances.
Increase in official reserves is indicated by a '-' negative sign, while the decrease is indicated by a
'+' positive sign .This is only then that the BoP account would reflect a perfect balance (= O).  BoP
always balances when official reserves account is a part of capital account.

Balance of Payments Surplus:- current account balance + capital account balance is some positive
number pointing to net inward flow of foreign exchange and leading to an increase in official
reserves.
Balance of Payments Deficit: current account balance + capital account balance is some negative
number pointing to net outward flow of foreign exchange and leading to a decrease in official
reserves.

Autonomous and Accommodating Items of BoP: Items in the BOP account can be also classified
into two categories viz. Autonomous or above the line items and Accommodating or below the line
items.
Autonomous Items Accommodating Items
Meaning Autonomous items refer to those Accommodating items refers to
international economic the transactions that are
transactions which take place undertaken to cover deficit or
due to some economic motive surplus in autonomous
such as profit maximization. transactions.
Effect on BoP account Autonomous items are cause of Accommodating items are
BOP. compensating capital
Autonomous transactions are transactions which are meant to
independent of the state of BoP correct BoP imbalance.
account
Current and capital Autonomous transactions take Accommodating transaction take
account place on both current and capital place only on capital account
accounts Accommodating items relate
only to the movement of official
reserves with a view to
correcting BoP imbalances.
These items are also known as These items are also known as
above the line items below the line items
Example Merchandise exports and Borrowing from IMF or foreign
imports of goods, receipts and monetary authorities to cover
repayments of long term loans BOP deficit and foreign exchange
by private individuals. reserves.

FOREIGN EXCHANGE RATE

Definition: Foreign exchange rate is the price at which one currency can be converted into another.
It represents the rate at which domestic currency can be exchanged for a foreign currency. It is also
called ‘external value of the domestic currency’.

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 Example: If one U.S dollar exchanges for 70 Indian rupees or $ 1=` 70, then the rate of exchange or
the value of rupees 1 is .... 1 Rs = 1/70 U.S.
Dollar 1 Rupees = 0.0143 U.S. dollar.

Types of Foreign Exchange Rate

1) Flexible Exchange Rate: (also called floating rate of exchange or free exchange rate) Flexible
exchange rate is that rate which is determined by forces of demand and supply of different
currencies in the foreign exchange market
• The value of currency is allowed to fluctuate freely according to changes in demand and supply of
foreign exchange.
• There is no official (Government) intervention in the foreign exchange market.

2) Fixed exchange rate is the rate which is officially fixed and maintained by the government or
monetary authority and not determined by market forces.
To maintain the fixed rate of exchange at a particular level government needs to keep a large stock
of foreign exchange.

3) Managed Floating Rate : Managed Floating Rate is the rate which is determined by market forces
and central bank influences the exchange rate through intervention in the foreign exchange market.
Managed Floating Rate is a hybrid of a fixed exchange rate ( the managed part) and a flexible
exchange rate (the float part). In this system, central bank intervenes in the foreign exchange
market to restrict the fluctuations in the exchange rate within certain limits.

Merits of flexible exchange rate system

a) It eliminates the problem of overvaluation or undervaluation of currencies, Deficit or surplus in

balance of payments is automatically corrected under this system.

b) It frees the government from problem of balance of payments.

c) There is no need for the government to hold any reserves.

Demerits of flexible exchange rate system

a)It creates situations of instability and uncertainty. Wide fluctuations in exchange rate are possible.
This hampers foreign trade and capital movements between countries.

b)It encourages speculation which may lead to larger uncertainties and fluctuations.

Merits of fixed exchange rate:

(i) It ensures stability in exchange rate which encourages foreign trade

(ii) It contributes to the coordination of macro policies of countries in an interdependent world
economy
(iii) Fixed exchange rate ensures that major economic disturbances in the member countries do not
occur.
Demerits of fixed exchange rate:

1. Fear of devaluation. In a situation of excess demand, central bank uses its reserves to maintain
foreign exchange rate. If speculators believe that exchange rate cannot be held for long, they buy
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 foreign exchange in massive amount causing deficit in balance of payment. This may lead to
larger devaluation.
2. Benefits of free markets are deprived.
3. There is always possibility of under-valuation or over-valuation.

Determination of Flexible Exchange Rate

Demand for and supply of foreign exchange, are two basic determinants of flexible exchange rate.

A. Demand for foreign exchange:

The demand (or outflow) of foreign exchange comes from those people who need it to make
payment in foreign currency
a. Imports of Goods and Services: Foreign Exchange is demanded to make the payment for imports
of goods and services.
b. Tourism: Foreign exchange is needed to meet expenditure incurred in foreign tours.
c. Remittances or Unilateral Transfers sent abroad: Foreign exchange is required for making
unilateral transfers like sending gifts to other countries.

B.Supply of Foreign Exchange :

The supply (inflow) of foreign exchange comes from those people who receive it due to following
reasons. A. Exports of Goods and Services: Supply of foreign exchange comes through exports of
goods and services
a. Foreign Investment: The amount, which foreigners invest in the home country, increases the
supply of foreign exchange.

Determination of exchange rate :

The equilibrium exchange rate is determined at a level where demand for foreign exchange is
equal to the supply of foreign exchange.

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 Changes in Exchange Rate:
The equilibrium exchange rate will be disturbed if some changes occur in the demand or supply
of foreign exchange A. Due to Change in Demand :. Increase in Demand: An increase in demand
for foreign exchange will shift the demand curve towards right from DD to D1D1. In Fig., there is
an excess demand of QQ1 at the original exchange rate of OR. As a result, the exchange rate rises
to OR1. It shows that per unit price of US Dollar (in terms of rupees) has increased, i.e. domestic
currency has depreciated.

Depreciation vs. Devaluation

Depreciation of the (domestic) currency occurs when the value of the domestic currency reduces
in the international money market because of the market forces of supply and demand under
flexible exchange rate system.
Devaluation of the (domestic) currency occurs when the value of the domestic currency
deliberately reduced by government by raising the exchange rate fixed exchange rate system.
Common effects of Depreciation & Devaluation
 Increase in Exports
 Decrease in Imports
 Increase in National Income

Appreciation vs. Revaluation

Appreciation of the (domestic) currency occurs when the value of domestic currency rises in
international money market because of the market forces of supply and demand under flexible
exchange rate system.
Revaluation of the (domestic) currency occurs when the value of domestic currency is
deliberately raised by the government by lowering the exchange rate under fixed exchange rate
system .
Common effects of Appreciation & Revaluation
 Increase in Imports
 Decrease in Exports c. Remittances or Unilateral Transfers sent abroad: Foreign exchange is
required for making unilateral transfers like sending gifts to other countries.

 Decrease in National Income

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Q. QUESTION MA
NO RK
S
1 Assertion (A): A country always tries to balance the BOP i.e., balance in current account 1
equals to balance in capital account.
Reason I: Balanced BOP indicates stable economic relation with rest of the world.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
I Assertion is true, reason is false.
(D) Assertion is false, reason is true.
2 Assertion (A): Accommodating items of trade are undertaken to maintain the balance in 1
the BOP account.
Reason I: Accommodating items are net consequences of autonomous transactions that
are undertaken to correct disequilibrium in autonomous items of BOP.

3 Assertion (A): Increased lending abroad is recorded on the debit side of the capital 1
account.
Reason I: Lending affect the assets and liabilities of the economy and involves outflow
of income.
4 Assertion (A): All transactions recorded in Balance of Payment are autonomous 1
transactions.
Reason (R): Autonomous transactions are recorded in both current and capital account
of BoP.

5 Assertion: When there is a trade deficit and current account deficit, there will always be 1
BoP deficit.
Reason: When there is a trade deficit and current account deficit but a capital account
surplus(i.e.,net capital inflow),there may be Balanced BoP or BoP surplus.
6 Assertion (A): Profits received from investments abroad is recorded in capital Account. 1
ReasonI: Profits received from investments abroad is recorded in the current accounts
as it is an investment income (factor income), It will be recorded on the credit side of
the current account since it leads to inflow of foreign exchange.
7 If Japanese import more goods from India? 1
a. India’s BoP will improve.
b. Japan’s BoP will deteriorate.
c. India’s BoP will deteriorate.
d. Both a) and b)
8 Make in India will increase the balance of 1
a. Debit side of BoP
b. Credit side of BoP
c. Both of these
d. None of these
9 If trade deficit is Rs.1000 crores and the import of goods is Rs. 2000 crores, then the 1
export of goods will be Rs.
a. 2000 crores
b. 1000 crores
c. 1500 crores
d. 500 crores

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10 An Indian real estate company received rent from Google in New York. This 1
transaction would be recorded on side account.
a. Credit , Current
b. Debit ,Current
c. Credit , Capital
d. Debit , Current
11 When the Government wants to strengthen the rupee, it foreign currency and 1
domestic currency
a. Buys, sells
b. Sells , Sells
c. Sells , Buys
d. Buys , Sells
12 Other things remaining unchanged, when in a country, the price of foreign currency 1
rises, national income is :-
a. likely to rise
b. likely to fall
c. Likely to rise and fall both
d. Not affected
13 In which of the following categories are the transactions of the balance of trade 1
recorded?
(a) Visible items
(b) Invisible items
(c) Capital transfers
(d) All of these
14 India has attracted a total FDI inflow of 22.53 billion US dollars between April 21 to 1
June 2021. This transaction will be recorded on………side of… ........ account of BOP.
(a) Debit, current
(b) credit,current
(c)Credit, Capital
(d) Debit, Capital
15 When the foreigners invest in our financial or real assets then result will be - 1
16 Explain the effect of appreciation on exports and imports 3
17 Explain the effect of depreciation on exports and imports. 3
18 What will be the value of import , if the net imports are Rs 160 crores and the value of 3
exports are Rs 400 crores ?
19 Recently Government of India has doubled the import duty on gold. What impact is it 3
likely to have on foreign exchange rates and how?
20 The balance of trade shows a deficit of Rs 5,000 crore and the value of imports are Rs 3
9,000 crore. What is the value of exports?
21 Do you think that ‘poor-flow of foreign investment in the domestic economy, may point 3
to hard tax laws in the domestic economy.
Give reason in support of your answer.

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22 Read the following paragraph and Answer the questions given below on the basis of 4
the same :

Venezuelan President Nicolas Maduro carried out one of the greatest currency
devaluations in history over the weekend – a 95% plunge that will rest the capacity of
an already beleaguered Population to stomach even more pain.
The official rate for the currency we’ll go from about 285, 000 per dollar to 6 million, a
shock that officials tried to partly offset by raising the minimum wage 3, 500 per cent to
the equivalent of just $30 a month. Some confusing twists The Economic Times,
August 20, 2018
1. As a result of devaluation:
(a) exports from Venezuela will be increase c. imports in Venezuela will be increase
(b) exports from Venezuela will decrease d.both (b) and (c)
2. Devaluation leads to:
(a) increasing supply of foreign currency in the international money market
(b) increase in supply of domestic currency in the international market
(c) increase in demand of foreign currency in the international market
(d) both (b) & (c)
3. Devaluation of currency is possible in:
(a) managed to floating c)fixed exchange rate regime
(b) flexible exchange rate regime (d) both (a) and (b)
4. A substantial decrease in foreign reserves often leads to:
(a) appreciation of foreign currency c) depreciation of foreign currency
(b) devaluation of domestic currency d) devaluation of foreign currency
23 How are foreign exchange rates determined? Explain. 6
24 State whether the following transactions will be recorded on debit or credit side of 6
BOP of India,
(i) Imports of spices by US from India.
(ii)Loan raised from World Bank to finance deficit in BOP.
(iii)Repayment of loan by Indian government to IMF.
(iv)Purchase of a firm by Reliance ltd. In Japan.
(v)Sale of Indian jewellery in Europe.
(vi)Purchase of shares of Nykaa by an American resident.
(vii)Export of machinery to India.
(viii)Takeover of a foreign company by Reliance Ltd.
(ix)Purchase of guns from Russia.
(x)Receipt of unilateral transfers from ROW for pandemic affected areas.
(xi)Export of computer software.
(xii)Transfer of funds to relatives abroad.
25 How will the following items be recorded in the BOP account of India? 6
1- Money received by an Indian family from their relatives residing in Dubai.
2 Purchase of machine by Indian from China-based company
3 NRI deposits
4- Sale of Software to China
5- Purchase of Shares of an American company by an Indian company
6- Cost of an airline flight to an Indian resident from India to Singapore in a Singapore
airline.

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ANSWER

1 (A)
2 (A)
3 (A)
4 (A)
5 (D)
6 D
7 D
8 d. Both a) and b)
9 b) Credit side of BOP
10 b. 1000 crores
11 a. Credit current
12 c. Sells, Buys
13 a. Likely to rise
14 (a) Visible items
15 c)Credit, Capital
16 b flow of foreign exchange into the country

17 Appreciation :
Export decreases, Import increases
18 Depreciation :
Export increases, Import decreases

19 Balance of trade = Exports - Imports Imports=

Exports- Balance of trade
= 400 - (-160) = 560
OR
Import = Export + net imports
= 400 + 160 = 560
Ans = Rs 560 crores
20 Ans. When the government increases the import duty of gold, the import of gold will fall.
This reduces the demand for foreign currency. With the supply of foreign currency
remaining the same, the foreign exchange rate would fall. This implies an appreciation of
rupees
21 ] Answer: Balance of Trade = -Rs 5,000 crore Value of Imports = Rs 9,000 crore Balance of
trade (Deficit) = Value of Exports – Imports Value of Exports = Balance of trade (Deficit) +
Imports = -Rs 5,000 crore + Rs 9,000=4000crore
22 Tax laws or tax rate decides the positive or negative effect of foreign investment in the
domestic economy.
If a country increased tax rates or having hard tax laws ,it reduces the rate of return and this
result with lower level of foreign investment in flow.
Countries which reduce their tax rates,attract higher level of FDI .

1.(a) 2.(d) 3.(b) 4.(a)

23 In the foreign exchange market, the equilibrium exchange rate is determined by the
intersection of the demand curve for foreign currency and the supply curve of the foreign
currency. In the above diagram, DD is the demand curve for foreign currency and SS is the
supply curve of foreign currency.

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 Determination of Equilibrium Foreign Exchange Rate:
1. Equilibrium FER is the rate at which demand for and supply of
foreign exchange is equal.
2. Under a free market situation, it is determined by market forces
i.e., demand for and supply of foreign exchange.
3. There is inverse relation between demand for foreign exchange and exchange rate.
4. There is direct relationship between supply of foreign exchange and exchange rate.
Due to above reasons demand curve downward sloping and supply curve is upward sloping
curve Graphically intersection of demand Curve and supply curve determines the
equilibrium foreign exchange rate. (Diagram with explanation)

24 A Debit Side (iii), (iv), (vii), (viii), (ix), (xii)

Credit Side. (i), (ii), (v), (vi), (x), (xi)

25
Credit/Debit Capital Current account Reason
1 Credit Item Current Account Unilateral
transfer receipts
2 Debit item Current account Import of goods
3 Credit item Pvt Pvt capital receipts Private
capital
Transactions
4 Credit item Current account Export of invisible
5 Debit item Debit item Pvt capital
transactions
6 Debit item Current account Import
of invisible

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 Part B: Indian Economic Development

Unit-6 INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

COLONIAL EXPLOITATION OF THE INDIAN ECONOMY UNDER THE BRITISH RULE: -

Targeted exploitation of all sector of the economy by the British Govt. Colonial Exploitation of
agricultural sector: - Agricultural was exploited through Zamindari system of land revenue .
Zamindari system (Permanent settlement system): - Zamindari system of land revenue is
that system under which land is owned by a zamindar and tiller of the soil is not owner of
the soil(Introduced by Cornwallis in 1793 through Permanent settlement Act. It was
introduced in Provinces of Bengal)
Colonial Exploitation of Industrial Sector:- India was known for its handicrafts . Indian
handicrafts quality and varieties reputation was world-wide. But these were destroyed
by British Govt. in a two ways.
(i) Heavy duty on their exports.
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(ii) Duty- free import of the British goods in the Indian markets.
Colonial Exploitation of International Trade :- International Trade was exploited through
discriminatory tariff policy.
(i) Duty- free export of Indian raw material
(ii) Duty- free import of British goods.
FEATURES OF INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

Backward economy: - In 1947-48, Per capita income in India was just Rs.230.
Agricultural backwardness: - Nearly 72% of the working population was engaged
inagriculture, but its contribution to GDP was only 50% .
Industrial backwardness: - Production of machines was almost negligible.
Stagnant economy: - Between 1860-1945, growth rate of per capita income was as a low as 0.5% per
annum. Limited Urbanization: - In 1948 only 14% of population lived in urban areas.
Poor infrastructure
7. Heavy dependence on Imports.
8. Colonial economy.

AGRICULTURAL SECTOR ON THE EVE OF INDEPENDENCE

(Observations /Causes of backwardness of Indian agricultural)

1 Low production and productivity

2. Subsistence farming
3. High degree of uncertainty.
4. Land revenue system which led to exploitation of the farmer
5. Small and fragmentedholdings
6. Forced commercialization of agriculture
7. Lack of means of Irrigation
8. Impact of partition on agriculture.

INDUSTRIAL SECTOR ON THE EVE OF INDEPENDENCE (Observations)

Decay(decline) of Handicrafts :-

1. Discriminatory tariff policy

2. Low priced machine made goods

3. New patterns of Demand

4.Introduction of Railways in India

Slow progress of modern industry in the domestic economy: -

1. Lack of capital goods industry

2. Some industries were established by the private entrepreneurs
3. Lower contribution of GDP
4. Modern industrialization was very limited 5.Limited area of operation of the public sector
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FOREIGN TRADE ON THE EVE OF INDEPENDENCE (UNDER THE BRITISH

RULE ( Observations)

1. Status of India as an exporter of raw materials and importer of finished goods

2. Monopoly control of India’s foreign trade
3. Surplus trade, but only to benefit to the British Govt.
DEMOGRAPHIC PROFILE DURING BRITISH RULE

1. High birth rate and high death rate (48 and 40 per thousand)
2. Infant mortality rate (218 per thousand)
3. Literacy rate (16 Per cent)
4. Life expectancy (32 Year)
5. Poor state of health facilities

Demographic Transition:- ‘Year of great divide’ 1921. Prior to 1921, Population in India

and After 1921, Population in India. Census 1901 total population decline 0.04 crore (from
23.87 crorein 1891 to 23.83 crore in 1901 . Again, Census of 1921 decline 0.07 crore (from
25.21 crore in 1911 to 25.14 core in 1921). From the year 1921 onwards, total population
inIndia never declined.
Occupational structure on the eve of independence (under thebritish rule)

1. Agriculture –the principal source of occupation (About 72.7% of working population

was engaged in agriculture)
2. Industry – An insignificant source of occupation Nearly 9.0% of working population
was engaged in manufacturing industries)
3. Unbalanced growth

INFRASTRUCTURE ON THE EVE OF INDEPENDENCE

Economic infrastructure: 1.Roads 2.Railways 3. Air and water transport 4.
Communication
Social infrastructure: Education, Health and Housing facilities.

WAS THERE ANY POSITIVE IMPACT OF THE BRITISH RULE IN INDIA?

Some positive side-effects:

1. Commercialization of agriculture
2. Monetary system ofexchange
3. Development of infrastructure
4. Effective system of administration

COMPETENCY BASED QUESTION

Q1- Explain any two main causes behind infrastructural development by British rule
Ans – a) Mobilisation of army b) Maintenance of law and order

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Q2- Describe three key features of India’s foreign trade on the eve of independence. Illustrate with
examples the country’s trading patterns with other nations.
Ans- i) Dominance of British trade Relations. ii) Limited Diversification of trading partners iii) low
share of industrial Exports. (Explanation required)

Q3. Highlighting three significant adverse impacts, conduct a comprehensive analysis to evaluate the
potential negative repercussions of implementing the economic strategy of import substitution in
developing nations.

Ans- i) Missing out on world trade ii) less competition, more costs iii) Wasting resources

(Hint- Explanation required)

ASSERTION AND REASONING (01 Marks Questions)

Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
ofAssertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation ofAssertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q1. Read the following statements carefully – Assertion (A) and Reason (R) and choose the
correct alternative. (CBSE Term- 1 2022)
ASSERTION (A): India could not develop a sound industrial base during the British rule.
REASON (R): Britishers followed restrictive trade policies, which led to the rise of Indian
handicraft industries.
Ans. (c) Assertion (A) is true but Reason (R) is false.

Q2.ASSERTION (A):The Zamindars were declared as owners of the soil. They were
supposed to pay a fixed sum to the government while they could extract as much as
theywanted from the actual tillers of the soil.
REASON (R): Agriculture was exploited through Zamindari system of Land Revenue.
Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanationof Assertion (A)

Q3. ASSERTION (A): More than Half of India’s Foreign trade was restricted to Britain

REASON (R): Britain maintained Monopoly control on India’s Import and Export

Ans. (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)

Q4.ASSERTION (A): The construction of railways led to huge economic losses to the Indian
economy.
REASON (R):It enhanced commercialization of Indian agriculture, which adversely affected
the comparative self-sufficiency of the village economies in India.
Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
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 Q5.ASSERTION (A): Indian agriculture sector suffered due to partition.

REASON (R): A sizeable proportion of the undivided countries highly irrigated and
fertilizers land went to Pakistan.

Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)

Statement (01Marks)

a) Both the statement are true

(b) Both the statement are false

(c) Statement 1 is true and Statement 2 is false

(d) Statement 2 is true and Statement 1 is false

Q1. Read the following statements carefully and choose the correct alternative:

Statement 1: On the eve independence nearly 72% of the working population was
engaged in agriculture.

Statement 2: Contribution to GDP in agriculture sector was nearly 75% .

Ans. (c) Statement 1 is true and Statement 2 is false

Q2. Read the following statements carefully and choose the correct alternative:

Statement 1: On the eve independence Infant mortality rate was 218 Per thousand.

Statement 2: Literacy rate in India on the eve of independence was 16 Per cent.

Ans. a) Both the statement are true

MULTIPLE CHOICE QUESTIONS (MCQ) WITH ANSWERS (01 Marks)

Q1. Which of the following statement is not true about the demographic condition of
India during the colonial period? (CBSE TERM-1 2022)
(a) Infant mortality rate was very high.

(b) After 1921, India interred the second stage of demographic transition.
(c) Life expectancy was too high

(d) Female literacy rate was just 7%

Q2. Identify which of the following statement is correct: (CBSE TERM-1 2022)

(a) British colonial rule made India net import of raw material
(b) The real motivate behind infrastructure development by Britishers was to serve
the people of India.
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 (c) India generated large export surplus during the British rule
(d) India handicraft industry enjoyed world-wide reputation under the British rule.

Q3. sector played a predominant role in occupational structure during the Colonial
period. (CBSE TERM-1 2022)
(a) Agriculture
(b) Manufacturing
(c) Service
(d) Infrastructure
Q4. Major contribution to the GDP of the country on the eve of independence was from:
a) Tertiary sector
b) Secondary sector
c) Primary sector
d) Both primary and secondary sector
Q5. The impact of British policy on India economic structure was
a) India becomes supplier of raw materials and consumer of finished industrial products from Britain
b) India became supplier of finished product to Britain
c) India became supplier of finished industrial products and consumer of raw materials from Britain
d) Both B and C
Q6. Decline of handicraft industries led to :
a) Massive unemployment
b) Import of finished goods
c) Both (a) and (b)
d) Neither (a) nor (b)
Q7. The Tata Iron and Steel Company were incorporated in the year:
a) 1907 (b) 1947
(c) 1908 (d) 1950
Q8. The major cause of decay of Indian handicrafts during British Rule:
a) Low priced machine made goods
b) Discriminatory tariff policy
c) Both (a) and (b)
d) Neither (a) nor (b)
Q9. Decay of handicrafts was caused by:
a) British tariff policy
b) Competition From Man-Made Machines
c) New Patterns of demand
d) all of these
Q 10. Suez canal was opened for transport in :
a) 1850
b) 1869
c) 1853
d) 1901

Answer Key

1 C 2 C 3 A 4 C 5 A

6 C 7 A 8 C 9 D 1 B
0

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 Short and Long Answer Question (3,4 & 6 Marks Question)

Q1. What were the main causes of India’s agricultural stagnation during the colonial period?
(CBSE 2020)

Answer. Indian agriculture was primitive and stagnant. The main causes of stagnation of agriculture
sector were as follows:

(i) Land use System: There were three forms of Land tenure system introduced by the British rulers
in India. These were:(a) Zamindari system (b) Mahalwari system (c) Ryotwari system

(ii). Commercialisation of Agriculture: Commercialisation of agriculture means production of

crops for sale in the market rather than for self-consumption. Farmers were forced to cultivate
commercial crops like Indigo. Indigo was required by the textile industry in Britain for dyeing of the
textile. As a result, there was fall in the production of food crops. The farmers had to suffer from
frequent occurence of famine. Indian agriculture was transformed into a raw material exporting
sector for England.

(iii). Partition of the Country: Partition of the country in 1947 also adversely affected India’s
agricultural production. The rich food producing areas of West Punjab and Sindh went to Pakistan. It
created food crisis in the country. Also, the whole of fertile land under jute production went to East
Pakistan. The jute industry was most severely affected due to partition.

Thus, Indian agriculture became backward, stagnant and non-vibrant under the British rule.

Q2. What was the two-fold motive behind the systematic de-industrialisation effected by the
British in pre-independent India? (CBSE 2020)

Answer. De-industrialisation: Decline of India Handicraft Industry. Britishers followed the policy of
systematically de-industrialising India. The primary motive behind the de- industrialization by the
British government was two-fold:

1. To get raw materials from India at cheap rates in order to reduce India to a mere exporter of
raw materials to the British industries.

2. To sell British manufactured goods in Indian market at higher prices. In this way, they
exploited India through the device of double exploitation.

Q3. Highlight the salient features of India’s pre-independence occupational structure.

(CBSE 2020)
Answer. Occupational structure means the distribution of work-force among different sectors of an
economy. The state of occupational structure on the eve of independence was as follows:

1. Pre-dominance of Agriculture Sector: The agricultural sector accounted for the largest share of
work-force, which was about 72.7 per cent of working population was engaged in agriculture
sector.

2. Industry /manufacturing sectors: On the eve of independence nearly 10.1 per cent of working
population was engaged.

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 3. Tertiary sector / service sector: On the eve of independence nearly 17.2 per cent of working
population was engaged.

Q4. Were there any positive contributions made by the British in India? Discuss. Answer.
(CBSE 2020 any one positive contribution)
Ans. British rule exploited India in many ways. But, the ways to achieve the motives sometimes yield
positive effects. Their exploitative programmes and policies resulted in some positive impact on
India. Some of these positive effects were:

1. Commercialisation of agriculture: Implied a good breakthrough in agriculture and

resulted in self-sufficiency in food grain production.

2. The development of infrastructure: railways and roadways generated new

opportunities for economic and social growth and broke cultural and geographical barriers.

3. Railways promoted commercialisation of agriculture through long distance

movement of goods and it enabled people to move from one place to another easily.

4. The supply of food and essentials could be made available to drought affected areas
through transportation.

5. Indian economy witnessed a huge expansion of monetary system and growth in

production through division of labour and specialisation.

Q 5. Indicate the volume and direction of foreign trade of India at the time of independence.
(CBSE 2020)
Answer. India has been an important trading nation since ancient times. But the restrictive policies
of commodity production, trade and tariff pursued by the British government adversely affected the
structure, composition and volume of India’s foreign trade. The state of India’s foreign trade on the
eve of independence was as follows:

1.Net Exporter of Raw Material and Importer of Finished Goods:

India became 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 woolen clothes and capital goods
like light machinery produced in the factories of Britain.

2. Britain had Monopoly Control on Foreign Trade: Opening of Suez Canal in

1869 served as a direct route for the ships operating between India and Britain. The canal connected
Port Said on the Mediterranean Sea with the Gulf of Suez. It provided a direct trade route for ships
operating between European or American ports and ports located in South Asia, East Africa and
Oceania.

Q6. Give a quantitative appraisal of India’s demographic profile during the colonial period.
(CBSE 2020)

Answer. The demographic condition on the eve of independence was as follows:

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1. High Birth Rate and Death Rate: High birth rate and high death rate are treated as indices of
backwardness of a country. Both birth rate and death rate were very high at 48 and 40 per thousand
respectively.

2. High Infant Mortality Rate: If refers to death rate of children below the age of one year. It was
about 218 per thousand live births.

3. Low Life Expectancy: Life expectancy means the number of years that a new bom child on an
average is expected to live. It was as low as 32 years.

4. Literacy Rate: Literacy rate was less than 16 per cent.

5. Low Standard of Living.

Q7. What were the main causes of India’s agricultural stagnation during the colonial period?

Ans. Main causes of Indian agricultural stagnation during the colonial period were:
1. Low production and productivity
2. Subsistence farming
3. High degree of uncertainty.
4. Land revenue system which led to exploitation of the farmer
5. Small and fragmented holdings 6.Forced commercialization of agriculture 7.Lack of means of
Irrigation
6. Impact of partition on agriculture.

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100 | P a g e
INTRODUCTION:

Economic Planning: “Economic planning means utilization of country’s resources in different

development activates in accordance with national priorities” In 1950, the Planning Commission was
set up with the Prime Minister as its Chairperson.

Types of Economic Systems:- Every society has to answer three questions

 What goods and services should be produced in the country?

 How should the goods and services be produced? Should producers use more human labour or
more capital (machines) for producing things?

 How should the goods and services be distributed among people?

• Capitalist economy

• Socialist economy

• Mixed economy

FIVE YEAR PLANS IN INDIA: GOALS AND ACHIVEMENTS

THE GOALS OF FIVE YEAR PLANS (Long period objectives/ goals) :-

1 Growth:- It refers to increase in the country’s capacity to produce the output of goods and services
within the country. It implies either a larger 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. A good indicator of economic growth, in the language of economics, is steady increase in the
Gross Domestic Product (GDP).

2. Modernisation: To increase the production of goods and services the producers have to adopt
new technology. For example, a farmer can increase the output on the farm by using new seed
varieties instead of using the old ones. Similarly, a factory can increase output by using a new type of
machine. Adoption of new technology is called modernization.

3. Self-reliance: A nation can promote economic growth and modernization by using its own
resources or by using resources imported from other nations. The first seven five year plans gave
importance to self-reliance which means avoiding imports of those goods which could be produced
in India itself.
This policy was considered a necessity in order to reduce our dependence on foreign Countries,
especially for food.
4. Equity: Now growth, modernization and self-reliance, by themselves, may not improve the kind of
life which people are living. A country can have high growth; the most modern technology developed
in the country itself, and also have most of its people living in poverty. It is important to ensure that
the benefits of economic prosperity reach the poor sections as well instead of being enjoyed only by
the rich. So, in addition to growth, modernisation and self-reliance, equity is also important.

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 FEATURES OF ECONOMIC POLICY PURSUED UNDER PLANNINING TILL 1991

1. Heavy reliance (reliability) on public sector (industrial policy resolution 1956 )

2. Regulated development of private sector

3. Protection of small- scale industry

4. Protection from foreign competition

5. Centralised planning

6. Focus on import substitution

ACHIVEMENT (SUCCESS) OF PLANNING (PRINCIPAL OBSERVATIONS) :-

1. Increase in national income (Increase in national income during the 1st plan was 4.6% to 7.5%
in 11th five year plan)
2. Increase in per capita income (1st plan growth was just 2.7% to increase per capita income was
5.7% per annum during 12th plan)
3. Rise in saving and investment (In 1950-51 ,rate of saving was 9.5% of national income, It increase
31.3% of 11th plan and Investment has risen from 9.3% of GDP to 33.3% in 2015-16)
4. Growth and Diversification of industry
5. Economic and social infrastructure
6. Institutional and technical change in agriculture
7. Employment
8. International trade.
FAILURES OF PLANNING IN INDIA (PRINCIPAL OBSERVATIONS) :-

1. Unemployment crises (53 lakh persons were unemployed at the end of 1st plan , this number
rose to over 4 crore at the end of 11th plan)
2. Poverty (In India, 21.9% of population still BPL)
3 High rate of inflation
4. Inadequate Infrastructure
5. Inequality.

FEATURES, PROBLEMS AND POLIES OF AGRICULTURE

IMPORTANCE OF AGRICULTURE IN THE INDIAN ECONOMY

1. Agriculture as the principal source of the supply of raw material

2. Contribution to GDP
3. Agriculture as the principal source of the supply of wage goods (wage goods are the necessities
of life such as wheat, rice, pulses etc.)
4. Agriculture as the principal sector of employment
5. Agriculture as the principal source of demand for the industrial goods
6. Contribution to Domestic trade and International trade
7. Wealth of Nation
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8. Support of the transport industry.
FEATURES OF INDIAN AGRICULTURE :- 1.Low productivity 2.Subsistence farming

3. Disguised unemployment 4.Small holdings 5.Lack of modern inputs 6.Dependence on rainfall.

PROBLEMS OF INDIAN AGRICULTURE :- 1.Small and scattered holdings 2.Deficiency of finance

3.Lack of permanent means of irrigations 4.Conventional outlook

5. Lack of organized marketing system

REFORMS IN INDIAN AGRICULTURE (AGRARIAN REFORMS) :-

1. Technical reforms 2.Institutional reforms.

1. TECHNICAL REFORMS ( GREEN REVOLUTION) [NEW AGRICULTURAL STRATEGY ] :-

The Green Revolution:It refers to the large increase in production of food grains resulting from the
use of high yielding variety (HYV) seeds especially for wheat and rice. As a result, in the first phase of
the green revolution (approximately mid 1960s upto mid 1970s),

 At independence, about 75 per cent of the country’s population was dependent on agriculture.
Productivity in the agricultural sector was very low because of the use of old technology and the
absence of required infrastructure for the vast majority of farmers. India’s agriculture vitally
depends on the monsoon and if the monsoon fell short the farmers were in trouble unless they had
access to irrigation facilities which very few had. The spread of green revolution technology enabled
India to achieve self-sufficiency in food grains;

 Use of HVY seeds: This refers to the large increase in production of food grains resulting from
the use of high yielding variety (HYV) seeds especially for wheat and rice.

 Use of chemical fertilizers :- The use of these seeds required the use of fertiliser and pesticide
in the correct quantities

 Use of insecticides and patricides:- The use of these seeds required the use of fertiliser and
pesticide in the correct quantities as well as regular supply of water; the application of these inputs
in correct proportions is vital. for crop protection .

 Marketed surplus: - The portion of agricultural produce which is sold in the market by the
farmers is called marketed surplus.

 Scientific farm management practices

ACHIVEMENTS OF AGRARIAN REFORMS

GREEN REVOLUTION :- “ GREEN” refers to “crops” AND “revolution” refers to “ SPURT” Green
revolution refers to the large increase in food grains resulting :- (i) Use of HVY seeds (ii) Use of
chemical fertilizers (iii) Use of insecticides and patricides for crop protection (iv) Mechanised means
of cultivation (v) Scientific farm management practices.

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Achievements of Green revolution: - 1. Spurt in crop productivity 2. Shift from subsistence farming
to commercial farming 3. Change in farmer’s outlook 4.Self- sufficiency in food grain production
5.Increase in employment.

SHORTCOMINGS (LIMITATIONS) OF GREEN REVOLUTION: - 1.Limited crops

2. Regional imbalance 3. Increase in the disparity between small and big farmers 4. Economic
divide

2. INSTITUTIONAL REFORMS (LAND REFORMS ) :-

1. Land Reforms: At the time of independence, the land tenure system was characterised by
intermediaries (variously called zamindars, jagirdars etc.) who merely collected rent from the actual
tillers of the soil without contributing towards improvements on the farm. Equity in agriculture

2. Land ceiling was another policy to promote equity in the agricultural sector. This means fixing the
maximum size of land which could be owned by an individual. The purpose of land ceiling was to
reduce the concentration of land ownership in a few hands. The ownership conferred on tenants
gave them the incentive to increase output and this contributed to growth in agriculture. However,
the goal of equity was not fully served by abolition of intermediaries.

(3) Regulation of rent

(4) Cooperative farming

STRATEGY OF INDUSTRIAL GROWTH (1947-1990)

IMPORTANCE OF INDUSTRY :- Economists have found that poor nations can progress only if they
have a good industrial sector. Industry provides employment which is more stable than the
employment in agriculture; it promotes modernization and overall prosperity. It is for this reason that
the five year plans place a lot of emphasis on industrial development.

1. Industry is an epicenter of economic growth 2.An emerging source of employment. 3. Source of

mechanised means of farming 4. Industrial growth leads to growth of civilisation 5.
Infrastructural growth

ROLE OF PUBLIC SECTOR IN INDUSTRIAL DEVELOPMENT: -

(Public and Private Sectors in India)

Industrial Development: The big question facing the policy makers was — what should be the role of
the government and the private sector in industrial development? At the time of independence, Indian
industrialists did not have the capital to undertake investment in industrial ventures required for the
development of our economy; nor was the market big enough to encourage industrialists to undertake
major projects even if they had the capital to do so. It is principally for these reasons that the state had
to play an extensive role in promoting the industrial sector. In addition, the decision to develop the
Indian economy on socialist lines led to the policy of the Role of state/ government was considered
important because of the following factors: -
1. Lack of capital to undertake investment
2. Lack of incentives for the private sector
3. Growth with social justice.

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INDUSTRIAL POLICY RESOLUTION -1956 (IPR 1956) :-
In accordance with the goal of the state controlling the commanding heights of the economy, the
Industrial Policy Resolution of 1956 was adopted. 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 resolution
classified industries into three categories.

Principal elements of IPR- 1956:-

1. Three- fold classification of industries :-(i) Established and developed exclusively as a public
sector enterprises (ii) Established both as the private and public sector enterprises (iii) All industries
other than in categories (i) and (ii) were left to the private sector
2. Industrial license: private sector, the sector was kept under state control through a system of
licenses.
No new industry was allowed unless a license was obtained from the government. This policy was
used for promoting industry in backward regions; it was easier to obtain a license if the industrial unit
was established in an economically backward area.
3. Industrial concessions: This policy was used for promoting 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 equality.
DEVELOPMENT of small scale industry (SSI):-

A small scale industry defined as one whose investment does not exceed Rs. 5 crore (1951 one whose
investment maximum Rs. 5 Lakh). 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. A ‘small-scale industry’ is defined with reference to the maximum investment allowed
on the assets of a unit. This limit has changed over a period of time.

CHARACTERISTICS OF SSI :-
1. Small scale industries are employment- oriented (Labor-intensive): they use more labour than
the large-scale industries and, therefore, generate more employment.
2. Small scale industries are equality- oriented (Regional equality)
3. SSI are Equity- oriented (Income equality)

Effect of Policies on Industrial Development:

The achievements of India’s industrial sector during the first seven plans are impressive indeed. The
proportion of GDP contributed by the industrial sector increased in the period from 11.8 per cent in
1950-51 to 24.6 per cent in 1990-91. The rise in the industry’s share of GDP is an important indicator
of development. The six per cent annual growth rate of the industrial sector during the period is
commendable.
Salient features of industrial growth during 1950-1990 and its good & bad effects

1. Public enterprises were play a central role in the process of industrialization

2. Private enterprises was play only a secondary role
3. Process of industrialization focused on “import substitution”
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4. Large- scale industry was to be developed with view to building an “Infrastructural “base in the
country
5. SSI was to be developed with view to achieving the objectives of “Employment and Equity”.

GOOD EFFECTS :-

1. Economic growth : Growth he six per cent annual growth rate of the industrial sector during the
period is commendable
2. Growth of large-scale industry
3. Growth of SSI
4. There was a marked diversification in the industrial sector

BAD EFFECTS:-

1. Public sector monopoly

2. Failed to achieve international standard of production- quality (due to protection of domestic
industry)
3. Saving foreign exchange through import substitution.
==============================================================================
INDIA’S FOREIGN TRADE

INDIA’S FOREIGN TRADE AT THE TIME OF INDEPENDENCE

1. Trade related to colonial exploitation;-

(i) export of raw material (ii) Import of finished goods

2. Favorable balance of trade (export > import)

3. Direction of trade was restricted, being largely between England and India

4. Volume of trade was very small

5. Britain maintained a monopoly control over India’s exports and imports

INDIA’S FOREIGN TRADE AFTER INDEPENDENCE :-

1. India’s exports and imports have tended to rise( but percentage share in international trade has
tended to shrink)
2. Decline in percentage share of agricultural exports and rise in percentage share of manufactured
goods
3. Direction of trade has become diversified

4. Shift in trade strategy from ‘Inward looking” to ‘outward looking”

INWARD LOOKING TRADE STRATEGY (STRATEGY OF IMPORT SUBSTITUTION) :-

The industrial policy that we adopted was closely related to the trade policy. In the first seven plans,
trade as characterised by what is commonly called an inward looking trade strategy. Technically, this
strategy is called import substitution.It is policy of reliance on “Import substitution” and protection to
the domestic industry through import restriction and import duties in the area of international trade.

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Protection from imports took two forms:

(i) Tariffs :- Tariffs are a tax on imported goods; they make imported goods more expensive and
discourage their use.

(ii) Quotas:- Quotas specify the quantity of goods which can be imported. The effect of tariffs and
quotas is that they restrict imports and, therefore, protect the domestic firms from foreign
competition.

POLICY:- 1. Policy of the reliance on import substitution and protection of domestic industries
through import duties ( this strategy was adopted to:(i) Save foreign exchange( ii) achieve reliance) 2.
In this policy Govt. protected the domestic industries from foreign competition 3. Foreign exchange
was to be utilized for development imports.

IMPACT OF INWARD LOOKING TRADE STRATEGY ( CRITICAL APPRAISAL OF INDUSTRIAL

DEVELOPMENT1950-1990)

GOOD (POSITIVE) IMPACT :-

1. Rise industry’s share of GDP(High rate of industrial growth with structural transformation
2.Diversification of industrial growth
3.Promotion of SSI
4. New opportunities of investment

BAD (NEGATIVE) IMPACT :-

1.Growth of inefficient public monopolies
2. Lack of Modernisation (Lack of competition)
3. Growth of economically unviable state enterprises
4.Negative impact of protection from foreign competition
5. Misuse of licensing policy.

COMPETENCY BASED QUESTION

Q1- ‘Aatmnirbhar Bharat’ had been at the root of the Indian planning process in the form of ‘self-
reliance’ as an objective of the planning process. Do you agree with the given statement? justify the
rationale of the given statement

Ans- The given statement is correct in the early post-independence period, the government ‘s policy
was to reduce the dependence on the foreign countries for goods , services , technology and capital. It
stressed the use of domestic resources to avoid foreign interference, as it was feared that the
dependence on the imported food supplies, foreign technology and foreign capital may increase
foreign interference in the policies of our country.
Q2- Discuss briefly, the rationale behind “Equity with Growth” as planning objectives for
Indian Economy.
Ans- Growth refers to an increase in country’s capacity to produce the output of goods and
services in an economy. Equity refers to reductions in inequality of income and wealth. When
the objectives of economic growth and equity are achieved, they may lead to development
with social justice, which may increase the per capita availability of goods and services.

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 ASSERTION AND REASON (01 Marks Questions)
Alternatives:

(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)

(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)

(c) Assertion (A) is true but Reason (R) is false.

(d) Assertion (A) is false but Reason (R) is true.

1. ASSERTION (A): Growth and social justice is the central objective of Indian plans. REASON (R):
India opted for planning to utilize available recourses efficiently and to establish social justice.
Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A)

2. ASSERTION (A): The industries became more diversified during 1950-90 as compared to the
situation at the time of independence.

REASON (R): Excessive government regulation prevented industrial growth during this period.
Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
3. ASSERTION (A): Economic planning rules out the free play of market force.

REASON (R): It does not rule out free play of market forces rather it is dependent on model of
economic planning.

Ans: (d) Assertion (A) is false but Reason (R) is true.

4. ASSERTION (A): Modernization includes adaptation of Technology and change in Social Outlook.

REASON (R): Modernization raises the standard of living of People.

Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)

5. ASSERTION (A): Economic planning means utilization of country’s resources.

REASON (R): Capitalist economy achieves equality of income.

Ans: (c) Assertion (A) is true but Reason (R) is false

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 Statement (01Marks)

Alternatives:
a) Both the statements are true
(b) Both the statement are false
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false

Q1. Read the following statements carefully and choose the correct alternative: (CBSE Term- 1 2022)

Statement 1: Commercialisation of agriculture was coercively introduced by the Britishers.

Statement 2: The aim of commercialisation of agriculture was to support the British industries.
Ans. a) Both the statement are true.

Q2. Read the following statements carefully and choose the correct alternative: (CBSE Term- 1 2022)
Statement 1: Object of Modernisation has helped in setting up various types of technology oriented
industries.
Statement 2: Modernisation refers to the change in the technology along with positive change in
social outlook of the people.
Ans. Ans. a) Both the statement are true.
Q3. Read the following statements carefully and choose the correct alternative: (CBSE Term- 1 2022)
Statement 1: Indian planners gave more importance to public sector during the period of 1950 –
1990.
Statement 2: Under Industrial Policy Resolution to public sector was given leading role in Industrial
development.
Ans. Ans. a) Both the statements are true.

MULTIPLE CHOICE QUESTIONS (MCQ) WITH ANSWERS

1. Arrange the following events in the correct chronological order: (CBSE Term- 1 2022)
(i) Constitution of Karva Committee
(ii) Beginning of first Five Year Plain
(iii) Establishment of Planning commission
(iv) Establishment of NITI Aayog
Alternatives:
(a) ( i), (ii), (iv), (iii)
(b) (ii), (i), (iii), (iv)
(c) (ii), (iii), (iv),(i)
(d) (iii), (ii),(i),(iv)

2. After Independence, in order to bring equity in agriculture, land reforms / policies were
introduced by the government that includes . (CBSE Term- 1 2022)
(a) Abolition of Zamindari System
(b) Green Revolution
(c) Land Ceiling Alternatives:
(a) Only (i)
(b) Only (ii)
(c) Both (i) and (iii)
(d) (i), (ii) and (iii)
3. Identify which of the flowing is not an advantage of Green Revolution.
(CBSE Term- 1 2022)
(a) India has become self- sufficient in the production of food grains
(b) India has built sufficient buffer stock of food grains
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(c) Increased marketed surplus
(d) Increase in the price of food grains.

4. In order to reduce over- dependence on agriculture sector it is necessary to opt for

diversification With reference to the given statement, diversification includes (CBSE
Term- 1 2022)
(i) Change in cropping pattern
(ii) Shift of workfors from agriculture to allied activities
(iii) Shift of workfors from agriculture to non- agriculture sector
(a) ( i) and (ii)
(b) (i), (ii) and (iii)
(c) (i) and (iii)
(d) Only (iii)

5. The economic system adopted in India is ______ .

a) Mixed
b) Capitalist
c) Socialist
d) Both (a) and (c)
6. Under which system the goods are disturbed among people not on the basis of what
people need but on the basis of purchasing power?
a) Capitalistic system
b) Socialistic system
c) Mixed system
d) Dual system
7. The share of agriculture in India’s GDP has over the years.
a) Remained constant
b) Decreased
c) Increased
d) First decreased and then increased
8. Who is known as the architect of ‘Indian Planning’?
a) Jawaharlal Nehru
b) DR. BR Ambedkar
c) PC Mahalanobis
d) Sardar Vallabh bhai Patel
9. From the following which is not the goals of planning India :
a) Growth
b) Correcting BOP
c) Self-reliance
d) None of the above
10. A good indicator of growth is steady increase in the
a) Gross domestic product
b) Net domestic product
c) Population
d) National income

ANSWER KEY

1 D 2 C 3 D 4 B 5 A
6 A 7 B 8 C 9 B 10 A
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 Short and Long Answer Question (3,4& 6 Marks)

Q1. Discuss briefly the rationale behind ‘equity with growth’ as a planning objective from
Indian economy. (CBSE 2020)

Ans. (i) Economic Growth is an increase in the aggregate output of goods and services in a country in a
given period of time.

(ii). Equity refers to reduction in inequality of income or wealth, uplifting weaker sections of the
society and equal distribution of economic power.
(iii). Higher levels of growth and social justice are two main objectives of India’s economic planning.
When these two objectives are clubbed together, it is called development with social justice.
Q2. Discuss briefly the rationale behind choosing ‘Modernisation’ as a planning

objective for the Indian Economy. (CBSE 2020)

Ans. Modernisation refers to adoption of new technology in the process of growth .

Rationale behind Modernisation:

(i) New methods of production (ii) changes in social outlook (iii.) Innovative technology

(iv) Contribution to the process of economic and social prosperity.

Q3. Discuss briefly the rationale behind implementation of land reform in post-independence
era. (CBSE 2020)
INSTITUTIONAL REFORMS (LAND REFORMS) :-

Need for land reform was felt because of widespread poverty of the farming population in India Their
holdings were small and scattered and rent were extremely high.

1. Land Reforms (Abolition of intermediaries): At the time of independence, the land tenure
system was characterised by intermediaries (variously called zamindars, jagirdars etc.) who merely
collected rent from the actual tillers of the soil without contributing towards improvements on the
farm. Equity in agriculture

2. Land ceiling was another policy to promote equity in the agricultural sector. This means fixing
the maximum size of land which could be owned by an individual. The purpose of land ceiling was to
reduce the concentration of land ownership in a few hands. The ownership conferred on tenants gave
them the incentive to increase output and this contributed to growth in agriculture. However, the goal
of equity was not fully served by abolition of intermediaries.

(3) Regulation of rent

(4) Cooperative farming

Q4. Explain how import substitution can protect domestic industry. (OR) ‘Import restrictions
were imposed in India with the dual objective to save foreign exchange reserves and to be self-
sufficient’ Justify the given statement with valid arguments. (CBSE 2020)

Ans. The import substituting industrialisation was the objective of second Five year plan (1956-61)
till the Seventh FYP (till 1990). The Mahalanobis strategy of development was based on import
substitution.

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(i) The rationale of the import substitution strategy is based on infant industry argument.
(ii) It helped to save foreign exchange by drastically reducing import of goods.
(iii) The foreign exchange saved was to be used for the developmental imports such as capital goods,
sophisticated technology, etc.
(iv) It created a protected market and large demand for domestically produced goods.
(v) In this policy Govt. protected the domestic industries from foreign competition.
Q5. Discuss briefly the rationale behind implementation of land reforms in post independence
era. (CBSE 2020)

Ans. Need for land reform was:

(i) Widespread poverty of farming population in India.
(ii) Farmers were poor because their holdings were small and scattered.
(iii) Rents were extremely high
The government after independence following steps were taken :
Land Reforms (Abolition of intermediaries): At the time of independence, the land tenure system
was characterised by intermediaries (variously called zamindars, jagirdars etc.) who merely collected
rent from the actual tillers of the soil without contributing towards improvements on the farm. Equity
in agriculture

2.Land ceiling was another policy to promote equity in the agricultural sector. This means fixing the
maximum size of land which could be owned by an individual. The purpose of land ceiling was to
reduce the concentration of land ownership in a few hands. The ownership conferred on tenants gave
them the incentive to increase output and this contributed to growth in agriculture. However, the goal
of equity was not fully served by abolition of intermediaries.
(3) Regulation of rent

(4) Cooperative farming

Q6. What is Green Revolution? Why was it implemented and how did it benefit the farmers?
Explain in brief.
Ans. Green Revolution: This strategy, which was launched in October 1965, ‘GREEN’ refers to ‘crops’
and ‘revolution’ refers to ‘ SPURT’.

Green revolution refers to the large increase in food grains resulting :- (i) Use of HVY seeds (ii) Use of
chemical fertilizers (iii) Use of insecticides and patricides for crop protection (iv) Mechanised means
of cultivation (v)Scientific farm management practices.

Before adopting the New Agricultural Strategy (NAS), the state of Indian agriculture was as follows:

(a) there was low and erratic growth,

(b) there was extreme regional unevenness and growing interclass inequality

(c) there were serious droughts for two consecutive years

(d) there was a war with Pakistan

(e) USA denied India PL 480 imports.

India decided to get rid of this dependence on foreign aid in such a vital matter as food supply.

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and that was the genesis of our Green Revolution, i.e., biochemical technology to step up output per
acre by using scientifically inclined techniques and methods of production.
Benefits of Green Revolution.

(i) Increase in Income: Since the Green Revolution was limited to wheat and rice. The income of
farmers in these States grew sharply. Green Revolution succeeded in removing rural poverty in these
States.

(ii) Impact on Social Revolution: Along with economic revolution there was a social revolution.
The old social beliefs and customs were destroyed and people were willing to accept changes in
technology, seeds and fertilizers.’ The traditional methods of farming were transformed into modern
methods of farming.

(iii) Increase in Employment: Green Revolution solved the problem of seasonal unemployment to a
great extent because with the possibility of growing more than one crop on a piece of land, more
working hands were needed throughout the year.
Q7. Why was public sector given a leading role in industrial development during the planning
period?

Ans. Public sector has been playing a very significant role in the development of industries in the
following way:
(a) Creation of a strong industrial base.
(b) Development of Infrastructure.
(c) Development of backward areas.
(d) To mobilise savings and earn foreign exchange.
(e) To prevent concentration of economic power.
(f) To promote equality of income and wealth distribution.
(g) To provide employment.

Q8. What do you understand by term ‘Import Substitution’ ? Explain the role of tariffs and
quotas in India to achieve import substation.

INWARD LOOKING TRADESTRATEGY (STRATEGY OF IMPORT SUBSTITUTION)

‘Import substation is a strategy to save foreign exchange by encouraging domestic production of the
goods and services which we are importing from rest of the world. Domestic industry is offered
protection from foreign competition through import restriction and import duties’.

The industrial policy that we adopted was closely related to the trade policy. In the first seven plans,
trade as characterised by what is commonly called an inward looking trade strategy. Technically, this
strategy is called import substitution.It is policy of reliance on “ Import substitution” and protection to
the domestic industry through import restriction and import duties in the area of international trade.

Protection from imports took two forms: (i) Tariffs :- Tariffs are a tax on imported goods; they make
imported goods more expensive and discourage their use. (ii) Quotas:- Quotas specify the quantity of
goods which can be imported. The effect of tariffs and quotas is that they restrict imports and,
therefore, protect the domestic firms from foreign competition.
POLICY:- 1. Policy of the reliance on import substitution and protection of domestic industries
through import duties ( this strategy was adopted to:(i) Save foreign exchange( ii) achieve reliance) 2.
In this policy Govt. protected the domestic industries from foreign competition 3. Foreign exchange
was to be utilized for development imports.

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Q9. Why and how was private sector regulated under the IPR 1956?

Ans. Private Sector was given minimum role in IPR 1956. New industry could start operation after it
had obtained licence from the government. Licence was given after scrutiny by the government.

These categories were:

(i). Schedule A: 17 industries which were to be an exclusive responsibility of the state/government (
public sector enterprises).
(ii). Schedule B: 12 industries which were to be progressively state-owned and in which the state
would generally set up new enterprises, but in which private enterprise would be expected only to
supplement the effort of the state; and
(iii).Schedule C: all the remaining industries and their future development would, in general be left to
the initiative and enterprise of the private sector.

Q10. What were the features of the Industrial policy of 1956?

INDUSTRIAL POLICY RESOLUTION -1956(IPR 1956) :- In accordance with the goal of the state
controlling the commanding heights of the economy, the Industrial Policy Resolution of 1956 was
adopted. 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 resolution classified industries into three categories.

Principal elements of IPR- 1956:-1.Three- fold classification of industries :-(i) Established and
developed exclusively as a public sector enterprises (ii) Established both as the private and public
sector enterprises (iii) All industries other than in categories (i) and (ii) were left to the private sector

2. Industrial license: private sector, the sector was kept under state control through a system of
licenses.

No new industry was allowed unless a license was obtained from the government. This policy was
used for promoting industry in backward regions; it was easier to obtain a license if the industrial unit
was established in an economically backward area.

3 Industrial concessions: This policy was used for promoting 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 equality.

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 ECONOMIC REFORMS SINCE 1991 (NEW ECONOMIC POLICY)

INTRODUCTION
Economic reforms refer to a set of economic policies directed to accelerate the pace of “growth and
development”.
NEED FOR NEW ECONOMIC POLICY:-

1. High fiscal deficit: - fiscal deficit estimated to be 5.4 per cent of GDP in 1981-82and its shot up to 8.4
per cent in 1990-91. It is led to a “Dept trap”

2. Adverse balance of payment: - BOP in 1980-81 was Rs. 2,214 crore and in 1990-91it shot up to Rs.
17,367 crore. Borrowing from ROW 12% of GDP in 1980-81 shot up 23% of GDP in 1990-91 .
3. Fall in Foreign exchange reserves :- In 1990-91 , India Forex fell to such a low level that was not
adequate to pay for an import bill of even 10 days.
4. Rise in price/ Inflation: - The rate of inflation was 16.7% in 1990-91

5. Poor performance of public sector undertakings

6. Inefficient management.

ELEMENTS OF NEW ECONOMIC POLICY (LPG)

Three main elements of NEP: 1.Liberalisation 2.Privatisation 3.Globalisation

LIBERALISATION

“Freedom of the economy from the direct controls imposed by the Government”
Reform under liberalization :

1. INDUSTRIAL SECTOR REFORMS :-

(i) Abolition of industrial licensing: Industrial licensing was abolished for almost all but product
categories — alcohol, cigarettes, hazardous chemicals, industrial explosives, electronics, aerospace
and drugs and pharma-ceuticals. –
(ii) Decrease in role of public sector:- The only industries which are now reserved for the public sector
are a part of defense equipment, atomic energy generation and railway transport.
(iii) De-reservation of production by small scale industries: - Many goods produced by small-scale
industries have now been dereserved.

(iv) Freedom to import capital goods (v) Expansion of production capacity (vi) In many industries,
the market has been allowed to determine the prices.

2. FINANCIAL SECTOR REFORMS :-

Financial sector includes Banking and non- banking financial institutions (b) Stock exchange market
(c) Foreign exchange market.
The various reforms are :-

(i) Role of RBI: - The financial sector in India is regulated by the Reserve Bank of India (RBI). All
banks and other financial institutions in India are regulated through various norms and regulations of
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 the RBI. One of the major aims of financial sector reforms is to reduce the role of RBI from regulator to
facilitator of financial sector. This means that the financial sector may be allowed to take decisions on
many matters without consulting the RBI .
(ii) Establishment of private sector banks: - The reform policies led to the establishment of private
sector banks, Indian as well as foreign.
(iii) Foreign investment: - Foreign investment limit in banks was raised to around 50 per cent.

(iv) Foreign Institutional Investors (FII):- such as merchant bankers, mutual funds and pension funds,
are now allowed to invest in Indian financial markets.

3. FISCAL REFORM(Tax Reforms) :- Tax reforms are concerned with the reforms in the
government’s taxation and public expenditure policies, which are collectively known as its fiscal
policy.

(i) Reduction in direct taxes: -Since 1991, there has been a continuous reduction in the taxes on
individual incomes as it was felt that high rates of income tax were an important reason for tax
evasion. It is now widely accepted that moderate rates of income tax encourage savings and voluntary
disclosure of income.

(ii) Reform of indirect taxes (GST):- Recently, the Parliament passed a law, Goods and Services Tax Act
2016, to simplify and introduce a unified indirect tax system in India. This law came into effect from
July 2017. This is expected to generate additional revenue for the government, reduce tax evasion and
create ‘one nation, one tax and one market’.
(iii) Simplification of tax- paying procedure

4. FOREIGN EXCHANGE REFORMS:-

(I) Devaluation of rupee:- The first important reform in the external sector was made in the foreign
exchange market. In 1991, as an immediate measure to resolve the balance of payments crisis, the
rupee was devalued against foreign currencies. This led to an increase in the inflow of foreign
exchange.

(ii) Foreign exchange reforms:- markets determine exchange rates based on the demand and supply of
foreign exchange.
(iii)Foreign trade policy:- Liberalisation of trade and investment regime was initiated to increase
international competitiveness of industrial production and also foreign investments and technology
into the economy. The aim was also to promote the efficiency of local industries and adoption of
modern technologies. The trade policy reforms aimed at (i) dismantling of quantitative restrictions on
imports and exports (ii) reduction of tariff rates and (iii) removal of licensing procedures for imports.

Salient features of trade policy after liberalisation :-

(i) Import quotas have been abolished

(ii) Import licensing has been abolished

(iii) Moderation of import duty)

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 PRIVATISATION

“Privatisation means partial or full ownership and management of public sector enterprises by the
private sector “It implies shedding of the ownership or management of a government owned
enterprise.

It may happen in two ways: -

1. Outright of the Govt. enterprises to the private entrepreneurs (OR)
2. Withdrawal of the Govt. ownership and management the mixed enterprise.
Disinvestment:
Privatisation of the public sector enterprises by selling off part of the equity of PSEs to the public is
known as disinvestment. The purpose of the sale, according to the government, was mainly to improve
financial discipline and facilitate modernisation.
NEED FOR PRIVATISATION: - Because of poor performance of PSUs note the following observations in
this regard:
(i) Key role to the PSUs during 2nd five year plan

(ii) The IPR (1956) clearly stated the significance of PSUs in process of growth and development
(iii) It was on account of the spread of PSUs that the Indian economy underwent a structural
transformation (iv) Mounting losses of PSUs became unsustainable (v) In 1991, the Govt. decided to
phase out public enterprises by selling its equity to the private enterprises (vi) In view of their
efficient performance Navratnas were to be retained as PSUs .
NAVRATNAS : Navratnas refer to nine such profit making companies , these nine industries :- (i) IOC
(ii) BPCL (iii) ONGC (iv) SAIL (v) BHEL (vi) IPCL (vii) VSNL (viii) NTPC (ix) HPCL
MAHARATNAS :- In 2009, the Govt. also started according maharatna status : (i) CIL (ii) IOC (iii) NTPC
(iv) ONGC (v) SAIL (vi)BHEL (vii) GAIL (viii) BPCL
MINIRATNAS :- Recently, yet another status called Miniratna has been created to encourage PSUs to
improve efficiency . 75 PSUs have been awarded Miniratna status.

POSITIVE AND NEGATIVE IMPACT OF PRIVATISATION :-

POSITIVE IMPACT:-

1. Improve the efficiency of management

2. Financial discipline
3. Reduction of deficit
4. Competitiveness
5. Diversification of production
6. Increase in foreign direct investment (FDI)

NEGATIVE IMPACT:-
1. Neglect of social interest

2 Highly priced goods

3. Monopoly control

4. Not achieving the objective of the full employment.

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GLOBALIZATION:

“Globalization is generally understood to mean integration of the economy of the country with the
world Economy” It is an outcome of the set of various policies that are aimed at transforming the
world towards greater interdependence and integration.

Outsourcing: In outsourcing, a company hires regular service from external sources, mostly from
other countries, which was previously provided internally or from within the country (like legal
advice, computer service, advertisement, security — each provided by respective departments of the
company. As a form of economic activity, outsourcing has intensified, in recent times, because of the
growth of fast modes of communication, particularly the growth of Information Technology (IT). Many
of the services such as voice-based business processes (popularly known as BPO or call centres),
record keeping, accountancy, banking services, music recording, film editing, book transcription,
clinical advice or even teaching are being outsourced by companies in developed countries to India.
World Trade Organisation (WTO):- The WTO was founded in 1995 as the successor organisation to
the General Agreement on Trade and Tariff (GATT). GATT was established in 1948 with 23 countries
as the global trade organization to administer all multilateral trade agreements by providing equal
opportunities to all countries in the international market for trading purposes.

Policy strategies undertaken promotinng globalisation of the Indian economy:-

1. Long term trade policy (Removal of controls on foreign trade) – (A new 5 year foreign trade policy
was announced, All restrictions and controls on foreign trade have been removed)
2. Rise in equity limit of foreign investment (equity limit of foreign capital has been raised from 40%
and new range between 51to 100% )
3. Convertibility of Indian rupee (sale and purchase of foreign currency at the price determined by the
market, convertibility of Indian rupee has been allowed: export and import of goods & service
Payment of interest)
4. Reduction of tariffs (Tariff barriers have been withdrawal most of goods traded between India and
ROW)
5. Devaluation of rupee (Devaluation of rupee in July 1991 by nearly 20%, to encouraged export and
discouraged import)
6. Withdrawal of quantities restrictions

Indian economy during reforms: an assessment/an appraisal of LPG policy

(Arguments in favour/ merits of economic reforms/LPG

1. Increase in growth rate of the economy:- The growth of GDP increased from 5.6 per cent
during 1980–91 to 8.2 per cent during 2007–12. During the reform period, the growth of
agriculture has declined. While the industrial sector reported fluctuation, the growth of the
service sector has gone up.
2. Increase foreign direct investment (FDI) and foreign institutional investment (FII):- has
increased from about US $100 million in 1990-91 to US $ 36 billion in 2016-17. There has been
an increase in the foreign exchange reserves from about US $ 6 billion in 1990-91 to about US $
321 billion in 2014-15.
3. A check on inflation

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 4. Growth and Employment: Though the GDP growth rate has increased in the reform period,
scholars point out that the reform-led growth has not generated sufficient employment
opportunities in the country.
DEMERITS OF LPG POLICY/ ECONOMIC REFORMS :-

1. Adverse effect on agriculture

2. Low level of industrial growth

3. Economic colonialism

4. Cultural erosion
5. Spread of consumerism.

CONCLUSION (Critically Examine) of ECONOMIC REFORMS: - The process of globalization through

liberalisation and privatisation policies has produced positive, as well as, negative results both for
India and other countries.

1. Some scholars argue that globalisation should be seen as an opportunity in terms of greater access
to global markets, high technology and increased possibility of large industries of developing countries
to become important players in the international arena. 2. On the contrary, the critics argue that
globalisation is a strategy of the developed countries to expand their markets in other countries.
According to them, it has compromised the welfare and identity of people belonging to poor countries.
DEMONETISATION :-“ Demonetization refers to withdrawal of the status of ‘ legal tender’ to the
currency in circulation” ( Demonetization notes of Rs. 500 & 1000 with immediate effect on 08 Nov.
2016)
FINANCIAL INCLUSION: - 1. People could deposit Rs. 500 & 1000 banned notes in the banks 2.
Millions of the people opened their bank accounts to deposit their cash transactions 3.As those who
were not used to banking, started participating in the organized financial system of the country.
WAS DEMONETISATION A GOOD POLICY DECISION?

Impact on the money supply of economy: - Its pros and cons

1. It was a good move because it induced people shift to the digital mode of transactions
2. Its improved the degree of finical inclusion in the economy

3. It moves as it unearthed the stock of black money in the economy

4. Reducing levels of corruption

5. It will lead to money supply contraction in the form of cash

DEMERITS:-

1. It led to a severe cash crunch in our cash-sensitive economy

2. Fall in production activity 3.Fall (dent) in GDP growth

3. Opportunities of employment were also deeply hurt .

GOODS AND SERVICE TAX :-

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GST was implemented from 1st July 2017. “GST is one tax replacing all indirect taxes in the economy”.
Also, it is a uniform tax across all part of country ‘one tax, one nation, one market’.
TYPES OF GST IN INDIA: - 03 types CGST, SGST, IGST (INTEGRATED G&S inter – state trade) AND
UTGST.

GST SLAB: - 0% (zero) or exempt category, It includes items of common man consumption (three
items exempted from the GST- Common salt, Health service, Educational services).

04 slabs GST:-
(i) 5% GST category (This includes of mass consumption, such a medicines, tea, sugar)

(ii) 12% GST category (This includes computers, processed food)

(iii) 18% GST category (This includes hair oil, toothpaste, soaps, pasta, cakes)

(iv) 28% GST category. This is the highest GST (This includes luxury items)

HOW GOOD IS A SYSTEM OF GST AS COMPARED TO OLD TAX SYSTEM? :-

GST is the ‘single comprehensive indirect tax’ on supply of goods and services right from manufacturer
to the consumer. GST COMPARED TO THE OLD TAX SYSTEM

COMPETENCY BASED QUESTIONS

Q1) “Recently the government of India has decided to merge MTNL & BSNL on account of rising
losses”. Justify the step taken by the government of India.

Ans. The decision taken by the govt. of India to merge BSNL & MTNL is quite appropriate. The govt.
has merged the two loss incurring business with a motive to

a) Achieving higher economic and functional efficiency, and

b) Minimize possible losses

Q2) Amazon has been outsourcing to various customer support companies in India to accommodate
more local and international buyers & sellers. In light of given statement, how has the proc ess of
globalization impacted the Indian economy

Ans. A) Generate more employment and job opportunities

B) Increases the overall GDP of the country

C) Leads to the formalisation of employment sector

D) Limits the availability of social security measures for the workers

Q3) Read the following text carefully and answer the given questions on the basis of the same and
common understanding.

Goods and services tax collections are almost 20% in April 2022 to reach a fresh high of nearly Rs 1.7
lakh crore, pointing to a continued buoyancy in revenue due to higher economic activity and tighter
regulation. For the first time gross GST collection has crossed the Rs 1.5 lakh crore mark.Total
number of e-way bills generated in the month of march 2022, was Rs 7.7 crore, which is 13% higher
than Rs 6.8 crore e-way bills generated in the month of February 2o22, which reflects recovery of
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business activity at a faster pace.During April 2022, Rs 1.1 crore GST returns were filed. The filing
percentage for GDTR-3B in April 2021.
i) “GST is a comprehensive indirect tax.” Elucidate.

ii) “Buoyancy in revenue reflected recovery of business activities at a faster pace. Justify the given
statement with a valid explaination.

Ans- i) GST is a unified single comprehensive indirect tax levied upon goods and services. It has
subsumed different types of taxes such as Excise duty, service tax, sales tax etc. it is a destination-
based consumption tax that is applicable throughout the nation with a single rate of tax for a
particular commodity or service. GST has reduced the cascading nature of indirect taxes.

ii) in April 2022, the tax collection recorded a 20% hike and reached the level of Rs 1.7 lakh crore.this
buoyancy in revenue was an outcome of rising economic activities and tighter regulation by the
government .A 13% rise in the number of e-way bills generated and Rs 1.1 crore GST returns filed in
the country is the clear indication of recovery of business activity at a faster pace.
ASSERTION AND REASON

Alternatives:

(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

1. ASSERTION (A): Huge reforms have been made in indirect taxes to facilitate establishment of
common national market for goods and commodities.
REASON (R): In order to encourage better compliance on the part of taxpayers, many procedures
have been simplified.
Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A)

2. ASSERTION (A): Foreign exchange reserves declined to a level that was not enough to pay for the
import bill of more than 2 weeks.
REASON (R): Liberalization implies controls and restrictions on trade and industry.
Ans: (c) Assertion (A) is true but Reason (R) is false.
3. ASSERTION (A): Launch of LPG policies has caused a significant shift in the structure of the Indian
markets they are now increasingly shedding their monopoly nature and becoming more competitive
in nature.
REASON (R): Equity limit of foreign capital investment has been raised from the initial 40% it’s now
range between 51 - 100%
Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
4. ASSERTION (A): Developed countries oppose outsourcing of work to India.
REASON (R): Outsourcing increases the income disparity between the two countries.

Ans: (c) Assertion (A) is true but Reason (R) is false.

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5. ASSERTION (A): One of the major aims of financial sector reforms is to reduce the role of RBI from
regulator to facilitator of financial sector.
REASON (R): This means that the financial sector may be allowed to take decisions on many matters
without consulting the RBI.

Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A)

6) Assertion (A): Fiscal deficit leads to price spiral.

Reason (R): Often, the fiscal deficit is financed by the government by way of borrowing from the RBI.
It leads to increase in the supply of money in the economy. Other things remaining constant, higher
the supply of money, higher is the price spiral.
Ans. (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A)
7) Assertion (A): Disinvestment is a compulsion for the government to tackle budgetary deficit.

Reason (R): Disinvestment is not a compulsion for the government to tackle budgetary deficit. The
fact of the matter is that the government resorts to disinvestment (selling shares of public enterprises
to private entrepreneurs) only when the public sector enterprises are found to be breeding centres of
inefficiency and corruption. Of course, once disinvestment is done it helps the government to manage
budgetary deficit.
Ans- d. Assertion (A) is false but Reason (R) is true.

8) Assertion (A): New economic reforms are focussed on acceleration of GDP only, has not generated
sufficient employment opportunities indeed jobless growth is an emerging challenge of the Indian
economy.

Reason(R): Globalisation has increased the influx of foreign investment and foreign technology which
emphasis in labour saving technology

Ans- (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
9) Assertion - Under the financial sector reforms financial sector was allowed to take decisions on
after consulting RBI.
Reason(R) - The role of RBI was reduced from regulator to facilitator of financial sector

Ans- (d) Assertion is false but reason is true.

10) Assertion (A): Every year government fixes a target for disinvestment of Public Sector
Enterprises (PSEs).
Reason (R): Disinvestment is an excellent tool for discarding the loss incurring Public Sector
Enterprises (PSEs).

Ans-(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)

CASE STUDY

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 Question No. 1 to 5 are to be answered on the basis of the following text and common
knowledge: (CBSE TERM-1 2022)

India’s growth path grabbed the attention of the world after the introduction of the New Economic
policy in 1991. Economic reforms stabilization and structural reforms.

Liberalisation led to the breakdown of license raj. Reforms were interdicted in various sectors with
the aim of decreasing government intervention. It was done in order to build a new framework to
make markets more competitive.

India’s low foreign exchange reserves were one of the reasons for the introduction of reforms. At
present, India enjoys a leading position in term of foreign exchange reserves across the world. These
reforms completely transformed the Indian economy.

However, today many economists many economists feel the need for a new set of reforms.

Q1. Which of the following is not the introduction of economic reforms in 1991?
(a) Decrease in foreign exchange reserves
(b) High rate of inflation
(c) Balance of Payment crisis
(d) Increase in exports
Ans.(a) Decrease in foreign exchange reserves

Alternatives:
a) Both the statement are true

(b) Both the statement are false

(c) Statement 1 is true and Statement 2 is false

(d) Statement 2 is true and Statement 1 is false

Q2 Read the following statements carefully and choose the correct alternative:
Statement 1: Structural refers aimed at improving the efficiency of the economy and increasing its
international competiveness

Statement 2: Structural reform measures are the short- term measures intended to correct
weaknesses of the economy.

Ans. (c) Statement 1 is true and Statement 2 is false

Q3. In order to mark end of the license raj measure(s) was/ were taken by the Government of
India.
(i) Liberalisation
(ii) Privatisation
(iii) Globalisation
Alternatives:

(a) Only (i)

(b) Only (ii)
(c) Both (i) and (ii)
(d) (i), (ii) and (iii)
Ans. (a) Only (i)
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Q4. Privatisation of Public Sector enterprises implies:

(e) Strategic sales

(f) Sale of private companies
(g) Minority sales
(h) Both strategic sales and minority sales
Ans. (d) Both strategic sales and minority sales

Q5.

Column I Column II

A Industrial Sector Reform i Role of RBI changed from

regulator to facilitator.

B Financial Sector Reform ii Reduction in the tax rates

C Fiscal Sector Reform iii Determination of exchange rate

through demand and supply

D Foreign Exchange Reform iv Abolition of licensing system

Alternatives:

(a) A-ii, B-iii, C-i, D- iv

(b) A-i, B-ii, C- iii, D-iv

(c) A-iv, B-i, C-ii, D-iii

(d) A-iii, B-iv, C-I, D-ii

Ans. A-iv, B-i, C-ii, D-iii

MULTIPLE CHOICE QUESTIONS (MCQ) WITH ANSWERS

1. In 1991, India met with an economic crisis due to

a) Rise in foreign exchange reserves

b) Fall in Price

c) Huge debts burden

d) Good performance of public sector undertakings

2. The most urgent problem which promoted the introduction of New Economic Policy in 1991 Was:

(a) Bad performance of public sector units.

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(b)Foreign exchange crises.

(c) High tax rates leading to tax evasion.

(d)Both A and B

3. Which of the policy is not initiated under the new economic policy?

a) Liberalization
b) Privatisation

c) Globalisation
d) Urbanization

4. means integrating the domestic economy with the world economy.

a) Globalisation

b) Liberalization

c) Privatisation
d) Demonetisation

5. refers to relaxation of Government restrictions.

a) Privatisation

b) Globalisation
c) Disinvestment

d) Liberlisation

6. Foreign exchange reforms was done by

a) Devaluating the Rupee against foreign currency

b) Introducing the fixed exchange rate system

c) Determination of the exchange rate by the market forces

d) Both (a) and (c)

7. Government taxation and expenditure policy is known as

a) Trade policy

b) Monetary policy
c) Fiscal policy

d) Taxation policy
8. Import Licensing was abolished except in case of :

a) Hazardous items

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b) Environmentally sensitive industries

c) both (a) and (b)

d) none of these

9. Industry reserved for public sector:

a) Defense equipment
b) Atomic energy generation

c) Railway transport
d) All of these

10. Financial sector reforms does not include

a) Foreign investment limit in banks was raised to around 50 per cent

b) Foreign Institutional Investors (FII), allowed to invest in Indian financial markets

c) Reduce the role of RBI from regulator to facilitator

d) Removal of licensing procedures for imports

11. is one of the texes eliminated after implementation of Goods & Service Tax . (CBSE 2020)
Ans. Value added tax

12. World Trade Organisation (WTO) was established in 1995, as a successor organization to
______________ . (CBSE 2020)

Ans. General Agreement on Tariffs And Trade (GATT)

13. Name any one Navratna company. (CBSE 2020)

Ans. Mahanagar Telephone Nigam Limited (MTNL) ( any other Navratna)

14. State whether the following statement is true or false:

‘World Bank is also known as International bank for Registration and Delimitation (IBRD) (CBSE
2020)

Ans. False
15. State whether the following statement is true or false: (CBSE 2020)

‘GATT was established in 1923 with 48 member countries’

Ans. False

ANSWER KEYS

1 C 2 D 3 D 4 A 5 D

6 D 7 C 8 C 9 D 10 D

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 Short and Long Answer Question(3,4 & 6 Marks)

Q1. Discuses any two major steps taken by the government of India on Financial sector front
under the economic reform 1991. (CBSE 2020)

FINANCIAL SECTOR REFORMS :- Financial sector includes (a) Banking and non- banking financial
institutions (b) Stock exchange market (c) Foreign exchange market .
The various reforms are:-

(i) Change in role of RBI from regulator to Facilitator:- The financial sector in India is regulated
by the Reserve Bank of India (RBI). All banks and other financial institutions in India are regulated
through various norms and regulations of the RBI. One of the major aims of financial sector reforms is
to reduce the role of RBI from regulator to facilitator of financial sector. This means that the financial
sector may be allowed to take decisions on many matters without consulting the RBI .

(ii). Origin of Private Banks: The reform policies led to the establishment of private sector banks,
Indian as well as foreign such as ICICI, HSBC banks increased the competition and benefitted the
consumers through lower interest rates and better services.

(iii). Increase in limit of Foreign investment: Foreign investment limit was raised to around
51%. FII such as merchant bankers, mutual funds and pension funds were now allowed to invest in
Indian Financial markets. Though banks have given permission to generate resources from India and
Abroad, certain aspects have been retained with the RBI to safeguard the interests of the account-
holders and the nation.
(iv). Comfort in Expansion Process: Banks were given freedom to set up new branches (after
fulfillment of certain conditions) without the approval of the RBI. Q2. ‘India is often called as
outsourcing destination of the world’ Discuss the prime reasons for this name given to India.
(CBSE 2020)

Ans. The following points will highlight the reasons that make India a favorite outsourcing destination:
(i). Wage rates in India is less as compared to other developed nations and it makes MNC’s invest in
Indian workers and shifts a part of the business to India.
(ii). Indians are educated and can be easily trained, but lack job opportunities, so job training cost
will be low.
(iii) . India is an emerging market for goods and services, the cost of production is cut by half of it is
produced in India, and therefore it makes sense to invest in India.
(iv). India offers a stable political environment suitable for setting up businesses. (v). India has been
developing the infrastructure section since the last 10-20 years and connectivity has become much
improved, this helped MNC’s in reducing the cost of production.
(vi). India has abundant natural resources which make for a steady source of raw materials to ensure
the proper functioning of MNC’s.

Q3. Explain fiscal reforms introduced in India under new economic policy 1991.

Ans. FISCAL REFORM(Tax Reforms) :- Tax reforms are concerned with the reforms in the
government’s taxation and public expenditure policies, which are collectively known as its fiscal
policy.

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 (i). Reduction in direct taxes: -Since 1991, there has been a continuous reduction in the taxes on
individual incomes as it was felt that high rates of income tax were an important reason for tax
evasion. It is now widely accepted that moderate rates of income tax encourage savings and
voluntary disclosure of income.

(ii).Reform of indirect taxes (GST):- Recently, the Parliament passed a law, Goods and Services Tax
Act 2016, to simplify and introduce a unified indirect tax system in India. This law came into effect
from July 2017. This is expected to generate additional revenue for the government, reduce tax
evasion and create ‘one nation, one tax and one market’.
(iii). Simplification of tax- In order to encourage better compliance on the part of taxpayers, many
procedures have been simplified.

Q4. Discuses any two major steps taken by the government of India on Foreign exchange
reform under the economic reform 1991.

Ans. FOREIGN EXCHANGE REFORMS:- (i). Devaluation of rupee:- The first important reform in the
external sector was made in the foreign exchange market. In 1991, as an immediate measure to
resolve the balance of payments crisis, the rupee was devalued against foreign currencies. This led to
an increase in the inflow of foreign exchange.
(ii). Foreign exchange reforms:- markets determine exchange rates based on the demand and
supply of foreign exchange.

(iii) Foreign trade policy:- Liberalisation of trade and investment regime was initiated to increase
international competitiveness of industrial production and also foreign investments and technology
into the economy. The aim was also to promote the efficiency of local industries and adoption of
modern technologies. The trade policy reforms aimed at (i) dismantling of quantitative restrictions
on imports and exports (ii) reduction of tariff rates and (iii) removal of licensing procedures for
imports.

Q5. Do you think outsourcing is good for India? Why are developed countries opposing it?
Ans. Yes, it is good for India. These points below further help in justifying that:

1. For a country like India which is developing, employment generation is a concern and
outsourcing provides a solution for generating employment opportunities.

2. It enables the transfer of knowledge about the processes and technology from developed
countries to the developing countries.
3. By providing outsourcing services India makes itself credible in the international market, it will
help in bringing international investment to India.
4. Outsourcing opens up avenues across service sectors and helps the educated youth in getting
skills which will result in human capital formation

5. Jobs will help in the building of society by reducing poverty and also pave the way for education,
which will build the nation as a whole.

Developed countries oppose outsourcing as it leads to outflow of jobs from the developed countries to
the developing countries, it leads to outflow of investment and revenue and helps develop the weaker
country, but results in job scarcity for the developed countries.

Q6. Define privatisation. Explain the objectives of privatisation in India.

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Ans. Privatization: is defined as the transfer of a function, activity or organization from the public to
the private sector.
Objectives of Privatisation:

1- Improving the government financial Composition: Raising funds from the sales of enterprises
or their assets; Making the enterprises raise internal resources and from capital markets.

2- Improving the performance of an enterprise: Increasing efficiency; requiring enterprises to

meet performance objectives; greater responsiveness to consumers, in terms of quantity, quality,
diversity or services; relief from public sector financial constraint; more managerial autonomy.

Besides the above two broad objectives, privatization would help in reducing the burden on public
administration by reducing the size of the public sector, strengthening market forces and competition
within an economy and promoting wider share ownership among public.

Q7. Define disinvestment. Explain objectives and methods of disinvestment.

Ans. DISINVESTMENT: is sale of a part of equity holdings held by the government in any public sector
undertaking to private investor.
Objectives of Disinvestment:

Disinvestment has been a major strategy by which the government has financed fiscal deficit. Besides
financing fiscal deficit, the economic motivation behind it is to improve efficiency of PSUs.

Two main methods of disinvestment are:

(i)- Minority Sale: Under it, the general policy was to sell the shares of the PSUs maximum upto 49% so
that government ownership of the companies is maintained. In this method, equity is offered to
investors through domestic public issue.
(ii)-Strategic Sale: Under it, the government sells 50% or more shares of the PSUs.

The ownership of the company transfers from the government to the private sector. In this method,
government offloads above 51% in strategic sale.

Q8. Agriculture sector appears to be adversely affected by the reform process. Why?
Ans. Economic reforms initiated in 1991 did not have an impact on the agriculture industry. Here are
the reasons:

(i)- Public investment decreased in the agriculture sector after 1991, the Indian government has
reduced support for research and development in agriculture and supported services that had

a negative impact on agriculture.

(ii)- As subsidies were removed from fertilisers, the cost of production escalated which made farming
more expensive, it also affected poor farmers.
(iii)- By complying with WTO regulations, import duties on agricultural products were reduced which
made it difficult for poor farmers to compete against products of the international market.

(iv)- Shifting focus on producing more cash crops and removal of subsidies exerted a double impact
which resulted in inflation making the cost of production more expensive

Q9. Explain arguments in favour and against of New Economic reforms.

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POLICE (ARGUMENTS IN FAVOUR/ MERITS OF ECONOMIC REFORMS/LPG
1. Increase in growth rate of the economy:- The growth of GDP increased from 5.6 per cent
during 1980–91 to 8.2 per cent during 2007–12. During the reform period, the growth of

agriculture has declined. While the industrial sector reported fluctuation, the growth of the service
sector has gone up.

2. Increase foreign direct investment (FDI) and foreign institutional investment (FII):- has
increased from about US $100 million in 1990-91 to US $ 36 billion in 2016-17. There has been an
increase in the foreign exchange reserves from about US $ 6 billion in 1990-91 to about US $ 321
billion in 2014-15.
3. A check on inflation

4. Growth and Employment: Though the GDP growth rate has increased in the reform period,
scholars point out that the reform-led growth has not generated sufficient employment opportunities
in the country.

DEMERITS OF LPG POLICY/ ECONOMIC REFORMS :-

1.Adverse effect on agriculture
2. Low level of industrial growth
3.Economic colonialism
4.Cultural erosion
5. Spread of consumerism.

CONCLUSION (Critically Examine) of ECONOMIC REFORMS: -The process of globalisation through

liberalisation and privatisation policies have produced positive, as well as, negative results both for
India and other countries.

1. Some scholars argue that globalisation should be seen as an opportunity in terms of greater
access to global markets, high technology and increased possibility of large industries of developing
countries to become important players in the international arena.

2. On the contrary, the critics argue that globalisation is a strategy of the developed countries to
expand their markets in other countries. According to them, it has compromised the welfare and
identity of people belonging to poor countries.

Q10. Discuss economic reforms in India in the light of social justice and welfare.

Ans. Economic reforms in India in the light of social justice and welfare
The process of globalisation through liberalisation and privatisation policies has produced in India in
the light of social justice and welfare as, negative results:
On the contrary, the critics argue that globalisation is a strategy of the developed countries to expand
their markets in other countries.

According to them, it has compromised the welfare and identity of people belonging to poor countries.

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Unit 7: Current challenges facing Indian Economy
HUMAN CAPITAL FORMATION IN INDIA

INTRODUCTION

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 HUMAN CAPITAL:- Human capital refers to the stock of ‘skill and expertise’ of a nation at point of
time.
HUMAN CAPITAL FORMATION: - Human capital formation is the process of acquiring and increasing
the number of persons who have the skill, education and experience which are essential for the
economic , social and political development of the country OR (Human capital formation is the
addition stock of abilities and skills among the population of the country)

PHYSICAL CAPITAL:- Physical capital refers to stock of produced means of production

DETERMATION/ SOURCES OF HUMAN CAPITAL FORMATION:-

1. Expenditure on education:- Spending on education by individuals is similar to spending on capital

goods by companies with the objective of increasing future profits over a period of time. Likewise,
individuals invest in education with the objective of increasing their future income.

2. Expenditure on Health: - Health is also considered as an important input for the development of a
nation as much as it is important for the development of an individual. Who can work better — a sick
person or a person with sound health? A sick labourer without access to medical facilities is compelled
to abstain from work and there is loss of productivity. Hence, expenditure on health is an important
source of human capital formation. Health expenditure directly increases the supply of healthy labour
force and is, thus, a source of human capital formation.

3. On-the- job training :- Firms spend on giving on-the-job-training to their workers.This may take
different forms: one, the workers may be trained in the firm itself under the supervision of a skilled
worker; two, the workers may be sent for off-campus training. In both these cases firms incur some
expenses. Firms will, thus, insist that the workers should work for a specific period of time, after their
on-the-job training, during which it can recover the benefits of the enhanced productivity owing to the
training. Expenditure regarding on-the-job training is a source of human capital formation as the
return of such expenditure in the form of enhanced labour productivity is more than the cost of it.

4. Migration: - People migrate in search of jobs that fetch them higher salaries than what they may
get in their native places. Unemployment is the reason for the rural-urban migration in India.
Technically qualified persons, like engineers and doctors, migrate to other countries because of higher
salaries that they may get in such countries. Migration in both these cases involves cost of transport,
higher cost of living in the migrated places and psychic costs of living in a strange socio-cultural setup.
The enhanced earnings in the new place outweigh the costs of migration; hence, expenditure on
migration is also a source of human capital formation.

5. Expenditure on information:- People spend to acquire information relating to the labour

market and other markets like education and health. For example, people want to know the level of
salaries associated with various types of jobs, whether the educational institutions provide the right
type of employable skills and at what cost. This information is necessary to make decisions regarding
investments in human capital as well as for efficient utilisation of the acquired human capital stock.
Expenditure incurred for acquiring information relating to the labour market and other markets is
also a source of human capital formation. 6. Study programmes for adults

Role of human capital formation (human capital formation and economic growth):-
1.Higher productivity of physical capital:- Education and health, along with many other factors like
on-the-job training, job market information and migration, increase an individual’s income generating
capacity.

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2. Innovative and technological improvement: - Human capital contributes substantially not only
towards increasing labour productivity but also stimulates innovations and create 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 educated labour
force facilitates adaptation to new technologies.
3 .Key role of development strategy :- improvement in education and health sectors and growth in
real per capita income in both developing and developed countries. Higher income causes building of
high level of human capital and vice versa, that is, high level of human capital causes growth of income.
4. Growth of human capital (education and health):- growth of human capital (education and
health) to economic growth . Two independent reports on the Indian economy, in recent times, have
identified that India would grow faster due to its strength in human capital formation. Deutsche Bank,
a German bank, in its report on ‘Global Growth Centres’ (published on 1.7.05) identified that India will
emerge as one among four major growth centres in the world by the year 2020. It further states, “Our
empirical investigation supports the view that human capital is the most important factor of
production in today’s economies. Increases in human capital are crucial to achieving increases in
GDP.” With reference to India it states, “Between 2005 and 2020 we expect a 40 per cent rise in the
average years of education in India. World Bank, in its recent report, ‘India and the Knowledge
Economy — Leveraging Strengths and

Opportunities’, states that India should make a transition to the knowledge economy and if it uses its
knowledge as much as Ireland does (it is judged that Ireland uses its knowledge economy very
effectively), then the per capita income of India will increase from a little over US $1000 in 2002 to US
$ 3000 in 2020. 5. Improvement in quality of life 6.Positive change in attitude.
HUMAN CAPITAL AND HUMAN DEVELOPMENT: -

Human capital: - Human capital considers education and health as a means to increase labour
productivity.

Human development: - 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. Human
capital treats human beings as a means to an end; the end being the increase in productivity. Any
investment in education and health is unproductive if it does not enhance 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 labour productivity. Therefore, basic education and basic health are important in
themselves, irrespective of their contribution to labour productivity.

STATE OF HUMAN CAPITAL FORMATION IN INDIA: - In this section we are going to analyses human
capital formation in India. We have already learnt that human capital formation is the outcome of
investments in education, health, on-the-job training, migration and information. Of these education
and health are very important sources of human capital formation. We do understand that education
and health care services create both private and social benefits and this is the reason for the existence
of both private and public institutions in the education and health service markets. Expenditures on
education and health make substantial long-term impact and they cannot be easily reversed; hence,
government intervention is essential.

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PROBLEMS FACING HUMAN CAPITAL FORMATION IN INDIA:-
1.High growth rate of population 2.Lack of manpower planning 3. Brain –Drain 4.Low level of
academic standards 5. Insufficient on-job training in primary sector 6.Poverty

EDUCATION SECTOR IN INDIA

(i) Growth in Government Expenditure on Education:- Expenditure on education by the

government is expressed in two ways

(i) as a percentage of ‘total government expenditure’

(ii) as a percentage of Gross Domestic Product (GDP) .

(i) As a percentage of total government expenditure:- During 1952-2014, education expenditure

as percentage of total government expenditure increased from 7.92 to 15.7.

(ii) As a percentage of Gross Domestic Product (GDP):- During 1952-2014, as percentage of GDP
increased from 0.64 to 4.13. Throughout this period the increase in education expenditure has not
been uniform and there has been irregular rise and fall.

One can understand the inadequacy of the expenditure on education if we compare it with the desired
level of education expenditure as recommended by the various commissions. About 50 years ago, the
Education Commission (1964–66) had recommended that at least 6 per cent of GDP be spent on
education so as to make a noticeable rate of growth in educational achievements.

The Tapas Majumdar Committee, appointed by the Government of India in 1998, estimated an
expenditure of around Rs 1.37 lakh crore over 10 years (1998-99 to 2006-07) to bring all Indian
children in the age group of 6-14 years under the purview of school education. Compared to this
desired level of education expenditure of around 6 per cent of GDP, the current level of a little over
4 per cent has been quite inadequate. In principle, a goal of 6 per cent needs to be reached—
this has been accepted as a must for the coming years.

(ii) GROWTH OF EDUCATION SECTOR IN INDIA:

1. Expansion of general education (Literate rate 16% to 74%in 1951 to 2011) 2. Elementary education
(covers students from class 1to 8 in the age group of 6 to 14 years) 3.Secondary and senior secondary
education 4.Higher education 5.Vocational education 6.Technical, medical and agricultural education
7.Rural education 8.Adult and female education 9.Total literacy campaign.

EDUCATION AS AN ESSENTIAL ELEMENT OF HUMAN RESOURCE

DEVELOPMENT: - Education implies the process of teaching, training and learning. It improves
knowledge and develops skills.

IMPORTANCE AND OBJECTIVES OF EDUCATION:

1. Education produces responsible citizens 2. It develops science and technology 3. It develops human
personality 4. It helps economic development 5. It promotes cultural standard of the citizens.
Major Education Programmes:-

1. Sarva Shiksha Abhiyan :- SSA was launched in 2001.SSA is programmes for universalisation of
elementary education

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2. RTE Act 2009:- In 2009, the Government of India enacted the Right of Education Act to make free
education a fundamental right of all children in the age group of 6-14 years.
3. Mid- day meal scheme

4. Skill India :- Skill India programmes was launched on July 16, 2015.Its main objective is to train
over 40 crore people in India in different skills by 2022.

5. Beti Bachao Beti Padhao (BBBP):- Beti Bachao Beti Padhao was launched January 22, 2015 for
survival, protection and education of girl child.

6. Digital India:- Digital India was launched on July 01, 2015.

EDUCATION SKILLS A CHALLENGING PROPOSITION (THE CHALLENGE OF EDUCATION)

1. Education for All Still a Distant Dream (Large number of illiterate’s):- Though literacy rates for
both — adults as well as youth — have increased, still the absolute number of illiterates in India

2. Gender Equity — Better than Before: - The differences in literacy rates between males and
females are narrowing signifying a positive development in gender equity; still the need to promote
education for women in India is imminent for various reasons such as improving economic
independence and social status of women and also because women education makes a favourable
impact on fertility rate and health care of women and children.
3. Higher Education — a Few Takers: - The Indian education pyramid is steep, indicating lesser and
lesser number of people reaching the higher education level. Moreover, the level of unemployment
among educated youth is the highest. As per NSSO data,in the year 2011-12, the rate of unemployment
among youth males who studied graduation and above in rural areas was 19 per cent. Their urban
counterparts had relatively less level of unemployment at 16 per cent. 4.Inadequate vocational
education 5.Privatisation of education 6.Low access level of rural areas 7.Low standard of education
8.Insufficient government expenditure.
COMPETENCY BASED QUESTIONS

Q1) Who can work better- a sick person or a person with sound health? Explain giving reasons.
Ans- A person with sound health can work better and contribute more to his/her individual income
as well as national income. A sick labourer without access to medical facilities is compelled to abstain
from work and there is aloss of productivity. Healthy manpower, on the other hand, contributes more
to the growth and development of the nation. Health is a state of complete physical, mental and social
well being of a person. It is not merely the absence of disease .it also implies the ability to realize one’s
potential.

Q2) ‘Neerja was initially working as an office clerk in a firm. In the pursuit to attain, a higher position
and income, she attended a few on-the-job training sessions. These sessions contributed positively
toher skills and expertise.” Explain the impact of Neerja’s decision on human capital formation.

Ans- On-the-job training has become an integral part of work environment in the recent times as it
adds to the productive capacity of employees. Firms encourage such training , as the benefits outweigh
the cost of training. It enables employees to develop skills and adapt modern technologies/ideas. Thus,
neeraja’s decision to attend on the job traing sessions will have a positive impact on human capital
formation.

Q3 Dr Bhaskar , a dentist , ran his clinic in an economically backward area.He was earning a
comparatively low income.So, he decided to move to a cityand spent a huge amount for the same.
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 Identify and explain the type of expenditure incurred by Dr. Bhaskar, which directly contributed to the
process of human capital formation.
Ans- The expenditure incurred by Dr. Bhaskar on moving his clinic from economically backward area
to the city comes under the category of ‘Expenditure on migration’ Expenditure on migration is the
source of human capital formation under the category of expenditure on migration . Expenditure on
migration is the source of human capital formation. People migrate in search of jobs that fetch them
higher salary. Technically qualified persons like engineers and doctors , migrate to other areas because
of higher income and better opportunities.
Q4 outline three sources of the development of human capital and provide instances of investments
in human capital that can contribute positively to a nation’s economic expansion and overall well-
being.
Ans- i) Education system ii) vocational training and skill developments iii) healthcare and nutrition (
Explaination required)
ASSERTION & REASON

Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true
Q1. Read the following statements carefully Assertion (A) and Reason ( R) and choose the correct
alternative: (CBSE Term- 1 2022)

ASSERTION (A): Expenditure on health increases the physical and mental ability of human beings..
REASON (R): Expenditure on health makes long term impacts and these can be easily reversed.

Ans.(c) Assertion (A) is true but Reason (R) is false.

Q2.ASSERTION (A): According to human capital, human beings are ends in themselves.

REASON (R): Human capital considers education and health as a means to increase labour
productivity.

Ans: (d) Assertion (A) is false but Reason (R) is true.

Q3.ASSERTION (A): Human Capital of a nation is raised when skill and expertise of the people rises.

REASON (R): Rising population is an impediment to the process of human capital formation in India.
Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A)
Q4.ASSERTION (A): Cause and effect relation between Human Capital and economic growth can be
easily proved.
REASON (R): Due to measurement problems, it is difficult to establish a relation of cause and effect
from the growth of human capital(Education and Health) to economic growth.
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Ans: (d) Assertion (A) is false but Reason (R) is true.
Q5. ASSERTION (A): World Bank, in its recent report, ‘India and the Knowledge Economy REASON
(R):India would grow faster due to its strength in human capital formation.

Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)

Q6. Assertion (A) –Expenditure on migration is a source of human capital formation.

Reason(R) –Migration to other countries involves cost of transportation from one place to another
and higher cost of living in the migrated places. From the given alternatives choose the correct one:
Ans- (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)

Q7. Assertion (A) – Education contributes to economic growth.

Reason(R) - Education confers higher earning capacity on people. From the given alternatives choose
the correct one:
Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A)
Q8. Assertion (A) – Spread of education is necessary to control the population growth rate.

Reason(R) –Modernisation, gender equality and social awareness has deep impact on the mind set of
people.

Ans- (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A)

Statement (01Marks)

Alternatives:
a) Both the statement are true

(b) Both the statement are false

(c) Statement 1 is true and Statement 2 is false

(d) Statement 2 is true and Statement 1 is false

Q1. Read the following statements carefully and choose the correct alternative: (CBSE Term- 1 2022)

Statement 1: Human capital .treats human beings as a means to an end.

Statement 2: In the human development perspective, human beings are an end in themselves
Ans. a) Both the statement are true

Q2. Read the following statements carefully and choose the correct alternative: (CBSE Term- 1 2022)
Statement 1: quality of education is measured in terms of years of schooling and enrolment rates.

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Statement 2: Education provides knowledge to understand changes in society and scientific
advancements.
Ans. (d) Statement 2 is true and Statement 1 is false.

MULTIPLE CHOICE QUESTIONS (MCQ) WITH ANSWERS

1. In the year the Indian Government made education free and compulsory for all children
between 6-14 years. (CBSE 2020)
(a) 2001
(b) 2009
(c) 2003
(d) 2007

2. Which of the following source of Human capital formation exhibits high cost of living and
transportation? (CBSE Term- 1 2022)
(a) Expenditure on Health
(b) Expenditure on Education
(c) Expenditure on Migration
(d) Expenditure on Information

3. Economic growth requires .

(A) Human capital
(B) Physical capital
(C) Both (a) and (b)
(D) Neither (a) nor (b)

4. Before introducing new technology, a firm provides the basic skills to the workers regarding its
usage. This is which source of human capital formation?
(A) Study programme for adults
(B) On the job training
(C) Expenditure on information
(D) Investment in education

5. The stock of skill and expertise of nation at a point of time is called:

(A) Human capital
(B) Human development
(C) Human capital formation
(D) Physical capital

6. is better indicator of development.

(A) National output
(B) Per capita income (monetary)
(C) Real per capita income
(D) National income

7. Source of Human capital formation :

(A) Investment in education
(B) Investment in Health
(C) Investment in on-the-job training
(D) All of these

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8. From the following which is not a source of human capital :
(A) On-the job training
(B) Migration
(C) Investment in education
(D) None of the above
9. Expenditure on education is.
(A) Wasteful
(B) Investment
(C) Skill
(D) Not required

10. Which of the following is the problem of human capital formation in India?
(a) Brian drain
(b) (b) Rising population
(c) (c) Low academic standards
(d) (d) All of these

Answer Key

1 B 2 C 3 C 4 B

5 A 6 C 7 D 8 D

9 D 10 B

SHORT AND LONG ANSWER TYPE QUESTION (3,4 & 6 Marks)

Q1. Explain how does ‘Investment in human capital’ contributes to growth of an

economy.(CBSE 2020)

(OR ) Examine the role of education in the economic development of a nation. (OR) "Education
plays a significant role in economic development'. Discuss.
Answer- Education is an important source of human capital formation. Investment in education
stimulates economic development in the following ways:
a) Raises production- Knowledgeable and skilled workers can make better use of resources at their
disposal. It will increase production in the economy. An educated and trained person can apply
his knowledge and skill at farm, factory and office to increase production.
b) Raises efficiency and productivity- Investment in education increases efficiency and productivity,
and hence yields higher income to the people.
c) Brings positive changes in outlook and attitudes. - Knowledgeable and skilled people have
modem outlook and attitudes, that they make rational choice in respect of places and jobs.
d) Improves quality of life. Education improves quality of life as it provides better job, high income
and improves health. It results in better standard of living.

Q2. Bring out the need for on-the-job-training for a Employee. (CBSE 2020)
Answer. Technical training adds to the capacity of the people to produce more. Firms given on- the-
job- training to enhance the productive skills of the workers so as to enable them to absorb new
technologies and modem ideas. It can be given in two forms:
(i) The workers may be trained in the firm itself under the assistance of a senior and experienced
worker.
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(ii) The workers may be sent off the firm campus for the training.

Q3. ‘Economists believe that India should spend at least 6% of its GDP on Education for
achieving desired results’. Justify the statement with valid reason.(CBSE 2020)

Ans Education Commission (1964–66) had recommended that at least 6 per cent of GDP be
spent on education so as to make a noticeable rate of growth in educational achievements. Compared
to this desired level of education expenditure of around 6 per cent of GDP, the current level of a little
over 4 per cent has been quite inadequate. In principle, a goal of 6 per cent needs to be reached—this
has been accepted as a must for the coming years. In 2009, the Government of India enacted the Right
of Children to Free and Compulsory Education Act to make free education a fundamental right of all
children in the age group of 6-14 years.

Government of India has also started levying a 2 per cent ‘education cess’ on all Union taxes.
The revenues from education cess has been earmarked for spending on elementary education.

In addition to this, the government sanctions a large outlay for the promotion of higher education and
new loan schemes for students to pursue higher education. Thus, our performance in the area of
education has been far from satisfactory.

Q4. What do you mean by human capital formation? What are the sources of human capital
formation?

Ans) Meaning of Human Capital formation: Human capital formation means the development

of abilities and skills among the population of the country.

Sources of Human Capital Formation:

1) Expenditure on education: It is one of the most important sources of human capital Formation.
Proper utility of man power depends on the system of education, training and experience of the
people. Spending on education by individuals is similar to spending on capital goods by companies
with the objective of increasing future profits once a period of time. This increase the income of the
people and their standard of living. Investment in education is not only highly productive but also it is
yields increasing return and accelerates economic growth of all the resources.

2) Expenditure on Health: Health is an important input for a development of a nation.

Expenditure on health is needed in the following areas.
(a) Preventive medicine known as vaccination
(b) Curative medicines, i.e., medical intervention during the time of illness
(c) Social medicine I.e spread of health literacy.
(d) Provision of clean drinking water and good sanitation is very important for improvement of
health. Health expenditure directly increases the physical capacity of human being and it raises the
supply of healthy labour force.

3) On the job training: productivity of physical capital is substantially increased with the
improvement in human capital. Due to this reason many firms provide on the job training to their
workers. Such training has the advantage that it can be provided fast and without much cost. It
increases the skill and efficiency of the workers and leads to an increase in production by productivity.

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Expenditure regarding on the job training is the source of human capital formation because it
increases labour productivity than its cost.
4) Expenditure on migration: - people migrate to one place to another that gives them higher
salaries. Unemployment people from rural migrate to urban areas. Technical qualified people migrate
to other countries for higher salaries. Though it results in cost of migration and higher cost of living
due to migration in migrated place. It enhances earning that their cost of migration. Hence it is a
source of human capital formation.

5) Expenditure on Information: - Expenditure is incurred to acquire information relating to

labour market and other market. It involves amount spent on seeking information about educational
institutions, education standard their educational needs and cost of education. This information is
necessary to make decisions regarding investment in human capital as well as for efficient utilization
of the acquired human capital stock.

Q5. Explain the main challenges of education in India.

Ans. EDUCATION STILLS A CHALLENGING PROPOSITION (THE CHALLENGE OF EDUCATION):-

1. Education for All Still a Distant Dream (Large number of illiterate’s) :- Though literacy rates for
both — adults as well as youth — have increased, still the absolute number of illiterates in India
2. Gender Equity — Better than Before: - The differences in literacy rates between males and
females are narrowing signifying a positive development in gender equity; still the need to promote
education for women in India is imminent for various reasons such as improving economic
independence and social status of women and also because women education makes a favourable
impact on fertility rate and health care of women and children.

3.Higher Education — a Few Takers: - The Indian education pyramid is steep, indicating lesser and
lesser number of people reaching the higher education level. Moreover, the level of unemployment
among educated youth is the highest. As per NSSO data,in the year 2011-12, the rate of unemployment
among youth males who studied graduation and above in rural areas was 19 per cent. Their urban
counterparts had relatively less level of unemployment at 16 per cent. 4.Inadequate vocational
education 5.Privatisation of education 6.Low access level of rural areas 7.Low standard of education
8.Insufficient government expenditure.

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RURAL DEVELOPMENT

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WHAT IS RURAL DEVELOPMENT?-
Rural development means an ‘action- plan’ for the social and economic growth of the rural areas.

KEY ISSUES OF RURAL DEVELOPMENT (areas which are challenging for development in rural
India) –

1. Development of human resources2.Land reform 3.Development of infrastructure 4.Alleviation of

poverty 5.Development of the productive resources of each locality
CREDIT AND MARKETING IN RURAL AREAS (Action- plan): The action plan focus on the lingering
and emerging challenges in rural areas.
Lingering challenges:-1. Challenge of rural credit 2. Challenge of rural marketing.

Emerging challenges: 1.Exploring options of the sustainable livelihood, other than farming 2.The
challenge of organic farming.

CREDIT IN RURAL AREAS: - As the time gestation between crop sowing and realisation of income
after production is quite long, farmers borrow from various sources to meet their initial investment on
seeds, fertilisers, implements and other family expenses of marriage, death, religious ceremonies etc.

Credit needs of the farmers can be classified in to two categories:

1. According to time: - 1.Short-term credit (Period ranging between 6 to 12 month) 2.Medium-term

credit (Period ranging between 12 months to 5 years) 3. Long-term credit (Period ranging between 5
years to 20 years)
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2 .According to Purpose: - 1.Productive purpose2.Unproductive purpose.
SOURCES OF RURAL CREDIT:-
1.Non-institutional sources 2.Institutional sources.
Non-institutional sources (Informal sector):-
At the time of independence(i) Landlords (ii) Moneylenders (iii) Traders and commission agents
exploited small and marginal farmers and landless labourers by lending to them on high interest rates
and by manipulating the accounts to keep them in a debt-trap.
Institutional sources (Formal sector):- A major change occurred after 1969 when India adopted
social banking and multi-agency 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 institutions involved in the rural financing system. The institutional
structure of rural banking today consists of a set of multi- agency institutions, namely:-
1. Cooperative credit societies (These contribute nearly 16-17 % of rural credit flow)
2. Regional rural bank and Land development bank
3. Commercial bank credit
4. National bank for agricultural and rural development (NABARD) :- National Bank for
Agriculture and Rural Development (NABARD) was setup in 1982 as an apex body to coordinate the
activities of all institutions involved in the rural financing system. (i) To serve as an apex funding
agency for the institutions providing credit in rural areas (ii) To provide assistance to the non-farm
sectors (iii) To control and evaluate the projects financed by it (Iv) To take appropriate to improve the
credit delivery system.
5. Self-Help Groups:- Self help groups have emerged to fill the gap in the formal credit system
because the formal credit delivery mechanism has not only proven inadequate but has also not been
fully integrated into the overall rural social and community development. By March end 2003, more
than seven lakh SHGs had reportedly been credit linked. Such credit provisions are generally referred
to as micro-credit programmes. SHGs have helped in the empowerment of women. It is alleged that
the borrowings are mainly confined to consumption purposes.

Rural Banking — a Critical Appraisal :- Rapid expansion of the banking system had a positive effect
on rural farm and non-farm output, income and employment, especially
after the green revolution — it helped farmers to avail services and credit facilities and a variety of
loans for meeting their production needs. Famines became events of the past; we have now achieved
food security which is reflected in the abundant buffer stocks of grains.

Problems of rural credit in India: -

1. Lack of adequate institutional finance 2.Lack of coordination 3.Long paper work 4.Unequal
distribution 5.Problem of over dues.
Suggestions for improving rural credit in India :-
1. Expansion of institutional credit facilities 2.Credit on easy terms 3.Co-ordination among financial
institutions 4.Timely and adequate availability of credit.

AGRICULTURAL MARKET SYSTEM:- Agricultural marketing is a process that involves the:-

(i)assembling,(ii) storage, (iii) processing, (iv)transportation, (v)packaging, (vi)grading and (vii)
distribution of different agricultural commodities across the country.

MEASURES INITIATED BY GOVERNMENT TO IMPROVE AGRICULTURAL

MARKETING SYSTEM: - Prior to independence, farmers, while selling their produce to traders,
suffered from faulty weighing and manipulation of accounts. Farmers who did not have the required
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information on prices prevailing in markets were often forced to sell at low prices. They also did not
have proper storage facilities to keep back their produce for selling later at a better price.
Measures that were initiated to improve the marketing aspect.
1. Regulated markets:- The first step was regulation of markets to create orderly and transparent
marketing conditions. By and large, this policy benefited farmers as well as consumers.
2. Provision of physical infrastructure facilities: - like roads, railways, warehouses, godowns, cold
storages and processing units. The current infrastructure facilities are quite inadequate to meet the
growing demand and need to be improved.
3. Cooperative marketing: - Cooperative marketing, in realising fair prices for farmers’ products, is
the third aspect of government initiative. The success of milk cooperatives in transforming the social
and economic landscape of Gujarat and some other parts of the country is testimony to the role of
cooperatives.
4. Policy instruments: - like (i) assurance of Minimum support prices (MSP) for agricultural products
(ii) Maintenance of buffer stocks of wheat and rice by Food Corporation of India and (iii) Distribution
of food grains and sugar through PDS. These instruments are aimed at protecting the income of the
farmers and providing foodgrains at a subsidised rate to the Poor.

Emerging Alternate Marketing Channels: - It has been realised that if farmers directly sell their
produce toconsumers, it increases their incomes. 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).

PROBLEMS OF AGRICULATURAL MARKETING IN INDIA: -

1 Predominance of private traders 2.Lack of transport facilities 3.Lack of regulated markets 4.Lack of
infrastructural facilities 5.Lack of organization

Government measures for improving agricultural marketing:-

1. Providing market information 2.Minimum support price 3.Warehousing facilities
4.Regulated market 5.Co- operative marketing.

DIVERSIFICATION INTO PRODUCTIVE ACTIVITIES:-

Diversification includes two aspects –
(I) Change (Diversification) in cropping pattern: - Shift from single cropping system to multi-cropping
system.
(II) Diversification of production activity: - Relates to a shift of workforce from agriculture to other
allied activities (livestock, poultry, fisheries etc.) and non-agriculture sector.
Importance of agricultural diversification: - (i) Increase in income (ii) Stability Farm income (iii)
Beneficial to small and marginal farmer

IMPORTANT NON-FARM AREAS OF EMPLOYMENT (AGRICULTURE DIVERSIFICATIONIN INDIA)

1. Animal husbandry: -Livestock production provides increased stability in income, food security,
transport, fuel and nutrition for the family without disrupting other food-producing activities. Today,
Livestock sector provide employment to over 70 million small and marginal farmers including
landless labourers.
Milk production in the country has increased by more than eight times between 1951- 2014. Thiscan
be attributed mainly to the successful implementation of “OPERATION FLOOD”
2. Fisheries:- Presently, fish production from inland sources contributes about 64 per cent to the
total value of fish production and the balance 36 per cent comes from the marine sector (sea and
oceans). Today total fish production accounts for 0.8 per cent of the total GDP. India is the second
largest producer of fish in the world.

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3. Horticulture: - India has adopted growing of diverse horticultural crops such as fruits,
vegetables, tuber crops, flowers, medicinal and aromatic plants, spices and plantation crops.
Horticulture sector contributes nearly one-third of the value of agriculture output and six percent of
Gross Domestic Product of India. India has emerged as a world leader in producing a variety of
fruits like mangoes, bananas, coconuts, cashew nuts and a number of spices and is the second largest
producer of fruits and vegetables. During the period 1991-2003 investment in horticulture sector it
has been term as a “GOLDEN REVOLUTION”

4. Other Alternate Livelihood Options:- The IT has revolutionised many sectors in the Indian
economy. There is broad consensus that IT can play a critical role in achieving sustainable
development and food security in the twenty-first century. Governments can predict areas of food
insecurity and vulnerability using appropriate information and software tools so that action can be
taken to prevent or reduce the likelihood of an emergency. It also has potential of employment
generation in rural areas. Experiments with IT and its application to rural development are carried out
in different parts of India.

ORGANIC FARMING AND SUSTAINABLE DEVELOPMENT

‘Organic farming is a system of farming that relies upon the use of organic inputs for cultivation’. In
recent years, awareness of the harmful effect of chemical-based fertilisers and pesticides on our health
is on a rise. Conventional agriculture relies heavily on chemical fertilisers and toxic pesticides etc.

WHY ORGANIC FARMING? (BENEFITS OF ORGANIC FARMING:-

Organic agriculture offers a means to substitute costlier agricultural inputs (such as HYV seeds,
chemical fertilisers, pesticides etc.) with locally produced organic inputs that are cheaper and thereby
generate good returns on investment. Organic agriculture also generates income through exports as
the demand for organically grown crops is on a rise.
1. Discards the use of non-renewable resources 2.Environment- friendly 3.Sustains soil fertility 4.
Healthier and tastier food 5.Inexpensive technology for the small and marginal farmer’s
6.Economical 7.Maintains natural eco-system 8.Source of employment.
CHALLENGES BEFORE ORGANIC FARMING:-

1. Need popularization 2.Less output 3.Inadequate infrastructure and marketing 4.Limited choice in
production.

RURAL DEVELOPMENT PROGRAMMES :-

1. The Poor Women’s Bank: -‘Kudumbashree’ is a women-oriented community-based poverty
reduction programme being implemented in Kerala. In 1995, a thrift and credit society was started as
a small savings bank for poor women with the objective to encourage savings. The thrift and credit
society mobilised Rs 1 crore as thrift savings. These societies have been acclaimed as the largest
informal banks in Asia in terms of participation and savings mobilised.

2. Tamil Nadu Women in Agriculture (TANWA ) :- Tamil Nadu Women in Agriculture (TANWA) is a
project initiated in Tamil Nadu to train women in latest agricultural techniques. It induces women to
actively participate in raising agricultural productivity and family income. At a Farm Women’s Group
in Thiruchirapalli, run by Anthoniammal, trained women are successfully making and selling
vermicompost and earning money from this venture. Many other Farm Women’s Groups are creating
savings in their group by functioning like mini banks through a micro-credit system.

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3. Pradhan Mantri Gram Sinchai Yojana:- Launched: July 01,2015. Main objective:Irrigating the
field of every farmer “PER DROP MORE CROP”
4. Pradhan Mantri Fasal Bima yojana :- Launched: January 2016. Main objectives: (i) To provide
insurance cover and financial support to the farmer (ii) To stabilize the income of farmer to ensure
their continuance in farming.

5. Bharat Nirman Programme :- BNP was launched for the development of rural infrastructure in
2005 . Targets: Irrigation, Rural roads, Rural housing, Rural water supply
6. Mission for integrated development of horticulture (MIDH): MIDH was launched during the
12th plan with effect from 2014-15.

7. 7.Soil Health Card Scheme:- Soil Health Card Scheme was launched on February 19,2015. Under
this scheme, SHC was to be provided to all farmer in the country . SHC will enable them to improving
social health and its fertility.

COMPENTENCY BASED QUESTIONS

Q1) Give through analysis of four primary obstacles/challenges encountered by rural banking
establishments when fostering financial inclusion and driving economic growth within a developing
nation

Ans- i) infrastructure and connectivity ii0 low Financial literacy iii0 inadequate banking Products iv)
limited Access to credit
Q2) State four key measures that a government in a developing country can implement to enhance
the efficiency and effectiveness of the agricultural marketing system.
Ans- i) Development of market infrastructure ii) market information system iii) Price support and
MSP scheme. iv) Farmer cooperatives and producer organizations (Explaination required)

Q3)Suppose you are a small farmer in rural india . State any three challenges you are likely to face
while shifting to organic farming .

Ans- There may be problems with marketing produce ii) organic farming provides low yields. iii)
Produce might have shorter self-life and blemishes. Iv) off season crops are limited and hence restrict
choice. V) Inadequate infrastructure and more labour required.

ASSERTION & REASONING

Alternatives
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(B) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(C) Assertion (A) is true but Reason (R) is false.
(D) Assertion (A) is false but Reason (R) is true.

Q1 ASSERTION (A): Rural development is an action plan for complete and comprehensive
development of rural area.

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REASON (R): Its required to increase the standard of living of Indians as two third of the population of
India lives in rural areas.
Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A)
Q2. ASSERTION (A): Rapid expansion of the banking system had a positive effect on rural farm and
non-farm output, income and employment.
REASON (R): The institutional credit arrangement continues to be inadequate as they have failed to
cover the entire rural farmers of the country.

Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
Q3.ASSERTION (A):National Bank for Agriculture and Rural Development (NABARD) was set up in
1980.
REASON (R): National Bank for Agriculture and Rural Development (NABARD) is an apex body to
coordinate the activities of all institutions involved in the rural financing system.

Ans: ((d) Assertion (A) is false but Reason (R) is true.

Q4.ASSERTION (A): India has adopted growing of diverse horticultural crops such as fruits,
vegetables, tuber crops, flowers, medicinal and aromatic plants, spices and plantation crops.
REASON (R): Investment in horticulture sector it has been term as a OPERATION FLOOD Agriculture
Marketing’ needs urgent attention in the scheme of securing rapid rural development.

Ans: (c) Assertion (A) is true but Reason (R) is false.

Q5. ASSERTION (A): Rural development means an ‘action- plan’ for the social and economic growth of
the rural areas.
REASONI (R): The action plan focus on the lingering and emerging challenges in rural areas.

Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)

SHORT AND LONG ANSWER TYPE QUESTION

Q1.State any three challenges facing rural development in India. (CBSE 2020)

Ans. The principal three challenges facing rural development in India are :

1. Challenge of rural marketing: Agricultural marketing is a process that involves the:-

(i)assembling,(ii) storage, (iii) processing, (iv)transportation, (v)packaging, (vi)grading and (vii)
distribution of different agricultural commodities across the country.

2. Challenge of rural credit : - As the time gestation between crop sowing and realization of
income after production is quite long, farmers borrow from various sources to meet their initial
investment on seeds, fertilisers, implements and other family expenses of marriage, death, religious
ceremonies etc.

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3. Challenge of Non- farm area or agricultural diversification Q2. State the meaning of
‘Agriculture Marketing’. (CBSE 2020)
Ans. Agriculture marketing may be defined as the Agricultural marketing is a process that involves
the:- (i)assembling,(ii) storage, (iii) processing, (iv)transportation, (v)packaging, (vi)grading and (vii)
distribution of different agricultural commodities across the country.

Q3. Distinguish between Green Revolution and Golden Revolution. (CBSE 2020) Ans. Green
Revolution: Green Revolution refers to the large increase in production of food grains resulting from
the use of high yielding variety (HYV) seeds especially for wheat and rice. The spread of green
revolution technology enabled India to achieve self-sufficiency in food grains;

Golden Revolution: Golden Revolution refers to the large increase in production of horticultural
crops such as fruits, vegetables, tuber crops, flowers, medicinal and aromatic plants, spices and
plantation crops. Investment in horticulture sector it has been term as a “GOLDEN REVOLUTION”

Q4. Explain three non-farm areas of employment for rural population.

Ans- Census reports reveal that around 42 million people work for the non-farming activities in rural
India. This census constitutes nearly about 47% of the total nonfarm employment of rural areas.
Manufacturing, social or personal service and most importantly retail trade are the three major own
account establishments of non-farming activities. The percentage of the three however varied to a
large extent.

(i) So while the category of retail and manufacturing, example pickles industry, farm- based
manufacturing and handicraft etc.

(ii) The social and personal service shopkeeper etc..

(iii) Employment in the non-farming sectors like mining, quarrying, electricity, gas and water supply,
or other activities like financial intermediation was found to be near to negative. However, trade,
transport, manufacturing, business services or construction- such non-farming activity percentage
was seen to be much higher.

Q5. Why is it important to develop proper storage facilities in rural areas?

Ans- Farmers are forced to sell their crops at very low prices to traders because of the fear of it getting
damaged from fire, rodents or pests due to lack of proper storage.

(i) It is essential to develop proper storage facilities in rural areas so that farmers are not compelled
to sell their produce immediately after the harvesting of crops and can wait for a better price for their
produce in the market.

(ii) This enhances the bargaining power of the farmers.

(iii) The government and cooperative societies have taken some important steps towards the
provision of such facilities.
(iv) As a result, many god owns and warehouses have been built at the village and mandi-town level.

Q6. Explain the term Rural Credit. What are the sources of rural credit.

Ans- Rural Credit means provision of loans specially in production for agriculture and non-
agricultural sectors.

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Credit facilities in the rural areas have contributed a large increase in agricultural productivity and
employment facilities in non-agricultural sectors.
The loans have provided in rural areas to the frames in order to purchase machineries agricultural
implements etc.
Sources of Rural Credit:

Rural Credit availability can be broadly classified into two categories:

(i) Non-institution Sources: - These are the traditional sources of agricultural credit in India. They
include money lenders, relatives, traders, commission agents and land lords.
(ii) Institutional Sources:- They are cooperative credit, land development banks, commercial
banks, regional rural banks, govt., national bank for agricultural and rural development(NBNR) and
also self-help groups.
Q7. What is Agricultural Marketing System? What are the measures can be followed to Improve
Agricultural Marketing?
Ans- Agricultural marketing is a process which involves assembling, storage, processing,
transportation, packaging, grading and distribution of different agricultural commodities across the
country.
Measures to Improve Agricultural Marketing: After Independent govt. has adopted various measures
to improve of the system of agricultural marketing in the country. It has brought about following
measures in order to regulate the markets:-
(i) Regulated Markets:- The first measure was regulation of markets, to create orderly and
transparent marketing condition. This is organized in order to protect farmers from malpractices of
sellers and brokers.
(ii) Cooperative Marketing:-Marketive societies are formed by farmers to sell the output
collectively and to take advantages of collective bargaining , for obtaining a better price. Cooperatives
are not functioning properly in a recent past due to inadequate coverage of farmer members and
processing cooperatives and also inefficient management.
(iii) Infrastructural facilities:- Govt. had also provided infrastructural facilities like roads, railways,
warehousing, old storage and processing units.
(iv) Standardization and Grading:- Grading And quality control helps farmers to get good price for
quality products produced by them.
(v) Minimum Support Price:- To safeguard the Interest of the farmers government fixes the
minimum support price for agricultural products like wheat, rice, maize, cotton, sugarcane, pulses etc.
the government willingly will buy any amount of grains from the farmers at a price higher than the
market price in order to help them recover their loss.
Q8. What do you mean by Organic Farming? What are the Advantages and Disadvantages of
Organic Farming?
Ans- Organic farming is the process of producing food naturally. This method avoids the use of
synthetic chemical fertilizers and genetically modified organisms. It is very eco-friendly and very
essential for sustainable development. It has a zero impact on environment.

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Advantages of Organic Farming:
(i) It substitutes costlier agricultural inputs such as HYV seed, Chemical fertilizers, pesticides etc.
locally produced organic inputs, which are cheaper and thereby generate good returns on
Investments.
(ii) It generates income through export as the demand, for organically grown crops are on the raise.
(iii) It provides healthy food as organically grown food has more nutritional value than food grown
through chemical farming.
(iv) It can provide more employment opportunities in India as it requires more labourers for
production than chemically produced goods.
(v) Organic food is a pesticide free and is produced in an environmentally sustainable way.

Disadvantages of Organic Farming-

Demerits or challenges before organic farming
(i) Organic farming needs to be popularized by creating awareness and willingness on the part of
the farmers for adoption of new methods.
(ii) There is no proper infrastructure and marketing facilities for these products alone.
An appropriate agricultural policy should be brought in for organic farming.
(iii) The fields from organic farming are less than modern agricultural farming in the initial years.
Therefore small and marginal farmers may find it difficult to adapt to large scale production.

EMPLOYMENT

WORKERS AND EMPLOYMENT

UNEMPLOYMENT: -Situation when people are willing to work at the existing wage rate, and are able
to work, but are not getting work.
WORKER: - All those who are engaged in economic activities, in whatever capacity — high or low, are
workers (Those activities which contribute to the gross national product are called economic
activities).
SELF-EMPLOYED WORKERS: - Those workers who are engaged in their own business or own
profession.
HIRED WORKER: - Those workers who work for others and get wages and salaries as a reward for
their services.

CASUAL WORKERS:- Casual workers are like daily wagers, not on permanent rolls of the employer,
and not entitled to social security benefits.

REGULAR WORKERS:- Workers are hired on regular basis and are on permanent pay-roll of their
employees and are entitled to social security benefits.

LABOR SUPPLY: - amount of labor that the workers are willing to offer corresponding to different
wage rates.
LABOR FORCE:-Number of persons actually working, or willing to work at the existing wage rate.

WORK FORCE: - Number of persons actually working, and does not account for those who are willing
to work.

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JOBLESS GROWTH:- Jobless growth is a situation when the level of output in the economy tends to
rise owing to innovative technology without any perceptible rise in the level of employment.
SIZE OF WORK FORCE IN INDIA:- 1.India has a workforce of nearly 47.3 crore of persons. 2.About
70% of the workforce of the male workers and only 30% are female workers. 3.Nearly 75% of the
workforce found in rural areas and urban workforce is only 25% of the total. 4.Female workforce in
rural areas is nearly 25% , while it is only 20% in urban areas

RATE OF PARTICIPATION IN INDIA (RURAL- URBAN, MALE- FEMALE RATE

OF PARTICIPATION):- (i) Rate of participation for the urban areas is about 33.9 % in 2017-18 (ii)
Rate of participation for the rural areas is about 35% in 2017-18 (iii) In urban areas, rate of
participation is about 53% for man and 14.2% for women. (iv) In rural areas, rate of participation is
about 51.7% for man and 17.5% for women.

SELF- EMPLOYMENT AND HIRED WORKERS IN INDIA:-

URBAN WORKERS:- Hired worker 61% and self-employed 38% (2017-18).

RURAL WORKERS:- Hired worker 42% and self-employed worker 58% (2017-18)
MALE WORKFORS:- Hired male worker 48% and self-employed 52% (2017-18).

FEMALE WORKFORS:- Hired female worker 48% and self-employed female worker 52% (2017-18).
CAUSES OF LOWER WOMEN PARTICIPATION IN WORK: -

1. Women education in India is still lagging behind implies low employment opportunities for women

2. In urban areas, most families do not like women to do work

3. Women , by and large, undertake productive work only under compulsion

4. Many activities performed by women of India are not recognized as economic activities.
EMPLOYMENT IN FIRMS, FACTORIES AND OFFICES: -

In the course of economic development of a country, labour flows from agriculture and other related
activities to industry and services. Generally, we divide all economic activities into eight different
industrial divisions. They are –

(i) Agriculture (ii) Mining and Quarrying (iii) Manufacturing (iv) Electricity, Gas and Water Supply (v)
Construction (vi) Trade (vii) Transport and Storage and (viii) Services.

For simplicity, all the working persons engaged in these divisions can be clubbed into three major
sectors viz., (a) primary sector which includes (i) , (b) secondary sector which includes (ii), (iii), (iv)
and (v) and (c) service sector which includes divisions (vi), (vii) and (viii).

DISTRIBUTION OF WORKFORCE IN DIFFERENT SECTORS (OCCUPATIONAL STRUCTURE):-

Percentage distribution of our workforce across primary, secondary tertiary sectors of the economy
during the year 2017-18 –

(i) Primary sector- primary sector is the main source of employment in India, which provides
employment to about 44.6% of the workforce.

(ii) Secondary sector – In this sector provides employment only about 24.4% of workforce.

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(iii) Tertiary sector- Nearly 31.0% of the workforce is employed in the service sector.

DISTRIBUTION OF RURAL-URBAN WORKFORCE ACROSS DIFFERENT SECTORS: -

(I) About 59.8% in rural areas and 6.6% in urban workforce depends upon agriculture and allied
activities (2017-18). (ii) About 20.4% rural workforce and 34.3% urban workers are working in
secondary sector (2017-18). (iii) Nearly 19.8% rural workforce and 59.1% % urban workers are
working in tertiary sector (2017-18).

DISTRIBUTION OF MALE-FEMALE WORKFORCE ACROSS DIFFERENT SECTORS:-

1. Male and female workers are heavily employed in the primary sector

2. A huge percentage of female workforces are engaged in primary sector that is 57.1% and about
40.7% male are employed in that sector (2017-18).

3. About 17.7% female workforce and 26.5% male workers are working in secondary sector (2017-
18)
4. Nearly 25.2% female workforce and 32.8% male workers are working in tertiary sector (2017-18).

JOBLESS GROWTH:-

“Jobless growth is a situation when the level of output in the economy tends to rise owing to
innovative technology without any perceptible rise in the level of employment”.
(i) Jobless growth leads to chronic unemployment, even when there is a rise in GDP

(ii) During the recent past, GDP of India grew positive and higher than the employment growth
Why are we relying more on technology and less on employment? :-

1. Our growth process is being increasingly hijacked by MNCs

2. MNCs achieving high growth through efficient use of technology rather than through greater use of
manpower
3. Result growth is moving faster than the opportunities of employment.

CASUALISATION OF WORKFORCE:-“It is refers to a situation when the percentage of casually- hired

workers in the total workforce tends to rise over time” The distribution of workforce in different
status indicates that over the last four decades (1972 -2012), people have moved from self-
employment and regular salaried employment to casual wage work. Yet self-employment continues to
be the major employment provider. Scholars call the process of moving from self-employment and
regular salaried employment to casual wage work as casualisation of workforce.

Distribution of workers by category of employment: - 1.Self- employment 2.Regular workers 3.

Casual workers

INFORMALISATION OF WORKFORCE: - “Situation where percentage of workforce in the formal

sector tends to decline and that in the informal sector tends to rise”. Classify the workforce into two
categories:

FORMAL WORKERS: - 1.Work in organized sector of the economy 2. Are entitled to social security
benefits 3.Can form trade unions 4.Are protected by various labor laws?
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INFORMAL WORKERS: - 1.Work in unorganized sector of the economy 2. Are not entitled to social
security benefits 3.Cannot form trade unions 4.Are not protected by various labor laws?
RURAL AND URBAN UNEMPLOYMENT (NATURE OF UNEMPLOYMENT IN INDIA)

RURAL UNEMPLOYMENT: -

1.Disguised unemployment:- “When the number of workers engaged in a job much more than
actually required” for example If three persons are required to cultivate a farm measuring one hectare
but actually six persons are engaged there, then three persons are disguisedly unemployed. Disguised
unemployment is a feature of Indian agriculture because: - (i) On account of joint family system (ii)
Per person holding size continues to shrink (iii) Lack of job opportunities outside agriculture.
2. SEASONAL UNEMPLOYMENT:- It occurs simply because agriculture is a seasonal occupation .
During the off- season, often the farm workers are out of job. They have no work to do . Workers
engaged for few month in a year rest of period, they remain unemployed. There are three sources of
data on unemployment (i) Reports of Census of India, (ii) National Sample Survey Organisation’s
(NSSO) Reports (iii) Employment Exchanges.

URBAN UNEMPLOYMENT:-
1. Industrial unemployment:-“Industrial unemployment refers to the unemployment among the
illiterates who wish to work in industries, mining, transport, trade and construction activities, but are
not getting jobs because of insufficient demand for labor”. The principal causes of Industrial
unemployment are: - (i) Rapid rise in population overtime (ii) Concentration of industry in the urban
areas (iii) Labor- saving western Technology.

2. Educated unemployment: - “Among the educated people which include matriculates to higher
educated” educated unemployment arises due to :- (i) On account of expansion of educational
institutions (ii) Education system in India is not job- oriented (iii) Increase in the size of educated
labor force.

COMMON TYPES OF UNEMPLOYMENT ACROSS RURAL AND URBAN AREAS:-

1. Open Unemployment: - “When worker is willing to work, and has the necessary ability to work, yet
he does not get work” (found among agricultural and educated persons)
2. Structural unemployment:- “Structural unemployment occurs due to structural change in the
economy.” Structural changes are broadly of two types: (i) Changes in technology (ii) Changes in
pattern of demand.
3. under unemployment: - “Situation in which a worker does not get a full time job”. He remains
unemployment for some month in a year or some hours every day under unemployment is of two
kinds: (i) Visible unemployment (ii) Invisible unemployment
4. Frictional unemployment:-“It occurs due to imperfections in the mobility of labor across different
occupations”. One wish to move from one job to the other, but in the process of change may remain
unemployed for some time.

5. Cyclical unemployment: - It occurs owing to cyclical fluctuations in the economy: Phases of boom,
recession, depression and recovery in the market economy.
CAUSES OF UNEMPLOYMENT IN INDIA:-

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1. High population growth 2.Slow economic growth 3.Joint family system 4.Agriculture is a seasonal
occupation 5.Faulty education system 6.Decay of cottage and small industries 7.Limmited mobility of
labor.

ECONOMIC AND SOCIAL CONSEQUENCES OF UNEMPLOYMENT

ECONOMIC CONSEQUENCES: - 1.Non-utilisation of manpower 2.Loos of output 3.Low capital
formation 4. Low productivity
SOCIAL CONSEQUENCES: - 1.Low quality of life 2.Social unrest 3.Class struggle 4.Greater inequality.

SUGGESTIONS TO SOLVE THE PROBLEM OF UNEMPLOYMENT:-

1. Increase in production 2.High rate of capital formation 3.Increase in productivity 4. Employment
exchanges 5.Educational reforms 6.Help to self-employed persons 7.Technique of production 8.
Importance to employment programmes .
GOVERNMENT POLICY AND PROGRAMMES:-

Most poverty alleviation programmes implemented are based on the perspective of the Five Year
Plans. Expanding self-employment programmes and wage employment programmes are being
considered as the major ways of addressing poverty.

Self-employment programmes :- (i)Rural Employment Generation Programme (REGP),(ii) Prime

Minister’s Rozgar Yojana (PMRY) and Swarna Jayanti Shahari Rozgar Yojana (SJSRY) (iii)
Swarnajayanti Gram Swarozgar Yojana (SGSY) (iv) National Rural Livelihoods Mission
(NRLM).
Wage employment programmes :- (i) Mahatma Gandhi National Rural Employment Guarantee Act
2005. (MGNREGA):- 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. (ii) Pradhan Mantri Gram SadakYojana,(iii) Pradhan Mantri Gramodaya Yojana, (iv)
Valmiki Ambedkar Awas Yojana (v) Development of small and cottage industries (vi) Minimum needs
programme (vii) Twenty- point programme (viii) Micro Units Development Refinance Agency Bank
(MUDRA BANK) Government has set up MUDRA Bank in April 2015.Its objective is to meet credit
needs of micro enterprise and self- employed persons. Under MUDRA yojna , a micro enterprise is
entitled for a loan up to Rs. 10 lakh per unit.

COMPETENCY BASED QUESTIONS

Q1) “It is necessary to create employment in the formal sector rather than in the informal
Sector” Defend or refute the given statement with valid arguments.
Ans- The statement is defended. The formal sector provides a regular income and greater job security
as compared to the informal sector. Workers under the formal sector are entitled to social security
benefit like provident fund, social security etc, unlike the informal sector.

Q2) Workers working in formal sector earn more than those in informal sector. Defend or refute the
given statement with valid arguments.
Ans- The given statement can be defended as the formal workers are protected through various labour
laws. They have better bargaining power for higher wages and other social security benefits with the
presence of trade unions .On other hand, informal workers are generally paid low with lesser job
security. They also do don’t get social security benefits.

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 ASSERTION & REASON (01 Marks)
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

Q1. ASSERTION (A): Percentage of Female worker is low in Urban Area.

REASON (R): In urban areas, job for women is governed by Family decisions rather than
Individual Decision.
Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A)

Q2. ASSERTION (A): Disguised unemployment is present in India.

REASON (R): Agricultural productivity at the margin is close to zero.
Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A)

Q3.ASSERTION (A): Worker-population ratio of women workers in rural areas is more than the
women in urban areas.
REASON (R): The number of women workers in our country are generally underestimated because
many activities undertaken by them are not recognized as productive work.
Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)

Q4.ASSERTION (A): Labour force refers to the number of persons actually working and does not
account for those who are willing to work.
REASON (R): Workforce is a measurement of actual labour force.
Ans: (d) Assertion (A) is false but Reason (R) is true.

Q5.ASSERTION (A): Women participation in workforce is less.

REASON (R): Women education in India is still lagging behind which implies low employment
opportunities for women.
Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A)

Q6. Assertion (A): lesser women are found in regular salaried employment.
Reason (R): Regular salaried employment do not require skills and high level of literacy.
Ans- (C) Assertion is true, reason is false.

Q7. Assertion (A)- There are several examples in the rural areas of India where there are more
workers in the family but gross income of the family is low. \
Reason (R)- Disguised unemployment lowers efficient productivity.
Ans- (B) Assertion and reason both are true but reason is not the correct explanation of assertion.

Q8. Assertion (A) –Economic activity implies only production activity.

Reason (R) –Economic activity relates to the use of scarce resource. From the given alternatives
choose the correct one:
Ans- (D) Assertion is false, reason is true.
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 CASE / SOURCE BASED QUESTION
Question - 1: Read the following text carefully. Answer question number 1 (a) and 1 (b) on the basis of
the given text common understanding: (CBSE Term-2 2022)

Q1 (a) Analyze the nature/ distribution of Indian workforce for the fourth quarter of the year 2020-
21. (2 Marks)

Ans. In the quarter of the year 2020-21, as per the given text, the total casual labour employment has
decreased. Also the said period saw a growth in gig economy and increase in the work from home in
the organized sector.

Q1 (b): State and discuss any two initiatives taken by the Government to control the adverse impacts
of the pandemic. (3 Marks)

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Ans. Two initiatives taken by the government to control the adverse impact of pandemic.
(i) Imposition of Lockdown to save human lives.
(ii) Increase in Public spending (any other argument with valid explanation )

MCQ

1. Workers who are on permanent pay-roll of their employer are called:

(A) Self- employed workers
(B) Casual workers
(C) Regular workers
(D) None of the above
2. Unemployment is defined as:
(A) The section of the population that is not capable of being employed
(B) The section of population willing to work but unable to find employment
(C) The section of population that is waiting to be employed
(D) The section of population that are without the skills needed by employers

3. Data on unemployment in India can be obtained from which source?

(A) Reports of Census of India
(B) National sample survey organisation(NSSO)
(C) Directorate general of employment
(D) All the above
4. When more persons are working in a job than actually required, it is known as _______ .
(A) Disguised unemployment
(B) Seasonal unemployment
(C) Educated unemployment
(D) Open unemployment

5. Those who work in their own establishment using their own resources are called______ .
(A) Hired workers
(B) Casual workers
(C) Regular workers
(D) Self-employed
6. is a common form of unemployment in rural India.
(A) Disguised unemployment
(B) Structural unemployment
(C) Educated unemployment
(D) None of these

7. Unemployment common in urban areas

(A) Seasonal unemployment
(B) Disguised unemployment
(C) Open unemployment
(D) None of these
8. An establishment with four hired workers is known as sector establishment.
(A) Formal
(B) Informal
(C) (a) and (b)
(D) None of the above
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9. Most of the unemployment in India is
(A) Voluntary
(B) Structural
(C) Frictional
(D) Technical

10. Unemployment may result some workers are temporarily out of work while hanging
job.
(A) Cyclical
(B) Voluntary
(C) Fictional
(D) Seasonal
11. If construction site manager hires two workers on daily wages basis, such a situation is covered
under (formal / informal) sector. (CBSE 2020)
Ans. informal

12. In the past few decades _ (primary/ secondary/ tertiary) sector has created maximum jobs
opportunities in India. (CBSE 2020)
Ans. tertiary

13. State whether the following statement is true or false: (CBSE 2020)

‘In the past few decades, primary sector has created maximum jobs in India’. Ans. False
Answer Key

1 C 2 B 3 D 4 A 5 D

6 A 7 C 8 B 9 B 10 C

SHORT AND LONG ANSWER TYPE QUESTION (3,4 &6 Marks)

Q1. (a)Comment upon the informalisation of labour force in India.

(b) Define the worker- population ratio.(CBSE 2020)

Ans.(a) INFORMALISATION OF WORKFORCE:- “Situation where percentage of workforce in the

formal sector tends to decline and that in the informal sector tends to rise”. Formal sector is the
organized sector of the economy.

INFORMAL WORKERS: - 1.Work in unorganized sector of the economy 2. Are not entitled to social
security benefits 3.Cannot form trade unions 4.Are not protected by various labor laws.
(b.) Worker- population ratio : Worker-population ratio is an indicator which is used for analysing
the employment situation in the country.
This ratio is useful in knowing the proportion of population that is actively contributing to the
production of goods and services of a country. If the ratio is higher, it means that the engagement of
people is greater; if the ratio for a country is medium, or low, it means that a very high proportion of
159
its population is not involved directly in economic activities.
Q2. Analyse the trends in sectoral distribution of workforce in India on the basis of Data:
(CBSE 2020)

Trends in Employment pattern (sector- wise), 1972-2012 (in %)

Ans. As a evident the table, between period of 1972-73 to 2011-12,

Percentage of workforce:

Primary sector: percentage of workforce engaged in primary sector has declined from 74.3% to
48.9% .

Secondary and Service Sector: Secondary and service sectors are showing promising future for the
Indian workforce. These sectors have increased from 10.9 to 24.3 per cent and 14.8 to 26.8 per cent,
respectively.

Q3. Discuss briefly, why fewer women are found in regular salaried employment. (CBSE Term-
2 2022, CBSE 2020)
Ans: In India, lesser women are found in regular salaried employment;
(i) As such jobs require high level of skills and literacy.
(ii) Lack of mobility among women in India due to various socio- economic constraints, adds to
problem.

Q4. ‘Is it necessary to generate employment in the formal sector rather than in the informal
sector’? Defend or refute the given statement with valid arguments. (CBSE 2020)

Answer: The formal sector not only provides employment but also several social security benefits. A
worker in the formal sector gets higher salary and social security benefits. Various social security
benefits that the worker can be assured of better quality of life when he becomes old or physically
disabled.
After the life of a worker, his family members can be assured of a decent life.The situation is totally
opposite in the informal sector where even regular salary is a dream for most of the workers. Hence,
it is necessary to generate employment in the formal sector rather than in the informal sector.
Q5. Explain why regular salaried employees are generally more in urban areas than in rural
areas. (CBSE Term- 2 2022)
Ans. Regular salaried employees are more in urban as they have variety of employment
opportunities due to presence of more industries and as compared to the rural areas.

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Higher level of literacy and skills are required in regular salaried jobs which are available in urban
areas. Moreover enterprises in urban areas require workforce on a regular basis.

Q.6.What measures/steps have been taken by the government of India in generating

employment or creating opportunities for employment generation in India?

Ans. The Union and State governments have played an important role in generating employment or
creating opportunities for employment generation in India. Their efforts can be broadly categorised
into two — direct and indirect.

• Direct employment generation – The government employs people in various departments for
administrative purposes. It also runs industries, hotels and transport companies, and hence provides
employment directly to workers.

• Indirect employment generation opportunities – When the output of goods and services from
government enterprises increases, the private enterprises will also raise their output and hence
increase the number of employment opportunities in the country.

For example, when a government owned steel company increases its output, it will result in direct
increase in employment in that government company.
Simultaneously, private companies, which purchase steel from it will also increase their output and
thus employment. This is the indirect generation of employment opportunities by the government in
the country.
Moreover, many programmes that the governments implement, aimed at alleviating poverty, are
through employment generation. They are also known as employment generation programmes. For
example, Mahatma Gandhi National Rural Employment Guarantee Act 2005,
Pradhan Mantri Jan-Dhan Yojna 2014, Swarna Jayanti Gram Swarozgar Yojna (SGSY),

Pradhan Mantri Gramodaya Yojna, Valmiki Ambedkar Awas Yojna etc. All these programmes aimed
at providing not only employment but also services in areas such as primary health, primary
education, rural drinking water, nutrition, assistance for people to buy income and employment
generating assets, construction of houses and sanitation, assistance for constructing houses, etc.
Q 7: Why are less women found in regular salaried employment?

Answer: There are many reasons for low representation of women in regular salariedemployment.

i) Division of work: Deep rooted social beliefs are the main reason which segregate women‘s
work as homemakers who are not supposed to venture out of their homes. Even though women are
educated they prefer work at fewer wages.

ii) Low female literacy: Female literacy level is still below the male literacy level which means a
less number of women are properly qualified and skilled to get a regular salaried job.

iii) Patriarchal System of Society: On the other hand, a male is expected to earn a livelihood so that
he can support his family and thus a boy is mentally conditioned since his childhood to do something.
A regular salaried job usually ensures a better social recognition and hence most of the unemployed
first try to land a regular salaried job.
Q8. Define the concept of Labour force and workforce.

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Labour force includes all those who are working and those not working but is seeking work. In
other words it includes employed and unemployed workers.

The labour force includes all persons in the age group between 15 to 60 years who are employed or
available to work.

Workforce includes all those who are employed at a particular point of time. In other words this
refers to those persons who are working.
It includes all persons who are engaged in economy activities.

So, Labour force = Workforce + Unemployed persons

Workforce = No. of persons working

Q9. What are the measures that can be taken to eradicate the unemployment problem.

Measures that can be taken to eradicate the problem of unemployment are

(i) By controlling population ii) Creating alternative source of employment for agricultural
workers / farmers iii) Development of villages and small scale industries iv)By introducing social
reforms and bringing modernisation v) Employment oriented education and planning vi) Developing
institutional credit facilities vi) Increase in investment and capital formation

162
ENVIRONMENTAND SUSTAINABLE ECONOMIC DEVELOPMENT

163
ENVIRONMENT DEFINITION:-

It includes all the biotic and abiotic factors that influence each Other’. While all living elements — the
birds, animals and plants, forests, fisheries etc. are biotic elements, abiotic elements include air,
water, land etc. Rocks and sunlight are all examples of abiotic elements of the environment.

Function (Importance/ Significance) of environment:- 1.Environment offers resource for

production:- resources here include both renewable and non-renewable resources. Renewable
resources are those which can be used without the possibility of the resource becoming depleted or
exhausted. That is, a continuous supply of the resource remains available. 2.Enhances quality of life
3. Environment sustains life by providing genetic and bio diversity 4.Environment assimilates
waste:- This implies that the resource extraction is not above the rate of regeneration of the resource
and the wastes generated are within the assimilating capacity of the environment.

Problems related to Environment: -

1. Problem of pollution
2. Problem of excessive exploitation of natural resources.
1. Problem of pollution: - The intensive and extensive extraction of both renewable and non-
renewable resources has exhausted some of these vital resources and we are compelled to spend
huge amounts on technology and research to explore new resources. Added to these are the health
costs of degraded environmental quality — decline in air and water quality (seventy per cent of
water in India is polluted) have resulted in increased incidence of respiratory and water-borne
diseases. Hence the expenditure on health is also rising. To make matters worse, global
environmental issues such as global warming and ozone depletion also contribute to
increased financial commitments for the government. Thus, it is clear that the opportunity costs of
negative environmental impacts are high. (i) Air pollution (ii) Water pollution (iii) Noise pollution

2.Excessive exploitation of natural resources:- Deforestation :- “Deforestation refers to the

removal or destruction of the forest cover of an area”. Causes of Deforestation :-(i) It is caused by
growing demand for wood other forest products by the industries (ii)Increasing pressure of
population (iii) Industrialization leads to urbanization and urbanization and urbanization induces
deforestation (iv) Construction of dams is another factor for deforestation.
Degradation of land: - “Degradation of land means loss of fertility of land”. Degradation of land is
caused by the following factors. (i)Soil erosion (ii) Water logging (iii) Deforestation
(iv) Excessive use of fertilizers.

Cause of environmental degradation:- 1.Population explosion 2.Poverty 3.Increasing urbanization

4.Rapid industrialization 5.Increasing use of insecticides, pesticides and chemical fertilizers
6.Disregard to the civic norms 7.Multiplicity of transport vehicles 8. Improper crop rotation
9.Poverty of the agriculture-dependent people.

State of environment in India:- India supports approximately 17 per cent of the world’s human and
20 per cent of livestock population on a mere 2.5 per cent of the world’s geographical area. The high
density of population and livestock and country as a result of which the country loses 0.8 million
tonnes of nitrogen, 1.8 million tonnes of phosphorus and 26.3 million tons of potassium every year.
Our challenging issues are :
(i) Land degradation

(ii)Loss of biodiversity

(iii) Air pollution an urban areas

164
(iv) Management of fresh water and

(v) Management of solid waste .

Principal factors contributing to land degradation in India :- (i) Loss of vegetation due to
deforestation (ii) Multiple cropping along with subsistence farming by small and marginal holders
(iii)Excessive use of chemical fertilizers, insecticides and pesticides (iv) Low water- table (v) Soil
erosion occurring due to floods, strong winds and other factor .
HOW TO SAVE ENVIRONMENT? :-

1. Social awareness

2. Population control
3. Afforestation campaign

4. Enforcement of environment conservation Act

5. Water Management

6. Management of solid waste

7. Control over industrial and agricultural pollution

8. Improvement in housing.

Government measures for environment protection:-

1. The environment protection Act.1986

2. The Forests (protection) Act 1980

3. Pollution control boards

4. Clean development mechanism

5. National Green Tribunal Act, 2010.

Global warming:- “Global warming refers to the phenomenon of sustained increase in global
temperature due to environmental pollution and deforestation.”

Causes of Global warming:-

(i) Burning of coal and petroleum products are sources of carbon dioxide
(ii) Deforestation (increases the amount of carbon dioxide) Release of methane gas from animal
waste .
SUSTAINABLE DEVELOPMENT:- “Sustainable development is that process of economic
development which aims at raising the quality of life of both present and future generations, without
harming natural resources and environment”. The concept of sustainable development was
emphasised by the United Nations Conference on Environment and Development (UNCED), which
defined it as: ‘Development that meets the need of the present generation without compromising the
ability of the future generation to meet their own needs’.
The Brundtland Commission emphasises on protecting the future generation. This is in line with the
argument of the environmentalists who emphasise that we have a moral obligation to hand over the

165
planet earth in good order to the future generation; that is, the present generation should bequeath a
better environment to the future generation.

The present generation can promote development that enhances the natural and built environment
in ways that are compatible with (i) conservation of natural assets (ii) preservation of the
regenerative capacity of the world’s natural ecological system (iii) avoiding the imposition of added
costs or risks on future generations.
Features of sustainable development :-

1. Increase in per capita income and welfare over time

2. Rational use of natural resources

3. Check on pollution
4. Ability of future generations to fulfill their need.

STRATEGIES FOR SUSTAINABLE DEVELOPMENT:-

1. Use of Non-conventional Sources of Energy: India, as you know, is hugely dependent on thermal
and hydro power plants to meet its power needs. Both of these have adverse environmental impacts.
Wind power and solar rays are good examples of conventional but cleaner and greener energy
sources but are not yet been explored on a large scale due to lack of technological devices.

2. LPG, Gobar Gas in Rural Areas: Households in rural areas generally use wood, dung cake or
other biomass as fuel. This practice has several adverse implications like deforestation, reduction in
green cover, wastage of cattle dung and air pollution. To rectify the situation, subsidised LPG is being
provided. In addition, gobar gas plants are being provided through easy loans and subsidy. As far as
liquefied petroleum gas (LPG) is concerned, it is a clean fuel — it reduces household pollution to a
large extent. Also, energy wastage is minimised.

3. CNG in Urban Areas:- In Delhi, the use of Compressed Natural Gas (CNG) as fuel in public
transport system has significantly lowered air pollution and the air has become cleaner in the last
few years.

4. Solar Power through Photovoltaic Cells: India is naturally endowed with a large quantity of
solar energy in the form of sunlight. Plants use solar energy to perform photosynthesis. Now, with
the help of photovoltaic cells, solar energy can be converted into electricity.

5. Mini-hydel Plants: In mountainous regions, streams can be found almost everywhere. A large
percentage of such streams are perennial. Mini-hydel plants use the energy of such streams to move
small turbines.

6. Input efficient technology

7. Integrated rural development

8. Use of environment friendly sources of energy

9. Manage the wastes

10. Shift to organic farming

11. Public means of transport

12. Awareness to conserve natural assets for inter-generational equity.
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 COMPETENCY BASED QUESTIONS

Q1) “Maintaining air quality index (AQI) is the need of the hour “Do you agree with the given
statement? Justify your answer with valid arguments.
Ans- The given statement is true. Owing to the rise in air pollution, monitoring and maintaining good
air quality is the need of the hour. Better air quality helps to reduce medical issues like asthma and
other respiratory problems
ASSERTION & REASON
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Q1.ASSERTION (A): The environment fails to perform its vital function of life sustenance and this
result in an environmental crisis.
REASON (R): Many resources have become extinct and the wastes generated are beyond the
absorptive capacity of environment.
Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A)
Q2.ASSERTION (A): The environment has an important function of supplying resources, both
renewable and non-renewable resources.
REASON (R): The environment is able to perform its functions as long as the demand on these
functions is within its carrying capacity.
Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)

Q3.ASSERTION (A): Sustainable development is the development that meets the need of present
generation without compromising the ability of the future generations to meet their own needs.
REASON (R): Conservation and promotion of natural resources.
Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A)

Q4.ASSERTION (A): Environmental degradation owes a great deal to supply demand reversal of
resources over time.
REASONING (R): Global warming is wake up call to save environment.
Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)

Q5. ASSERTION (A): Deforestation is rising at such a rapid scale that it has totally disturbed the
ecological balance of the country.
REASON (R): Deforestation is one of the major reason for soil erosion.
Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
Q6. Assertion: In India land suffers from different types of land degradation
Reason: There are proper methods available in the country to check land degradation.
Ans. C Assertion (A) is true but Reason (R) is false.

167
Q7. Assertion (A): Households in rural areas are dependent on non-commercial sources of energy as
fuel.
Reason (R):Use of non-commercial sources of energy leads to problems of deforestation, reduction
in green cover, wastage of cattle dung and air pollution.
Ans- (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A)

MCQ & OTHER (01 Marks Question)

1. Which of the following is not used as a strategy for the sustainable development? (CBSE 2020)
(a) Use of bio-gas
(b) Use of solar power
(c) Use of thermal power
(d) Use of hydel power
Ans. (c) Use of thermal power
2. Central Pollution Control Board has identified categories of large and medium
industries as polluting industries. (CBSE 2020)
(a) 15 (b) 17
(c) 19 (d) 13
Ans. (b) 17

3. Environmental includes:
(a) Biotic factors (b) Abiotic factors
(c) Both (a) and (b) (d) None of the above Ans.
Ans (c) Both (a) and (b)

4. Which of the following statement is correct?

(A) Global warming is entirely a natural phenomenon
(B) Global warming is simply an another term used for green house effect
(C) Global warming is the rise in average temperature at the earth’s surface
(D) Global warming is caused by ozone depletion
Ans. (c) Global warming is the rise in average temperature at the earth’s surface

5. In 1997, a UN conference on climate change was held in :

(a) Japan (b) India (c). Germany (d) China
Ans. Japan
6. Which are the catch phases in the following UNCED definition of Sustainable Development:
“Development that meet the need of the present generation without compromising the ability of the
future generation to meet their own needs.”
(a) Need
(b) Future generation
(c) Need and present generation
(d) Need and future generation
Ans. (d) Need and future generation

7. Brundtland Commission in 1987 defined sustainable development as:

(A) A type to development which put the interests of developing countries ahead of the interests of
the rich nations
(B) Development which meets the needs of present generation without compromising the ability of
future generation to meet their own needs
(C) Development that protects the future generation even at the expense of present generation
168
(D) None of the above
Ans (b) Development which meets the needs of present generation without compromising the
ability of future generation to meet their own needs

8. The ability of the environment to absorb degradation is:

(a) Carrying capacity
(b) Absorptive capacity
(c) (a) and (b)
(d) None of the above
Ans. (b) Absorptive capacity

SHORT AND LONG ANSWER TYPE QUESTION (3,4 & 6 Marks)

Q1. State and discuss any two environmental concerns faced by India in the present times
(CBSE 2020)
Ans. Two environmental concerns faced by India in the present times :

1. Problem of pollution:- The intensive and extensive extraction of both renewable and non-
renewable resources has exhausted some of these vital resources and we are compelled to spend
huge amounts on technology and research to explore new resources. Added to these are the health
costs of degraded environmental quality — decline in air and water quality (seventy per cent of
water in India is polluted) have resulted in increased incidence of respiratory and water-borne
diseases. Hence the expenditure on health is also rising. To make matters worse, global
environmental issues such as globalwarming and ozone depletion also contribute to increased
financial commitments for the government. Thus, it is clear that the opportunity costs of negative
environmental impacts are high. (i) Air pollution (ii) Water pollution (iii) Noise pollution
2. Excessive exploitation of natural resources:-

Deforestation: - “Deforestation refers to the removal or destruction of the forest cover of an area”.
Causes of Deforestation :- (i) It is caused by growing demand for wood other forest products by the
industries (ii)Increasing pressure of population (iii) Industrialization leads to urbanization and
urbanization and urbanization induces deforestation (iv) Construction of dams is another factor for
deforestation.
Q2. What is meant by sustainable development? Discuss briefly any two strategies of
sustainable development. (CBSE 2020)
Ans. SUSTAINABLE DEVELOPMENT: - “Sustainable development is that process of economic
development which aims at raising the quality of life of both present and future generations, without
harming natural resources and environment”. The concept of sustainable development was
emphasised by the United Nations Conference on Environment and Development (UNCED), which
defined it as: ‘Development that meets the need of the present generation without compromising the
ability of the future generation to meet their own needs’.

STRATEGIES FOR SUSTAINABLE DEVELOPMENT:-

1. Use of Non-conventional Sources of Energy: India, as you know, is hugely dependent on thermal
and hydro power plants to meet its power needs. Both of these have adverse environmental impacts.
2. LPG, Gobar Gas in Rural Areas: Households in rural areas generally use wood, dung cake or
other biomass as fuel. This practice has several adverse implications like deforestation, reduction in
169
green cover, wastage of cattle dung and air pollution. To rectify the situation, subsidised LPG is being
provided. In addition, gobar gas plants are being provided through easy loans and subsidy. As far as
liquefied petroleum gas (LPG) is concerned, it is a clean fuel — it reduces household pollution to a
large extent. Also, energy wastage is minimised.
3. CNG in Urban Areas:- In Delhi, the use of Compressed Natural Gas (CNG) as fuel in public
transport system has significantly lowered air pollution and the air has become cleaner in the last
few years.
4. Solar Power through Photovoltaic Cells: India is naturally endowed with a large quantity of
solar energy in the form of sunlight. Plants use solar energy to perform photosynthesis. Now, with
the help of photovoltaic cells, solar energy can be converted into electricity.
5. Mini-hydel Plants: In mountainous regions, streams can be found almost everywhere. A large
percentage of such streams are perennial. Mini-hydel plants use the energy of such streams to move
small turbines. (Any Two Strategies)
Q3. Define the following: (CBSE 2020)

(a) Carrying capacity of environment.

(b) Bio-composting
(c) Sustainable development

(d) Absorptive capacity of the environment.

Ans (a) Carrying capacity of environment: This implies that the resource extraction is not above
the rate of regeneration of the resource and the wastes generated are within the assimilating
capacity of the environment.
When this is not so, the environment fails to perform its third and vital function of life sustenance
and this results in an environmental crisis.
(b) Bio-composting: In our quest to increase agricultural production during the last five decades
or so, we almost totally neglected the use of compost and completely switched over to chemical
fertilisers. The result is that large tracts of productive land have been adversely affected, water
bodies including ground water system have suffered due to chemical contamination and demand for
irrigation has been going up year after year.

Farmers, in large numbers all over the country, have again started using compost made from organic
wastes of different types. In certain parts of the country, cattle are maintained only because they
produce dung which is an important fertiliser and soil conditioner.

Earthworms can convert organic matter into compost faster than the normal composting process.
(c) Sustainable development: “Sustainable development is that process of economic
development which aims at raising the quality of life of both present and future generations, without
harming natural resources and environment”. The concept of sustainable development was
emphasised by the United Nations Conference on Environment and Development (UNCED), which
defined it as: ‘Development that meets the need of the present generation without compromising the
ability of the future generation to meet their own needs’.

170
(d) Absorptive capacity of the environment: Absorptive capacity means the ability of the
environment to absorb degradation. The result — we are today at the threshold of environmental
crisis.

The past development has polluted and dried up rivers and other aquifers making water an
economic good. Besides, the intensive and extensive extraction of both renewable and non-
renewable vital resources and we are compelled to spend huge amounts on technology and research
to explore new resources.
Q4. State any two harmful effects of using chemical fertilizers. (CBSE Term-2 2022 -2 Marks)
Ans. Two harmful effects of using chemical fertilizers are:
(i) Contamination of soil
(ii) Contamination of ground water.

Q5. Define the following a) Carrying capacity b) Absorptive capacity c) Global warming d)
Ozone depletion.
a) Carrying capacity of the environment implies that the resources extraction is not above the rate
of regeneration of the resources and the wastes generated are within the assimilating capacity of the
environment.
b) Absorptive capacity means the ability of the environment to absorb degradation.
c) The Global warming is due to increase in the Green-house gas concentrations, like water
vapour, carbon-dioxide, methane and ozone in the atmosphere.
d) It refers to destruction of ozone in the ozone layer, due to presence of chlorine from manmade
chlorofluorocarbons and other forces.

Q6. What are the causes of environment degradation?

Causes of Environment degradation are:-
i) Population explosion ii) Widespread poverty iii) Increasing urbanisation iv) Excess use of
insecticides and pesticides v) Rapid industrialisation vi) Disregard for civic norms

Q7. Identify four factors contributing to land degradation in India.

Ans. Principal factors contributing to land degradation in India :-
(i) Loss of vegetation due to deforestation
(ii) Multiple cropping along with subsistence farming by small and marginal
(iii) (iii)Excessive use of chemical fertilizers, insecticides and pesticides
(iv) Low water- table
(v) Soil erosion occurring due to floods, strong winds and other factor .
Q8. What is environment? Explain significance of environment.
Ans. -‘It includes all the biotic and abiotic factors that influence each Other’. While all living elements
— the birds, animals and plants, forests, fisheries etc. — are biotic elements, abiotic elements include
air, water, land etc. Rocks and sunlight are all examples of abiotic elements of the environment.
Function (Importance/ Significance) of environment:-

1. Environment offers resource for production:- resources here include both renewable and non-
renewable resources. Renewable resources are those which can be used without the possibility of
the resource becoming depleted or exhausted. That is, a continuous supply of the resource remains
available.
2. Enhances quality of life
3. Environment sustains life by providing genetic and bio diversity
4. Environment assimilates waste: - This implies that the resource extraction is not above the rate
of regeneration of the resource and the wastes generated are within the assimilating capacity of the
environment.
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(UNIT-8) DEVELOPMENT EXPERIENCE OF INDIA: A COMPARISON WITH NEIGHBOURS

Development Strategies of India, Pakistan and China:-

Similarities:
1.All the three nations have started towards their development path at the same time.
2. India and Pakistan became independent nations in 1947 and Republic of China was established in
1949.
3. All these nations started their planning in similar ways
4. India commenced its five year plans in 1951, China started its plans in 1953 and Pakistan in 1956.
5. China introduced economic reform since 1978, India 1991 and Pakistan from the beginning of
1988.

SAARC:- The South Asian Association for Regional Cooperation was established on December 08,
1985 (8 countries of south).They are forming regional and global economic groupings such as the
SAARC(Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka) ASEAN(
Association of Southeast Asian Nation- founded on 08/1967 – Indonesia, Singapore, Malaysia,
Philippines , Thailand- Brunei, Cambodia, Laos, Myanmar, Vietnam, Timor-leste), G-20, BRICS(
Brazil, Russia, India, China, South Africa) etc.

China: After the establishment of 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.

Great Leap Forward (GLF 1958) campaign of China:-

1. GLF was started in 1958 with a view to propelling the pace of economic and industrial
development
2. Which aimed at Country’s industrialization and agriculture on a large scale
3. China resorted to “Commune System of Production” Under which people cultivated land
collectively
4. Mao (Chinese communist revolutionary) believed that both had to grow to allow to allow the other
to grow Mao introduced the Great Proletarian Cultural Revolution (1966–76) under which students
and professionals were sent to work and learn from the countryside.
5. It focused on widespread industrialization of the economy 6.People to set-up household industry
in their backyard.
One Child policy in China: - OCP adopted by China in 1979 has been very successfully pursued.
Consequently1. Growth rate of population has reduced to nearly half, from 1.33 per cent in 1979 to
0.47 per cent in recent past 2. With a check on population growth, China focuses on raising the
quality of life.

DEVELOPMENT EXPERIENCE – A COMPARATIVE STUDY

(1) GDP Growth :- Growth story of China :- (i)In 2017, GDP in China was estimated to be 12.40
trillion
US Dollars (ii) China was achieved the distinction of 2nd largest economy in the world (iii) China
achieved a breakthrough in GDP growth in early 1980’s it was from 4% per annum to 10% per
annum due to :- (a) Shift from a centrally planned economy to a market economy
(b) Focus on export-related domestic production (c) Great leap forward (GLF) campaign (d) Influx of
GDP (e) Availability of cheap labor force (iv) quantum jump in FDI was achieved through :- (a)China
established SEZ (special economic zones) (b) 100% FDI (c) Increase domestic investment through
GLF (v) Largest exporter in the global market .

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Reasons for recent past GDP growth in China has slowed down: - (a) Slowdown in the global
economy (b) Growth of domestic demand of China is Slowdown (c) Corruption and economic crimes
have tended to rise over time (d) Chinese government is battling with the problem of environmental
degradation.
Growth story of India: - (i) In 2017, GDP of India was estimated to be 2.43 trillion US Dollars (ii)
India was achieved the distinction of 5th largest economy in the world (iii)The GDP growth in India
showed a substantial rise only after 1991, the year when new economic policy was launched, The
basic components of NEP are :(a) A massive shift towards privatization (b) A transformation towards
liberalization (c) Greater reliance on export promotion rather than import substitution (d) Greater
reliance on FDI rather than domestic investment (iv) The period 1991-2017, GDP growth rate of
India increased to around 7% per annum.
Reasons for recent past GDP growth in India has slowed down: - (a)High rate of inflation
(b)Corruption and economic crimes have tended to rise over time Policy (c) paralysis of the
government, owing to political instability (d) Drought of FDI, owing to poor credit rating of Indian
economy.

Pakistan: That Pakistan adopted various economic policies and these many Similarities with India.
Pakistan also follows the mixed economy model with co-existence of public and private sectors.
Growth story of Pakistan:- (i) In the late 1950s and 1960s,Pakistan introduced a variety of
regulated policy framework (for import substitution-based industrialisation).(ii) In the 1970s,
nationalisation of capital goods industries took place. (III) Pakistan then shifted its policy orientation
in the late 1970s and 1980s when the major thrust areas were denationalization and encouragement
of private sector. (IV) In 1988, reforms were initiated in the country. (V) In 2017, GDP of Pakistan
was estimated to be 27.1 billion US Dollars (VI) Pakistan achieved a breakthrough in GDP growth in
the mid-80’s it was as a consequence of economic reforms, focusing on FDI.
Reasons for economic outlook in Pakistan turned to disappointing:- (a)Pakistan has been
gripped by the war of terror (b) Corruption and political instability are the other factors .
Conclusion:- (i) China has outpaced both India and Pakistan with regard to GDP (ii) India has
performed better than Pakistan (iii) The relative success of China is credited to political stability in
China.
(2) DEMOGRAPHIC INDICATORS:- If we look at the global population, out of every six persons living
in this world, one is an Indian and another a Chinese. We shall compare some demographic
indicators of India, China and Pakistan.
(3) Table shows (NCERT e-Book 2022-23) :-

173
 (i) Size of population :- (a) the population growth as being the highest in Pakistan, followed by
India and China. (b)India and China together are a habitat for 38% of the world’s population
(c) China with nearly 1393 million people (in 2017-18 ) is a habitat for nearly 20% of world
population (d) India with nearly 1352 million people (in 2017-18 ) is a habitat for nearly 18%
of world population(e) Scholars point out the one-child norm introduced in China in the late
1970s as the major reason for low population growth.

(ii) Growth rate of population: -Annual growth rate of population in 2017-18 India 1.03,
Pakistan 2.05 and China 0.46 %, population size in India may soon exceed in China. (iii)
Density of population: - It is estimated to be 148 persons per square kilometer in China, 275
persons per square kilometer in Pakistan, 455 persons per square kilometer in India. (iv) Sex
Ratio:- It is estimated to be 924 per thousand in India, 949 per thousand in China and 943 per
thousand in Pakistan. (v) Urbanisation :- In India, 34 % of population is urbanized compared
with 37 % in Pakistan and 59% in China.

(4) SECTORAL DISTRIBUTION OF OUTPUT (GROSS DOMESTIC PRODUCT AND SECTORS):-

Observations of the sectoral distribution of output and employment in these nations:-

Table shows ( NCERT e- Book 2022-23)

1. In both India and Pakistan, the contribution of agriculture to GVA (GDP) was 16 and 24 per
cent, respectively, but the proportion of workforce that works in this sector is more in India. In
Pakistan, about 41 per cent of people work in agriculture, whereas, in India, it is 43 per cent.

2. The sectoral share of output and employment also shows that in all three economies, the
industry and service sectors have less proportion of workforce but contribute more in terms of
output.

3. In China, manufacturing and service sectors contribute the highest to GVA (GDP) at 41 and 52
per cent, respectively whereas in India and Pakistan, it is the service sector which contributes the
highest by more than 50 per cent of GDP.

(5) The contribution of industries to GVA (GDP) is at 30 per cent in India and 19 per cent in Pakistan.
(6) INDICATORS OF HUMAN DEVELOPMENT: - Important indicators of human development are as
: (a)Life expectancy -higher the better (b)Adult literacy rate - higher the better (c)Percentage of
population below poverty line – lower the better (d)Infant mortality rate - lower the better
(e)Maternal mortality rate - lower the better (f) Percentage of population having access to
improved sanitation - higher the better (g) Percentage of population having access to improved
water sources - higher the better(h) Per capita GDP - higher the better. Based on indicators, a

174
 composite index is constructed, called Human Development Index – Higher value of HDI points to
a higher rank and higher level of growth and development for a country.

Table shows (NCERT e-Book 2022-23)

China is moving ahead of India and Pakistan. This is true for many indicators —
1. Income indicator such as GDP per capita, or proportion of population below poverty line or health
Indicators such as mortality rates, access to sanitation, literacy, life expectancy or malnourishment.
2. Pakistan is ahead of India in reducing proportion of people below the poverty line and also its
performance in sanitation.
3. Maternal mortality: In China, for one lakh births, only 29 women die whereas in India and
Pakistan, about 133 and 140 women die respectively.
4. The proportion of people below the international poverty rate of $ 3.20 a day, India has the largest
share of poor among the three countries.
5. Surprisingly all the three countries report providing improved drinking water sources for most of
its population.
6. Higher HDI ranking of China has performed better than India and Pakistan .HDI rank 2019-20 in
China was 87 ranks, India was – 130rank and Pakistan was 154 ranks in the world.
DEVELOPMENT STRATEGIES — AN APPRAISAL

COMMON SUCCESS STORY OF INDIA AND PAKISTAN:- (i) Both India and Pakistan have succeeded
in more than doubling their per capita incomes (ii)Food production has successfully kept pace with
the rise in population (iii)Food self- sufficiency has been accompanied with improved nutritional
status (iv) A well-developed modern sector (v) Absolute poverty has been reduced.
COMMON FAILURES STORY OF INDIA AND PAKISTAN:- (i) The relatively inward- looking
economic policies (ii) The mind-set of the politicians and bureaucrats has not shown a progressive
change (iii) Fiscal management is grossly disappointing (iv) Large proportion of tax revenue is spent
to meet defense expenditures (v)Deficient urban service (water, electricity and transport) (vi) A
wide lag between the formulation of policies on the one hand and their implementation.

Areas where India has an edge over Pakistan:- (i) In the area of skilled manpower ,research and
development institutions, India is better placed than Pakistan (ii) Human capital formation (iii) India
has shown a remarkable breakthrough in the export of software (iv) India also has a better record of
175
investment in education (v) Owing to rapid decline in population growth rate (fertility rate)(vi)
Issues of health facilities in general India better than Pakistan .

Areas where Pakistan has an edge over India: - (i) Pakistan has achieved better results with
regards to migration of workforce from agriculture to industry (ii) Pakistan growth strategy has a
better than Pakistan (iii)External trade has expanded much faster in Pakistan than India (iv)
Pakistan has achieved better results as regards access to improved water resources.
Comparison Between Indian Economy and Pakistan’s Economy: - (i) Both the countries have
mixed economy (ii) Economic reforms were interdicted in 1988 in Pakistan and India introduced
reforms since 1991 (iii) India is ahead of Pakistan in the areas of telecommunication, information,
technology, human capital formation (iv) Pakistan is ahead of India in the areas of urbanization and
sanitation facilities.

CHINA’S EDGE OVER INDIA:- We know that reforms were initiated in China in 1978. (i)The Chinese
reform process began more comprehensively during the 80s (ii)Global exposure of the economy has
far more wider in China than in India , Thus :- (a) china was liberal in allowing FDI in retail (b) China
allowed forging investors 100% equity investment (c)Establishing SEZ (iv) China has emerged as the
2nd largest economy in the world (v) Chinese agriculture is a commune system (collective
cultivation) of farming .
CONCLUSION:- India, China and Pakistan Till the late 1970s, all of them were maintaining the same
level of low development.
India : (i) India, with democratic institutions, performed moderately, but a majority of its people still
depend on agriculture.
(ii) Infrastructure is lacking in many parts of the country.
(iii) It is yet to raise the level of living of more than one-fourth of its population that lives below the
poverty line.
(iv)
Pakistan:- Scholars are of the opinion that political instability, over-dependence on remittances and
foreign aid along with volatile performance of agriculture sector are the reasons for the slowdown of
the Pakistan economy.

China: - (i) China has used the market mechanism to ‘create additional social and economic
opportunities’.
(ii) By retaining collective ownership of land and allowing individuals to cultivate lands, China has
ensured social security in rural areas. (iii) Public intervention in providing social infrastructure even
prior to reforms has brought about positive results in human development indicators in China.
COMPETENCY BASED QUESTIONS

Q1) Enumerate 4 primary policy endeavors undertaken by the Chinese government subsequent to
attaining independence, aimed at attaining economic advancement and industrialization. Illustrate
the consequences of these approaches on its economic progress and evolution into a significant
global economic force.
Ans- i) Economic reforms and opening up policies ii) Export led growth iii) infrastructure
development iv) Human capital investment and education. (Explanation required)

176
 ASSERTION & REASON

Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b)Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) is false.
(d)Assertion (A) is false but Reason (R) is true.

Q1. ASSERTION (A): Great Leap Forward (GLF) campaign initiated in China brought a new era of
industrialization and agricultural development.
REASON (R): Students and professionals were sent to countryside under the Great Leap Forward
(GLF) campaign.
Ans: (c) Assertion (A) is true but Reason (R) is false.
Q2. ASSERTION (A): GLF campaign initiated in 1958 aimed at industrializing the country on a
massive scale.
REASON (R): Under the commune system, people collectively cultivated lands.
Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
Q3. ASSERTION (A): India adopted a mixed economy model of growth.

REASON (R): People’s Republic of China as a growth model was established in 1949.
Ans: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
Q4. ASSERTION (A): China’s rapid industrial growth can be traced back to its reforms introduced in
1978.
REASON (R): Private Sector firms and township and village enterprises (enterprises which were
owned and opened and operated by local collectives) were allowed to produce goods.
Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).

Q5. ASSERTION (A): India is moving ahead of both China and Pakistan.
REASON (R): India introduce economic reforms like GLF campaign of China, to industrialize the
country on a massive scale.
Ans: (d) Assertion (A) and Reason (R) is false.
Q6. Assertion (A): Inspite of being the world’s most populous country, China’s annual growth rate of
population(0.46) is lower than India’s annual growth rate of population(1.03) and Pakistan’s annual
growth rate of population(2.05)
Reason (R): The one child policy was part of a birth planning program designed to control the size of
the rapidly growing population of China.
Ans. a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).

Q7 Assertion (A): During 1980s economic growth rate of Pakistan was more than that of India.
Reason (R): Pakistan followed the Path of mixed economic structure with equal participation of the
public and the private sector.
Ans- c)-Assertion (a) is true and Reason(R) is false

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 MCQ

Question 1: Arrange the following events in chronological order and choose the correct answer from
the given alternatives: (CBSE 2020)
(i) Establishment of People’s Republic of China
(ii) Creation of Pakistan
(iii) First Five-Year Plan of India
(iv) (iv) First Five-Year Plan of China
Alternatives:
(A) (i), (iv), (ii), iii)
(B) (iii), (ii), (i), iv)
(C) (ii), (i), (iii),(iv)
(D) (iv), (iii), (ii), (i)
Answer: (C) (ii), (i), (iii),(iv)
Q2. The main aim of ‘Great Leap Forward’ was to ensure rapid increase in
(primary/secondary/tertiary) sector in China. (CBSE 2020)
Ans. Secondary
Q3- Mao initiated the ‘Great Leap Forward’ in the year . (CBSE 2020)
(A) 1951 (B) 1955 (C) 1958 (D) 1962
Ans. (C) 1958
Q4. India is not a member of which of the following regional / global economic group: (CBSE 2020)
(a) European Union
(b) BRICS
(c) G-20
(d) SAARC
Ans. (a) European Union

Q5. GLF with respect to the People’s Republic of China is referred to as (CBSE 2020)
(a) Giant Leap Forward
(b) Great Lead Forum
(c) Great Leap Forward
(d) Giant Lead Forum
Ans. (c) Great Leap Forward

Q6. Introduction of economic reforms in China took place in the year (CBSE
2020)
(a) 1978
(b) 1980
(c) 1988
(d) 1991
Ans. (a) 1978

Q7. The main aim of Great Leap Forward in China was to ensure rapid increase of ______(CBSE 2020)
(a) Agriculture
(b) Industries
(c) Services
(d) Export
Ans. (b) Industries
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Q8. Which of the following countries adopted One Child Policy as a measure to control population?
(CBSE 2020)
(a) India
(b) China
(c) Pakistan
(d) Russia
Ans. (b) China

Q9. Which of the following countries has the highest population growth rate?
(A) India (B) China (C) Pakistan (D) All of these:
Ans. (C) Pakistan

Q10. In which year, China announced its first five-year plan?

(a) 1950 (b) 1951
(C) 1953 (d) 954
Ans. (C) 1953

Q11 India introduced economic reforms in

(a) 1990 (b) 1991
( c) 1992 (d) 1995
Ans. (b) 1991
Q12. Chinas great leap forward was in the year
a) 1953
b) 1955
c) 1958
d) 1999
Ans (c) 1958.

Q13. Commune system is the feature of

(a) India
(b) China
(c) Pakistan
(d) All the above
Ans. (b) China
Q14. Reforms in were introduced in 1978.
(a) China
(b) Pakistan,
(c) India
(d) None of these
Ans. (a) China

Q15. Great Proletarian Cultural Revolution was introduced under the leadership of .
(a) Mao Zedong
(b) J.L. Nehru
(c) M.K. Gandhi
(d) M.A. Jinnah
Ans. (a) Mao Zedong

Q16.The system in which people collectively cultivated land in China is known as. (CBSE 2020)

179
Answer: Commune System

Q17. Maternal mortality rate is high in (CBSE 2020)

Ans. Pakistan

Q18.State whether the following statement is true or false: (CBSE 2020)

‘As per the HDI, 2018India was ranked at 180th position’

Ans. False
SHORT AND LONG ANSWER TYPE QUESTION (3, 4, & 6Marks)

Q1. Compare and analyse the given data of India and China, with valid reasons. (CBSE 2020)

Country Annual Growth Rate of Gender Ratio (Per thousand

population(2015) males)

India 1.2 % 929

China 0.5% 941

Ans. Comparison and observations:

(i) Annual Growth rate of population is much lower in China (0.5%) than India (1.2%) . It possible
only successful implementation of One child policy introduced in China in 1979.

(ii) Gender ratio is more skewed in India 929 per 1000 males than China 941 per 1000 males (No.
of Females per Thousand Males) . This reflect a strong preference for a male child in the Indian
society, it is sign of higher social backwardness in India than China.
Q2. “India, China and Pakistan have travelled more than seven decades of development path with
varied result.” Explain the given statement with valid argument. (CBSE 2020)
Ans. India, China and Pakistan have travelled more than seven decades of development path
simultaneously, but the result is substantially different. China has edge both India and Pakistan, both
are lagging far be India, China and Pakistan have travelled more than seven decades of development
path with varied hind. The principal reasons are as under.

Great Leap Forward (GLF 1958) campaign of China:- 1.GLF was started in 1958 with a view to
propelling the pace of economic and industrial development 2. Which aimed at Country’s
industrialization and agriculture on a large scale 3.Chaina resorted to “Commune System of
Production”Under which people cultivated land collectively 4.Mao (Chinese communist
revolutionary) believed that both had to grow to allow to allow the other to grow Mao introduced the
Great Proletarian Cultural Revolution (1966–76) under which students and professionals were sent
to work and learn from the countryside. 5. It focused on widespread industrialization of the economy
6.People to set-up household industry in their backyard.

2. One Child policy in China:- OCP adopted by China in 1979 has been very successfully pursued .
Consequently,1. Growth rate of population has reduced to nearly half, from 1.33 per cent in 1979 to
0.47 per cent in recent past 2. With a check on population growth, China focus on raising the quality
of life .

3. Growth story of China :- (i) In 2017, GDP in China was estimated to be 12.40 trillion.
180
4. Special Economic Zones (SEZ) in China

5. High Labour Supply in China.

Q3. Based on the given data, compare any two parameters for the economies of India and China. (2
Marks CBSE Term-2 2022)

S.No Items India China

(i) Human development index (HDI) 0.609 0.727

(ii) HDI (Rank) 130 90

(iii) Life Expectancy at birth (in years) 68.2 75.8

(iv) GDP per capita (PPP $ US) 5,730 13,572

Source: HDI Report 2014 Ans. HDI (value): (i) HDI is an important indicator of socio- economic
development.

Higher value of HDI shows higher level of growth and development of a nation. As per given report,
HDI for India is 0.609, which is lesser than that of China (0.727).

(ii) HDI Rank: HDI values are used to create ranking of different countries. China is placed at 90th
position in the world whereas, India stands at 130th position. Higher rank indicates socio- economic
development.

(iii) Life Expectancy at birth (in years): A country which provides better health and civic facilities
secure a higher life expectancy for its citizens. China has higher life expectancy than India by a
margin of approximately 8 year. (any two)

Q4. India and Pakistan initiated their journey of development, nearly at the same time, yet the
two economies have travelled different distances. Justify the given statement with the valid
arguments. (3 Marks CBSE Term-2 2022) (NCERT)
Ans. It is true that India and Pakistan started their journey of development nearly at the same time,
in a similar way. Bothe the nations adopted policies like economic planning, dominance of public
sector, high public expenditure ect. In the post 1947 period.
There has been a decline in the annual growth of GDP in Pakistan over the yea, whereas India met
with moderate increase in GDP. The probable reasons for slower growth in Pakistan are political
instability, overdependence on remittance and foreign aid along with volatile performance of
agricultural sector. However, India met with greater success owing to efficient economic planning
and better implementation vis-à-vis Pakistan.

Q5. “India, China and Pakistan have travelled more than seven decades of developmental path with
varied results.” Explain the given statement with valid arguments.
Answers- (i) Till the late 1970s, all the three countries were maintaining the same level of low
development.
(ii) Over the last three decades, the three countries have taken different levels of development.

India has performed moderately over the years. Majority of its people still depend on agriculture.
Infrastructure is lacking and more than one fourth of its population live below poverty line.
181
Pakistan performed low because of political instability, overdependence on remittances and foreign
aid along with volatile performance of agriculture. China has used the market system to succeed in
raising the rate of growth in economy with stress on alleviation of poverty.

Q6. Explain the Great Leap Forward campaign of China as initiated in 1958.

Answer. Communist China or the People’s Republic of China, as it is formally known, came into being
in 1949. There is only one party, i.e., the Communist Party of China that holds the power there. All the
sectors of economy including various enterprises and all land owned by individuals was brought
under governmental control. A programme called ‘The Great Leap Forward’ was launched in 1958.
Its aim was to industrialise the country on a large scale and in as short a time as possible. For this,
people were eyeji encouraged to set up industries in their backyards. In villages, village Communes
or cooperatives were set up. Communes mean collective cultivation of land. Around 26000
communes covered almost all the farm population in 1958. The Great Leap Forward programme
faced many problems. These were:
(i) In the earlier phase, a severe drought occurred in China and it killed some 3 crore people.
(ii) Soviet Russia was a comrade to communist China, but they had border dispute. As a result,
Russia withdrew its professionals who had been helping China in its industrialisation bid.

Q7. Compare and contrast India and China’s sectoral contribution towards GDP. What does it
indicate?
Answer. Sectoral Distribution of Output and Employment:

(i) Agriculture Sector. China has more proportion of urban people than India. In China in the year
2009, with 54 per cent of its workforce engaged in agriculture, its contribution to GDP is 10 per cent.
In India’s contribution of agriculture to GDP is at 17 per cent.

(ii) Industry and Service Sectors. In both India and China, the industry and service sectors have less
proportion of workforce but contribute more in terms of output. In China, manufacturing contributes
the highest to GDP at 46 per cent whereas in India it is the service sector which contributes the
highest. Thus, China’s growth is mainly contributed by the manufacturing sector and India’s growth
by service sector.
Q8. Briefly explain the development strategies followed by china for its development Policies
followed by china are:-
a) Great leap forward (GLF) – The campaign initiated in 1958 aimed at industrialising the country on
a massive scale. People were encouraged to setup industries in their backyards. There were no
restrictions which provide momentum for economic growth.
b) Commune system – In rural areas, people collectively cultivate lands, In 1958, there were 26,000
communes covering almost all the farm population
c) Great Proletarian Cultural Revolution (1966-1976) – Under this revolution, students and
professionals were sent to work and learn from the countryside.
d) One child policy – One child policy norm introduced in china to control its population growth.
e) Setting up of Special economic zones and opening up of economy in 1978
Q9. Mention the salient demographic indicators of China, Pakistan and India.
Ans: . Following are the salient demographic indicators of China, Pakistan and India:
i) Population: The population of Pakistan is very small and accounts for roughly about one- tenth
of China and India.
ii) Population Density: Though China is the largest nation geographically among the three, but its
density is the lowest.
182
iii) Population Growth: Population growth is highest in Pakistan followed by India and China. One-
child norm introduced in China in the late 1970s is the major reason for low population growth. But
this measure led to a decline in the sex ratio.

iv) Sex Ratio: The sex ratio low and biased against females in all the three countries.
There is strong son-preference prevailing in all these countries as the reason.

Q10. Define the liberty indicator. Give some examples of liberty indicators.

Ans. Liberty Indicator may be defined as the measure of the extent of demographic participation in
the social and political decision making.
Examples of liberty indicators: (i) Measures of the extent of the Constitutional Protection Rights
given to the citizens; (ii) Extent of the Constitutional Protection of the independence of the Judiciary
and Rule of Law.

183
 KENDRIYA VIDYALAYA SANGATHAN DELHI REGION
SAMPLE QUESTION PAPER 2024-25
CLASS – XII
ECONOMICS (030)
SET-I

Time allowed: 3 Hours Maximum Marks: 80

General Instructions:
1. This question paper contains two sections :
Section A - Macro Economics
Section B – Indian Economic Development
2. This paper contains 20 multiple choice questions of 1 mark each.
3. This paper contains 4 short answer questions of 3 marks each to be answered in 60 to 80 words.
4. This paper contains 6 short answer questions of 4 marks each to be answered in 80 to 100
words.
5. This paper contains 4 long answer questions of 6 marks each to be answered in 100 to 150
words.
Q.N SECTION – A (MACROECONOMICS) MAR
KS

1 The Balance of Payment account records the inflow of foreign exchange on the _______. 1
a. Debit side
b. Credit side
c. Both a and b
d. None of the above
2 _________ refers to a situation where aggregate demand is equals to aggregate supply and 1
resources are not fully employed in an economy.( Fill in the blank with correct alternative)
a) Full employment equilibrium
b) Over full employment equilibrium
c) Under full employment equilibrium
d) None of the above
3 Due to appreciation of domestic currency,
a) Exports rise
b) Imports rise 1
c) Imports falls
d) None on the above
4 If the value of MPS is 0.25, what is the value of multiplier? 1
5 Read the following statements -Assertion (A) and Reason(R). 1
Choose one of the correct alternatives given below:
Assertion (A): Demand Deposits are not legal tenders.
Reason(R): They are with the bank, so only can be used as a legal tender when
cheques are issued for the transfer.
Alternatives:
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c. Assertion (A) is true but Reason (R) is false.
d. Assertion (A) is false but Reason (R) is true.
6 A business organisation located within India invests in a foreign-based company. This 1
transaction is recorded in the ____________ of ____________ account within the Balance of
184
 Payment account of India.
a. Debit side, current
b. Credit side, current
c. Debit side, capital
d. Credit side, capital
7 Of the following, what are the Quantitative Measures of Monetary Policy 1
(a) Repo rate
(b) Open Market Operations
(c) SLR
(d) All of these
8 The difference between the National Income and the Net National Product at market price is 1
known as _______.
a. National debt transfer
b. Current transfers from the rest of the world
c. Net indirect taxes
d. All of the above
9 According to Classical economists, there always exists__________ equilibrium in the economy. 1
(a) Full Employment (b)Under Employment
(c) Over Full Employment (d)None of these
10 Which of the following statements is the correct description of propensity to save? 1
a. It is the additional income that does not get saved
b. It denotes the ratio of the savings to income
c. It denotes the actual level of income at which is it equal to the savings
d. None of the above
11. 3
Items (₹ in lakh)

i) Durable use producer goods with a life span of

10
10 years

ii) Single use producer goods 5

iii) Sales 0

iv) Unsold output produced during the year 2

v) Taxes on production 1

Find Net Value Added at Factor Cost:

OR
Giving reason, explain whether the following are included in domestic product of India.
1. Profits earned by a branch of foreign bank in India
2. Payment of salaries to its staff by embassy located in New Delhi
3. Interest received by an Indian resident from its abroad firms
12 Distinguish between autonomous and accommodating transactions of Balance of Payments 3
account.

185
13 a. Define money multiplier. 1+
b. “Credit creation is inversely related to the reserve deposit ratio”. Justify the given 3=
statement, using a hypothetical example. 4
OR
2+
Explain (1) Lender of last resort function of central bank
2=
(2) banker agent and advisor to the government
4
14 Explain the four different concepts of Budget deficit. 4
15 Measure the level of ex-ante aggregate demand when autonomous investment and 2+
consumption expenditure (A) is Rs 50 crores, and MPS is 0.2 and level of income (Y) is Rs 2
4000 crores. State whether the economy is in equilibrium or not (cite reasons). =4
16 CASE STUDY: 3*
Government prepares the price range for pleasing positive goals. These goals are the direct 2=
final results of presidency’s financial, social and political rules. The numerous goals of 6
presidency price range are:
Reallocation of assets: Through the price range policy, authorities’ pursuits to reallocate
assets in according with the financial and social priorities of the country. Government can
impact allocation of assets via:
(i) Tax concession or subsidies: To inspire investment, authorities can deliver tax
concession, subsidies, etc. to the producers. For example, authorities discourage the
manufacturing of dangerous intake items via heavy taxes and encourage the usage of khadi
merchandise via way of means of imparting subsidies.

(ii) Directly generating items and services: There are many non-worthwhile financial sports,
which aren’t undertaken via way of means of the personal region like, water deliver,
sanitation, regulation and order, countrywide defence, etc. These are referred to as public
items. Such sports are always undertaken via way of means of the authorities in public
hobby and to elevate social welfare.

Reducing inequalities in profits and wealth: Economic inequality is an inherent a part of

each financial system. Government pursuits to lessen such inequalities of profits and
wealth, via its budgetary policy. Government pursuits to persuade distribution of profits via
way of means of enforcing taxes on wealthy and spending extra at the Welfare of the poor. It
will lessen profits of the wealthy and the increase well known of residing of the poor, as a
consequence decreasing inequalities inside the distribution of profits. three. Economic
balance: Economic balance manner absence of huge-scale fluctuation in costs. Such
fluctuations create uncertainties within the economic system. Government can exercising
manipulate over those fluctuations via taxes and expenditure.
Four Management of public Enterprises: There are huge numbers of public region
industries, which might be set up and controlled fall social welfare of the general public.
Budget is ready with the goal of creating numerous provisions for handling such
Enterprises and imparting them economic assist. 2+
Question 1: How the Government can impact allocation of assets? 2+
Question 2: What is financial balance? 1/
Question 3: State whether True or False. 2*
(a) Government can deliver down combination call for via way of means of decreasing 4=
personal expenditure. 6
(b) During deflation, authorities can growth its expenditure and deliver tax concession
& subsidies.
(c) Government prepares the price range for pleasing positive goals. These goals aren’t the
direct final results of presidency’s financial, social and political rules.

186
 (d) Government can’t exercising manipulate over financial fluctuations via taxes and
expenditure.
17 A. What are externalities? Explain its types with the help of examples. 3
OR *
B. Calculate National Income by Income and Expenditure Method. 2
=
6
S.N
O ITEMS Rs. CRORES

1 Government final Consumption Expenditure 100

2. Subsidies 10

3. Rent 200

4. Wages and Salaries 600

5. Indirect Taxes 60

6. Private Final Consumption Expenditure 800

7. Gross Domestic Capital formation 120

8. Social Security Contributions by Employers 55

9. Royalty 25

10. Net Factor income paid to abroad 30

11. Interest 20

12. Consumption of fixed capital 10

13. Profit 130

14. Net Exports 70

15. Change in Stock 50

187
 SECTION – B (Indian Economic Development)
Which year was the People’s Republic of China established in? 1
18 a. 1950
b. 1951
c. 1949
d. None of the above
19 Assertion (A): Urban people have a variety of employment opportunities 1
Reason (R): In Urban areas, the nature of work is different and enterprises require
workers on a regular basis.
Alternatives:
a) Both Assertion and Reason are true and Reason (R) is the correct
explanation of Assertion (A)
b) Both Assertion and Reason are true and Reason (R) is not the correct
explanation of Assertion (A)
c) Assertion (A) is True but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True
20 Which of the following is a major source of human capital formation in India? 1
a. Expenditure on on-the-job training
b. Expenditure on education
c. Both a and b are correct
d. Both a and b are incorrect
21 Self Help Group involves 1
A. Group of 5 to 20 people
B. Regular saving habits
C. Inter-lending within the group members
D. All of above
22 The nationalisation of capital goods industries took place in _______ in the 1970s. 1
a. India
b. Pakistan
c. China
d. None of the above
23 1. Which of the following statements about the new economic policy is not correct? 1
a. The new economic policy helped to initiate privatisation in the country
b. The new economic policy helped to initiate liberalisation in the country
c. The new economic policy helped to initiate urbanisation in the country
d. The new economic policy helped to initiate globalisation in the country
24 The process of assembling, storage, grading, packaging and distribution of different 1
agricultural products is known as ______________.
a. Agricultural marketing
b. Agricultural diversification
c. Agricultural management
d. Agricultural banking
25 Which of the following events characterized the economic crisis of 1991? 1
a. Selling of gold from reserves
b. Increase in the fiscal deficit
c. Reduction in foreign exchange reserves
d. All of the above
188
26 Which of the following statements is true in relation to Pakistan, India and China? 1
a. Pakistan is ahead both of India and China in terms of the total population
b. Pakistan is ahead both of India and China in terms of the rate of urbanisation
c. Pakistan is ahead both of India and China in terms of the density of population
d. Pakistan is ahead both of India and China in terms of the fertility rate
27 Read the following statement given below and choose the correct alternative 1
Assertion (A): On an average, an Indian farmer gets just a lower percentage of the price
paid by the final consumer.
Reason (R): The multiplicity of middlemen causes exploitation of farmers.
a) Both assertion and reason are true. Reason is the correct explanation of assertion.
b) Both assertion and reason are true. Reason is not the correct explanation of assertion.
c) Assertion is true but reason is not.
d) Reason is true but Assertion is not.
28 Bring out the differences between human capital and human development? 3
29 Write the quantitative appraisal of India’s demographic profile during the colonial period? 3
OR
Why Govt. form regulated markets? What are the functions of regulated market?
30 Explain the similarities in the development strategies of India, Pakistan and China. 4
31 Ram is going to school. When he is not in school, you will find him working in his farm. Can 4
you consider him a worker? Why?
OR
Madhu is a housewife. Besides taking care of household chores, she works in the cloth
shop which is owned and operated by her husband. Can she be considered a worker?
Why?
32 Explain the two categories into which infrastructure are divided. How are both 4
interdependent?
33 Explain briefly the merits and demerits of the economic reforms introduced in 1991. 6
34 How Sustainable Development is Achieved Through Organic Farming? 6

OR
What is Green Revolution? State its benefits and limitations.

189
 KENDRIYA VIDYALAYA SANGATHAN DELHI REGION
SAMPLE QUESTION PAPER 2024-25
CLASS – XII
ECONOMICS (030)
SET-II

Time allowed: 3 Hours Maximum Marks: 80

GENERAL INSTRUCTIONS:
1. This question paper contains two sections:

Section A – Macro Economics

Section B – Indian Economic Development

2. This paper contains 20 Multiple Choice Questions type questions of 1 mark each.
3. This paper contains 4 Short Answer Questions type questions of 3 marks each to be answered in
60 to 80 words.
4. This paper contains 6 Short Answer Questions type questions of 4 marks each to be answered in
80 to 100 words.

5. This paper contains 4 Long Answer Questions type questions of 6 marks each to be answered in
100 to 150 words.

QNo SECTION A – MACRO ECONOMICS Marks

1 1
“All capital goods are producer goods”. True/ false.
2 Define aggregate supply. 1

3 Measure of money M1=……. 1

4 If the total deposits created by commercial banks is rupees 10,000 crores and LR R is 1
40%, then amount of initial deposits will be………
(a) 2000 (b) 3000 (c) 4000 (d) 14000
5 If the saving function is S=-20+0.3Y, then what will be the value of MPC? 1

6 In a government budget, primary deficit is rupees 12,000 crores and interest payment is 1
7,000 crores. How much is the fiscal deficit?

7 Match the following statements given in column (B) with objectives of government budget 1
given in column (A):

A B

(i)Reallocation of resources a. Government increases taxes on super rich

people.

190
 (ii)Economic growth b. Government provide tax concessions and
subsidies to the producers.

(iii)Economic stability c. Government aims to stimulate saving and

investments in an economy.

(iv)Reducing inequality in d. During deflation, government increases its

income and wealth expenditure.

8 Read the following statements: Assertion (A) and reason (R). Choose one of the correct 1
alternative given below:

Assertion (A): depreciation of domestic currency leads to rise in exports to foreign

countries.

Reason (R): Due to depreciation of domestic currency, more goods can be purchased
from India with same amount of foreign currency.

Alternatives:
(a) Both Assertion (A) and reason (R) are true and reason (R) is the correct explanation
of Assertion (A).
(b) Both Assertion (A) and reason (R) are true and reason (R) is not the correct
explanation of Assertion (A).
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.

9 Suppose that the Balance of Trade (BOT) of a nation exhibits a surplus of rupees 20,000 1
crores. The import of merchandise of the nation is half of the exports of merchandise to
the rest of the world. The value of exports would be rupees ………………. Crores.
(a) 30,000 (b) 40,000 (c) 24,000 (d) 35,000
10 What is ‘devaluation’ of currency? 1

11 What do you understand by double counting problem? Explain any two methods to 3
solve it.

12 “Foreign Institutional Investors (FIIs) remained net seller in the Indian capital markets 3
over the last few weeks.” The Economic Times

State and discuss the likely effects of the given statement on foreign exchange rate with
reference to the Indian Economy.
OR
On which side and in which sub-account of Balance of payments, will foreign
investment in India and Sale of Machinery’ be recorded? State valid reason for your
answer.

191
13 Read the following text carefully and discuss briefly the relevant function of the money 4
as indicated here :

Without money all transactions would have to be conducted by barter, which involves
direct exchange of one good or service for another. The difficulty with a barter system
is that in order to obtain a particular good or service from a supplier, one has to
possess a good or service of equal value, which the supplier also desires. In other
words, in a barter system, exchange can take place only if there is double coincidence of
wants between two transaction parties. Money effectively eliminates the double
coincidence of wants problem.

OR

Explain the process of credit creation with the help of a numerical example.

An increase of rupees 250 crores in investment in an economy resulted in total increase

14 in income of 1000 crores. Calculate the following: -
4
(a) MPC
(b) Change in consumption expenditure
(c ) Change in saving
(d) Value of multiplier
15 (i) Compare the trends depicted in the figures given below: 2+
2

(ii)Elaborate the objective of ‘allocation of resources’ in the Government budget.

16 Briefly explain the concept of Inflationary gap with the help of a diagram. What is the 3+3
role of marginal requirement and government expenditure to correct it.

17 (a) Identified following items as intermediate and final good with reason: - 3+3=
6
(i) Soft drinks purchased by school canteen.

(ii) Seeds purchased for kitchen gardening.

(b)Sale of petrol and diesel cars is rising particularly in big cities. Analyze its impact on
gross domestic product and welfare.

192
 OR

Calculate National Income by expenditure and income method: -

Sr. Particulars Rupees in

No. crores

1 Compensation of employees 250

2 Imports 20

3 Mixed income of self employed 50

4 Gross fixed capital formation 120

5 Private final consumption expenditure 550

6 Consumption of fixed capital 10

7 Net factor income from abroad 20

8 Indirect taxes 100

9 Change in stock 20

10 Subsidies 20

11 Rent 100

12 Interest 200

13 Profit 50

14 Export 10

15 Government final consumption expenditure 60

SECTION B – INDIAN ECONOMIC DEVELOPMENT

18 The first official census was conducted in the year ………… 1
(a) 1891 (b)1921 (c)1781 (d)1881

19 NITI Aayog was setup in ……….……… 1

20 Name any two taxes which were subsumed in Goods and Service tax (GST) 1

21 Select group which set up to develop the regional cooperation and trade; 1
(a)IMF (b)WTO (c)SAARC (d)NATO
22 Agricultural financial apex body set up in 1982 is…… 1
(a)RBI (b)Food corporation of India (c)ACPC (d)NABARD

193
23 Read the following statements carefully and choose the correct alternative from the 1
following;

Statement 1: Montreal protocol is a historical treaty designed by the members of

United Nations to protect the ozone layer.

Statement 2: the Montreal protocol significantly reduced the burden of CFCs in the
stratosphere.
Alternatives:
(a)Both statements are true.
(b) Both statements are false.
(c) Statement 1 is true and statement 2 is false.
(d) Statement 2 is true and statement 1 is false.
24 When agriculture happens without any chemical, known as……………. 1

25 Define Horticulture. 1
26 Read the following statements: Assertion (A) and reason (R ). Choose one of the correct 1
alternative given below:
Assertion (A): Expenditure on migration is a source of human capital formation.
Reason (R): Migration to other countries involves cost of transportation from one place
to another and higher cost of living in the migrated places.
Alternatives:
(a) Both Assertion (A) and reason (R) are true and reason (R) is the correct explanation
of Assertion (A).
(b) Both Assertion (A) and reason (R) are true and reason (R) is not the correct
explanation of Assertion (A).
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
27 Disguised unemployment mainly occurs in………… 1
28 What similar developmental strategies have India and Pakistan followed for their 3
respective developmental paths?

29 Explain agricultural condition of Indian economy on the eve of independence. 3

OR
Give a quantitative appraisal of India’s demographic profile during the colonial period.
30 ‘Human capital formation can be defined as human development’. Defend or refute 4
give reason in support of your opinion.
OR
What do you mean by MGNREGA? How it helps to generate employment in India?

31 The number of new entrants in the job market and at the same time the number of new
jobs created has never been coterminous in our country. As a result, there has been a
large vacuum as far as the employment scenario in the country is concerned. What is
meant by the large vacuum as far as the employment scenario is concerned is meant 1*4=4
that unemployment problem is quite grave in our country. Unemployment in our
194
 country is in various forms and types like- seasonal unemployment, educated
unemployment, disguised unemployment etc., to name a few in this regard. Hence the
answer to this question, whether, there is enough employment for the youth of India is
in the negative as far as our country is concerned.

At the same time, our country India is a bounty both in terms of human resources as
well as natural resources. It is only due to this reason that our country attracted many
foreign invaders to our country since time immemorial. Now at this juncture, we need
to ponder what’s wrong with the employment scenario in our country and what is the
way to overhaul the employment scenario in our country.

(i) In India, seasonal unemployment is predominantly associated with …..

(a) Industrial sector (b) agriculture sector (c )tertiary sector (d) none of these
(ii) In case of …… unemployment, marginal productivity of surplus labour is zero.
(a) Seasonal (b) open (c ) disguised (d) none of the above
(iii) In India, people ……. Remain completely unemployment for very long period of
time due to their desperate economic condition.
(a) Can (b) cannot (c ) always (d) none of these
(iv) What attracted foreigners’ invaders to our country?
(a) Human resources (b) natural resources (c ) both (d) none of these

32 Evaluate the various factors that led to the rapid growth in economic development in 4
China.

33 What do you understand by Green revolution? Explain its positive and negative impact 2+2+
on Indian economy or on different sectors. 2=6
OR
What do you mean by demonetization? Explain its aims and impacts on Indian
economy?
34 Discuss the role of the rural banking system in the process of rural development in 4+2=
India. How it contributes to develop alternative income source for rural areas? 6

195
 KENDRIYA VIDYALAYA SANGATHAN DELHI REGION
SAMPLE QUESTION PAPER 2024-25
CLASS – XII
ECONOMICS (030)
SET-III

Time allowed: 3 Hours Maximum Marks: 80

General Instructions:

1. This question paper contains two sections

Section A – Macroeconomics
Section B – Indian Economic Development
2. This paper contains 20 Multiple Choice Questions of 1 mark each.
3. This paper contains 4 Short Answer Questions of 3 marks each to be answered in 60 to 80 words.
4. This paper contains 6 Short Answer Questions of 4 marks each to be answered in 80 to 100 words.
5. This paper contains 4 Long Answer Questions of 6 marks each to be answered in 100 to 150
words.
Section A
(Introductory Macroeconomics)
Q. Questions Marks
N
1 Statement I: Consumption function assumes that consumption changes at a constant rate 1
as income changes.
Statement II: Autonomous consumption is the ratio of total consumption (C) to total
income (Y).
Alternatives
(a) Statement I is true and Statement II is false
(b) Statement I is false and Statement II is true
(c) Both statements are true
(d) Both statements are false
2 For a closed economy (with no foreign trade), which one of the following is correct? 1
(a) GDP = GNP
(b) GDP > GNP
(c) GDP < GNP
(d) GDP + GNP = 0
3 The value of …… can be greater than one. 1
(a) marginal propensity to consume
(b) average propensity to consume
(c) marginal propensity to save
(d) average propensity to save
4 As per the Reserve Bank of India (RBI) press report, dated 29th December, 2022 1
“Net external commercial borrowings to India recorded an outflow of US$ 0.4 billion in
the second quarter (2022-23)”.
The above transaction will be recorded in the …… account on …… side of balance of
payments account of India.
(a) current, credit
(b) current, debit
(c) capital, credit
(d) capital, debit
5 “The value of all goods and services can be expressed in monetary units.” 1
On the basis of the given statement, identify the function performed by money.
196
 (a) Medium of exchange
(b) Store of value
(c) Unit of account
(d) Means of standard of deferred payments
6 Define ‘money multiplier’. 1
7 Graphically, aggregate demand function can be obtained by vertically adding the …… and 1
function.
(a) consumption, saving
(b) consumption, investment
(c) investment, saving
(d) aggregate supply, consumption
8 Identify the correct reason(s) that may affect the demand for foreign exchange in an 1
economy.
(i) Imports of visibles
(ii) Exports of invisibles
(iii) Remittances by residents working abroad
(iv) Purchase of assets abroad Codes
(a) (i) and (ii)
(b) (ii) and (iii)
(c) (iii) and (iv)
(d) (i) and (iv)
9 Suppose for a given economy, S = -60+0.1 Y ; I = ₹ 4,000 crore 1
(Where S = Saving function, Y = National income and I = Investment expenditure)
Equilibrium level of income would be ₹ crore.
(a) 4,000
(b) 40,000
(c) 40,600
(d) 60,400
10 If Marginal Propensity to Save (MPS) is 0.25 and initial change in investment is ₹ 250 1
crore, then the final change in income would be (1)
(a) ₹ 1,000 crore
(b) ₹ 1,200 crore
(c) ₹ 500 crore
(d) ₹ 3,500 crore
11 ‘Current account deficit in an economy must be financed by a corresponding capital 3
account surplus.’
Do you agree with the given statement? Give valid reason(s) in support of your answer.
12 (i) On the basis of the given data, estimate the value of domestic income. 3
S. No. Items ₹ (in crores)

(i) Household Consumption Expenditure 600

(ii) Gross Fixed Capital Formation 200

(iii) Change in Stock 40

(iv) Government Final Consumption 200

(v) Expenditure (-)40

197
 (vi) Net Exports 120

(vii) Net Indirect Taxes 20

(viii) Net Factor Income from Abroad 40

OR
(ii) State the meanings of the following
(a) Externalities
(b) Operating surplus
(c) Consumption goods
13 For a hypothetical economy, the government incurs an investment expenditure of ₹ 1,000 4
crore. If the value of Marginal Propensity to Save (MPS) falls from 0.25 to 0.10 , calculate
the value of increase in income due to change in the value of Marginal Propensity to Save
(MPS)
(i) “In an economy, ex-ante aggregate demand is more than ex-ante aggregate supply.” 4
14 Elaborate the possible impact of the same on the level of output, income and employment.
Or
(ii) “With an objective to reduce inflation, Reserve Bank of India may promote the
commercial banks to park their surplus funds with it.”
Discuss the rationale behind the step taken by the Reserve Bank of India.
15 Elaborate the ‘Banker’s bank and supervisor’ function performed by the Reserve Bank of 4
India.
16 (i) On the basis of the given information, calculate the value of
(a) Fiscal deficit (b) Primary deficit 3+2+
1
S. No. Items 2021 – 22 ₹ (in crores)

(i) Revenue Receipts 20

(ii) Capital Expenditure 15

(iii) Revenue Deficit 10

(iv) Non-debt creating Capital Receipts 50% of Revenue Receipts

(v) Interest Payments 4

(ii) State any two features of public goods.

OR
(i) Explain the economic stability objective of government budget.
(ii) ‘Under the Ayushmaan Bharat Scheme, the government provides free medicines to the
economically backward section of the society’.
Identify and discuss the nature of the government expenditure indicated in the given 3+3
statement.
17 Giving valid reasons, explain how the following would be treated while estimating
domestic income? 3+3
(a) Payment made by American tourist for goods purchased in India.
(b) Tomatoes grown by Ms. Puja in her kitchen garden.
(ii) “Machine purchased by a firm is always a capital good.”
Do you agree with the given statement? Give valid reasons for your answer.
198
 Section B - Indian Economic Development
18 Identify the correct combination of the ‘Goals of Indian Five Year Plans’. 1
(a) Growth, equality, modernisation, self-reliance
(b) Development, equality, modernisation, sustainability
(c) Good health, education, modernisation, sustainability
(d) Growth, equity, modernisation, self-reliance
19 ‘China has performed exceedingly well in various health and economic indicators’. Identify 1
which of the following is not a health indicator?
(a) Infant mortality rate (per 1000 live births)
(b) Life expectancy at birth (years)
(c) Percentage of people below poverty line (national)
(d) Maternal mortality rate (per 1 lakh births
20 The shackles of agriculture during the colonial rule were permanently broken by the given 1
revolution that resulted from the application of ……….
(i) High Yielding Varieties (HYV)
(ii) mechanization of agriculture
(iii) chemical fertilizers and pesticides
(iv) organic fertilizers and pesticides Codes
(a) (i), (ii) and (iv)
(b) (i), (ii) and (iii)
(c) (ii), (iii) and (iv)
(d) (i), (iii) and (iv)
21 Study the following picture and answer the given question. 1

Women in rural households take up bee keeping as an entrepreneurial activity. ‘Such kind
of activities may be envisaged under …… as diversification activity.
(a) animal husbandry (b) fisheries (c) horticulture (d) poultry
22 Assertion (A): In 1991, as an immediate measure to resolve the Balance of Payments 1
crisis, the rupee was devalued against foreign currencies.
Reason (R): Devaluation of currency was eminent, to replenish to deteriorated foreign
exchange reserves.
Alternatives
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct
explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true
199
23 Under ………………… in China, farmers and industrial units were required to buy and sell 1
fixed quantities of inputs and outputs on the basis of prices fixed by the government and
the rest were purchased and sold at market prices.
(a) commune system (b) great leap forward
(c) dual pricing (d) great proletarian cultural revolution
24 Micro credit programmes play a vital role in ensuring an overall development of the rural 1
economy as they …………….
(i) provide financial support
(ii) lead to women empowerment
(iii) enhance the reach of formal credit system Codes
(a) (i) and (ii)
(b) (ii) and (iii)
(c) (i) and (iii)
(d) (i), (ii) and (iii)
25 …………..… may be defined as the measure of the extent of demographic participation in the 1
social and political decision-making.
(a) Economic indicator
(b) Liberty indicator
(c) Health indicator
(d) Demographic indicator
26 Statement I The nature of unemployment problem in India is uni-faceted. 1
Statement II Worker-population ratio is an indicator used for analysing the employment
situation in a country.
Alternatives
(a) Statement I is true and Statement II is false
(b) Statement I is false and Statement II is true
(c) Both statements are true
(d) Both statements are false
27 From the set of the events given in Column I and corresponding facts given in Column II, 1
choose the correct pair of statements.
Column I Column II

(i) The common development policy of

A. Adoption of Mixed Economic System
India and China

B. Introduction of Economic Reforms in

(ii) Imposed by world bank
China

C. Great Leap Forward Campaign (iii) Focused on massive industrialisation

D. First Five Year Plan of Pakistan (iv) Announced in 1953

Codes
(a) A-(i)
(b) B-(ii)
(c) C-(iii)
(d) D-(iv)
28 (i) “During the colonial period, a number of socio-economic indicators were in a 3
dilapidated state.” List any three such indicators that led to the worsening of India’s

200
 demographic profile.
OR
(ii) “The pre-independent India’s occupational structure experienced growing regional
variation.”Justify the above statement with valid explanation.
29 “Ravya was initially working as an office clerk in a firm. In the pursuit to attain higher 3
position and income, she attended a few on-the-job training sessions. These sessions one-
child policy that led to arrest in the population contributed positively to her skills and
expertise.”
Explain the impact of Ravya’s decision on human capital formation.
30 “In the late 1970 s, China introduced the one-child policy that led to arrest in the
population coupled with skewed sex ratio.”
Justify the given statement with valid arguments in support of your answer.
31 (i) State and elaborate whether the following statements are true or false, with valid 2+2
arguments.
(a) Agricultural marketing is a process that ensures the transportation of various
agricultural commodities only.
(b) Jan-Dhan Yojana has been a crucial step for financial resource mobilisation in the
Indian economy.
OR
(ii) “Since independence, the government has been playing an important role in
generating employment directly or indirectly.” Discuss.
32 4

Identify the situation depicted in the given image. Suggest the impact of the indicated
situation, on the Indian economy.
33 (i) Green revolution transformed India from a subsistent food grain economy to a food
surplus economy.” 3+3
Justify the statement, giving reasons in support of your answer.
(ii) “In order to protect domestic industries, India followed the regime of restrictions on
imports.” Briefly outline and discuss such steps taken by the government to promote
import substitution policy. (3)
OR
(i) “In India, after 1947 land reforms were introduced on a large scale.”
In the light of the given statement, discuss any one such land reform.
(ii) “In the post-reform period, the government of India decided to retain profit-making
Public Sector Undertakings (PSUs). It provided a special status to PSUs to enable them to
expand in the global market.”
Do you agree with the given statement? Give valid reasons in support of your answer.
34 Read the following text carefully Sustainable development is the development that meets
the needs of the present, without compromising the ability of future generations to meet 2+4
their own needs. India is critical in determining the success in a pursuit to achieve
sustainable development. The union budget 2023 presented by Finance Minister Nirmala
201
Sitharaman builds on India’s commitment to lead the global action against climate change,
preserve biodiversity and support sustainable development.
The government has accelerated the pace of green growth as India is facing the grave
reality of depleting natural resources, limited supply of water, minerals and fossil fuels.
In a bid to counter the climate threat, India has committed to achieving net zero by 2070 ;
released a low-carbon development strategy; and introduced the concept of ‘LiFE’
(Lifestyle For Environment) to promote responsible consumption.
The green growth actions include several pointed measures that would facilitate the much
needed steady decarbonisation of Indian industries, reduce dependency on fossil fuel
imports and establish technology and market leadership in this sunrise sector.
For instance, the allocation of ₹35,000 crore of priority capital investment towards
achieving net zero by 2070 and clean energy transition ensures the country’s energy
security.
The outlay of ₹19,700 crore for the green hydrogen mission will mobilise a green
hydrogen production capacity of 5 metric million tonnes by 2030 .
Moreover, to encourage the optimal use of wetlands, enhance biodiversity, carbon stock,
eco-tourism opportunities and income generation for local communities. the Amrit
Dharohar scheme will be implemented over three years.
Source https://economictimes.indiatimes. com/industry/renewables/view-budget-2023
-ensured-india-is-primed-for-green-growth
On the basis of the given text and common understanding, answer the following questions
(i) Define sustainable development.
(ii) Briefly elaborate, any two reasons behind the objective of green growth being set up
by the Indian government.

202
 KENDRIYA VIDYALAYA SANGATHAN
DELHI REGION
SET 1
Marking Scheme- (2024-25)

ECONOMICS (030) CLASS: XII

S.N ANSWER Marks
1 b 1
2 c) Under full employment equilibrium. 1
3 B 1
4 4 1
5 c) 1
Explanation:- Demand Deposits are not legal tender. It is the bank money issued by the
bank, not by the government. Legal tender is the money that is authorized and issued by
the order of the government. Thus Demand deposits in no way can be used as legal tender.
Accepter can refuse to accept it.
6 c 1
7 d 1
8 c 1
9 a 1
10 b 1
11 Value of Output = Sales + Change in Stock 1+
Value of Output = iii) + iv) = ₹ 20 + ₹ 2 = ₹ 22
GVA at MP = Value of Output – Intermediate Consumption
Intermediate Consumption = Single use producer goods = ₹ 5 1+
GVA at MP = ₹ 22 – ₹ 5 = ₹ 17
Consumption of fixed capital = Total value of durable use goods/Total life span = ₹10/₹10 1
= ₹ 1 lakh
Net Indirect tax = Taxes on production – subsidy of production = ₹ 1 – ₹ 0 = ₹ 1 =3
Net Value added at FC = GVA at MP – consumption of fixed capital – Net Indirect tax
(Indirect Tax – Subsidy)
NVA at FC = ₹ 17 – ₹ 1 – ₹ 1 = ₹ 15
OR
1. Profits earned by a foreign bank branch in India are included in India's domestic income
because they are earned within the country's borders.
2. Since the embassy in New Delhi is not part of India's domestic territory, salaries paid to
its employees will not be included in the country's domestic income.
3. Interest received by an Indian resident from his or her foreign enterprises is not
included in India's domestic income because it is a factor income.
12 Autonomous items, also termed as ‘above the line items’, are those items, which are 1*3
related to transactions which are determined by considerations of profit (economic =3
motive) and hence, was no concern with the state of BoP. Autonomous transactions are
present in both current and capital account of BoP, While accommodating transactions are
present only in capital account of BoP. Accommodating items, also termed as ‘below the
line items’, are those items of BoP that are not determined by considerations of profit but
to restore the identity of BoP.
The difference between autonomous and accommodating transacting is that while deficit
or surplus in BoP due to autonomous items, the accommodating items, are meant to
restore the BoP identity..

203
13 a. Money multiplier is the process by which the commercial banks create credit, based 1
upon the reserve ratio and initial deposits.
b. Reserve deposit ratio is the minimum reserves which a commercial bank must maintain 3
as per the instructions of the Central Bank.
Credit Creation =
Thus, credit creation is inversely related to the reserve deposit ratio.
For Example: Suppose the Reserve Ratio is 0.2 and initial deposit is ₹ 1000 crores.

Total Credit Created = x initial deposits

= . x 1000 = ₹ 5,000 crores.
Now, suppose reserve ratio is increased to 0.5
Total Credit Created = x initial deposits
= . x 1000
= ₹ 2,000 crores.
Thus, on the basis of the above illustration we can say that there exists an inverse
relation between reserve and credit creation.
OR
EXPLAINATION
1) Lender of last resort: The central bank acts as a lender of last resort by providing
money to its member banks in times of cash crunch. It performs this function by providing
loans against securities, treasury bills and also by rediscounting bills.
This is regarded as one of the most crucial functions of the central bank wherein it helps in
protecting the financial structure of the economy from collapsing.
2) Banker to the government: Central bank is the banker, agent and financial advisor to 2
the government. As a banker to the government, it carries out all banking businesses of the 2
government. As an agent to the government, it buys and sells securities on behalf of the
government. As a financial advisor, the central bank advises the government from time to
time on economic, financial and monetary matters.

204
14 1. Budget deficit: The difference between the state's total expenditure, current revenue, 1
and net internal and foreign capital receipts is known as the budget deficit. B.D = B.E. >B.R. mark
is the formula for calculating it. each
Where B.D = Budget deficit,
B.E = Budget expenditure, and
B.R = Budget revenue.
2. Fiscal deficit: The difference between the government's total expenditure, revenue
revenues, and accrued capital receipts is known as the fiscal deficit.
F.D = B.E – B.R (B.E > B.R except for borrowings) is the formula.
Where F.D. stands for fiscal deficit, B.E. stands for budget expenditure, and B.R. is for
budget receipts.
3. Revenue deficit: The difference between government revenue expenditures and revenue
revenues is known as the revenue deficit.
R.D = R.E – R.R.
Where R.D denotes revenue deficit, R.E denotes revenue expenditure, and R.R denotes
revenue receipts.
4. Primary deficit: The fiscal deficit that is removed from interest payments is known as
the primary deficit.
P.D = F.D. – I.P. is the formula
Where P.D = Primary deficit,
F.D = Fiscal deficit, and
I.P = Interest payment.

15 Consumption expenditure (A)= Rs 50 Crores (Given) 4

&
MPS=0.2 (Given)
We know
MPC=1−MPS
MPC= 1-0.2
=0.8
Also,
Y=4000 Crores
We know that AD=A+cY
Putting the values in the given equation we have
AD=50+0.8×4000
=50+3200
= Rs 3250 Crores
We can observe that Rs 3250< Rs 4000
It means that AD<Y
Consequently, since the level of output is not equal to the level of income, the economy is
not in equilibrium.

16 Answer 1: 6
Government can impact allocation of assets via:
Tax concession or subsidies: To inspire investment, authorities can deliver tax concession,
subsidies, etc. to the producers. For example, authorities discourage the manufacturing of
dangerous intake items via heavy taxes and encourages the usage of khadi merchandise
via way of means of imparting subsidies.
Directly generating items and services: There are many non-worthwhile financial sports,
which aren’t undertaken via way of means of the personal region like, water deliver,
sanitation, regulation and order, countrywide defence, etc. These are referred to as public
205
 items. Such sports are always undertaken via way of means of the authorities in public
hobby and to elevate social welfare.
Answer 2:
Economic balance manner absence of huge-scale fluctuation in costs. Such fluctuations
create uncertainties within the economic system. Government can exercising manipulate
over those fluctuations via taxes and expenditure.
Answer 3:
(a) True;
(b) True;
(c) False;
(d) False;

17 A Externalities refer to the benefits or harms a firm or an individual causes to another 6

for which they are not paid. These externalities can be positive as well as negative
Eg any positive eg
Or
B. NI by Income Method= 1,000cr
NI by Expenditure Method = 1,000 cr

INDIAN ECONOMIC DEVELOPMENT

18. c 1
19. b) 1
20. C 1
21. d 1
22. b 1
23. c 1
24. a 1
25. d 1
26. D 1
27. a 1
28. Human Capital 3
1. Human capital takes into account health and education as a source of increasing labour
productivity.
2. Human capital is a comparatively narrow concept that treats human beings as a medium
to generate high productivity. As per this concept, investing in education and health is said
to be unproductive if it does not result in enhancing output.
Human Development
1. This concept is based on the idea that health and education are integral parts of human
well-being.
2. This is a broader concept that believes that development is said to have happened when
the majority of people in a country are healthy and educated.

29. India’s Demographic conditions during the British rule depict our economy as stagnant 1*3=3
and backward. Both the birth rate and death rate were as high as 48 and 40 per thousand.
Due to high birth rate and high death rate the population growth was stagnant. The Infant
Mortality Rate was also very high of about 218 per thousand. The Life Expectancy Rate

206
 was as low as 32 years while presently it is 63.5 years. The literacy rate was less than 16
percent which denotes social backwardness and gender bias in the economy. We can infer
from the above figures that India was featured with massive poverty, low standard and
quality of living and low survival rate in the country. The lack of health care facilities and
lack of health awareness were the main causes behind such demographic conditions of
India.
OR

Establishment of Regulated Markets. Government has formed regulated markets to

remove most of the evils of an unorganized market system.
Functions of regulated markets are:
(i) Enforcement of standard weights.
(ii) Fixation of charges, fees, etc.
(iii) Settling of disputes among the operating parties in the market.
(iv) Prevention of unlawful deductions and control of wrong practices of middlemen.
(v) Providing reliable market information.
(ANY OTHER POINT)

30 Development Strategies of India, China and Pakistan 4

India, China and Pakistan have many similarities in their development strategies which are
as follows”

 All the three countries had started planning their development strategies in similar
ways.
India announced its Five Year Plan in 1951-56, while Pakistan announced its First
Five Year Plan in 1956, which is called Medium Term Plan. China announced its
First Five Year Plan in 1953.
 India and Pakistan adopted similar strategies such as creating a large public sector
and raising public expenditure on social development.
 Till the 1980s, all the three countries had similar growth rates and per capita
incomes.
 Economic reforms took place in all the three countries. Reforms started in India in
1991, in China in 1978 and in Pakistan in 1988
31. Ram is not a worker because he is not actively engaged in production activity. Workers 4
include all those who are fit for work and are willing and available to work. Workers do
not include children, old people, handicapped etc.
OR
Madhu is a self-employed worker. Even though she is working in her husband’s cloth
shop, she will be considered as a worker.

32. There are two main types of infrastructure – 1+3

(a) Economic infrastructure: It includes energy, Transport and communication.
(b) Social infrastructure: It includes education, health, housing and other civic amenities.
Economic and social infrastructure both promotes economic development. So, both are
interdependent to each other.
33. Merits of economic reforms 6
 Vibrant economy : GDP growth increased from 5.6% during 1990-91 to 8.2%
during 2007-12
 Stimulant to industrial production
 Check on fiscal deficit
 Increase in foreign exchange reserve
207
 Demerits of economic reforms
 Neglect of agriculture: i. fall in investment ii. Withdrawal of subsidies iii. Cut in
import duty iv. Shift in cropping pattern
 Slowdown in industrial growth
 Unemployment: ‘Jobless growth’ is an emerging challenge of the indian economy
 Lopsided growth process
34. Organic farming does not use the harmful practices of conventional agriculture like the use 6
of synthetic fertilizers. In essence, organic agriculture is an agricultural technique that
sustains, maintains and enhances the quality of the ecosystem. Therefore, it is intimately
related to sustainable development.
OR

Green Revolution: in the year 1967-68, food grains production increased nearly by 25%.
Due to this substantial increase of food grains production, this outcome is known as ‘Green
Revolution’. The word Green Revolution comprises of two words ‘Green’ that is associated
to crops and ‘Revolution’ is associated to the substantial increase

The needs of Green Revolution are as follows.

1. Low Irrigation Facility
2. Conventional and Traditional Approach
3. Frequent Occurrence of Famines:
4. Lack of Finance (credit):
5. Self-sufficiency:
6. Marketizing Agriculture:
Benefits:
1. Increase in Agricultural Production:
2. Prosperity of Farmers:
3. Reduction in import of food-grains:

208
 KENDRIYA VIDYALAYA SANGATHAN
DELHI REGION
SET II
Marking Scheme- (2024-25)
QN Answer Marks

1 False 1

2 AD refers to money value of final goods and services that all the producers are willing 1
to supply in an economy in a given time period.

3 M1= C+DD+OD 1

4 (C ) 4000 1

5 MPC=0.7 1

6 PD=FD-Interest payment 1

12000=FD-7000

FD=12000+7000

FD=19,000

7 (i) b, (ii) c, (iii) d, (iv) a 1

8 (a) 1

9 (b) 40,000 1

10 Reduction in the value of domestic currency by the government 1

11 Double counting refers to counting of an output more then once while passing through 1+1+1
various stages of production. =3

(i) Final output method

(ii) Value added method

12 Selling of securities by FIIs in Indian capital market will lead to fall in the supply of 3
foreign currency in the economy. This situation might lead to excess demand of foreign
currency at the prevailing foreign exchange rate.
As a result, a new equilibrium rate of foreign exchange will be determined, which will
be higher than the prevailing foreign exchange rate, leading to depreciation of domestic
currency.
OR
1.Foreign Investment in India will be entered in Credit Side and in Capital Account
because it leads to Inflow of the Foreign Exchange and it is a part of capital account.

2. SALE OF MACHINERY..Credit Side because it leads to Inflow of the foreign Exchange

209
 and will be entered in current Account as it is a part of it.

13 The given text indicates the 'medium of exchange' function of money.It is one of the 2+2=4
primary functions of money as it can be used for any transaction wherein goods or
services purchased or sold.Therefore, one can buy or sell products in exchange for
money. If there were no money, goods would have to be exchanged through the
process of barter system. For example, if someone has rice and want to buy
wheat,then he would have to find a person who is willing to sell wheat for rice. Such
arrangements are often difficult but money eliminates the need of the double
coincidence of wants.
OR
Credit multiplier measures the amount of money that the banks are able to create in
the form of deposits with every initial deposit. The credit creation by commercial
banks depends on credit multiplier as it is inversely related to LRR. Higher the value
of credit multiplier, higher will be the total credit created and vice-versa. For
example, suppose LRR is 0.5 and initial deposit is Rs 1000.

Credit Multiplier= 1/0.5 = 2

Total credit created= 2 x 1,000 = 2,000

Whereas, Suppose the LRR is 0.2 and initial deposit is Rs1000. Credit Multiplier=
1/0.2 = 5 .Total credit created= 5 x 1,000= 5,000 . Thus, with the same initial deposit
total credit creation increases with an increase in the value of credit multiplier.

14 K= change in income/change in investment 1+1+1

K=1000/250= 4 +1=4
K=I/I-MPC SO, 4= 1 / 1-MPC
(a) MPC= ¼= 0.75
(b) MPC= change in consumption/ change in income
So, 0.75=change in consumption/1000
Change in consumption =750
(c ) change in saving = change in income – change in consumption
So, 1000-750=250
(d)K=4

15 (i) Considering the data represented in the given diagram, trend of year-on-year 2+2

deficit (reporting for April to November) may be stated as follows:

(a) Fiscal Deficit in 2020 increased to 10.8 lakh crore from 8.1 lakh crore in
2019. In 2021 it has gone down to 7 lakh crore.
(b) Primary Deficit in 2020 increased to 6.9 lakh crore from 4.7 lakh crore in 2019. In
2021 it has gone down to 2.4 lakh crore.
(c)Fiscal Deficit in 2020 increased to 135.1% of Budget Expenditure from 114.8% in
2019. In year 2021, it is 46.2% of Budget Expenditure.
(ii) Government seeks to allocate resources with a view to balance the goals of all
sections of the society. Production of goods and services which are injurious to
health may be discouraged through taxation policy. Similarly, production of goods of
socially beneficial nature may be encouraged through subsidies. If the private sector
does not take initiative in certain activities (Public Goods), the government may
directly control them like water supply and sanitation etc.
16 Explanation with diagram 3+3

210
 Increase in marginal requirement and decrease in government expenditure.
Explaination

17 (a) 3+3

(i)intermediate goods; resold

(ii)final good; used by final consumer.

(b) Due to rising sale of petrol and diesel cars in big cities, the pollution level will
increase. Due to increase in pollution level, people will suffer from respiratory diseases,
lung cancer etc. This will reduce the welfare of people. As the sale of petrol and diesel
cars is rising in big cities, it means people are demanding more cars. To meet the
increasing demand of the people, producers will increase their level of production of
cars leading to rise in GDP.

OR
Income method = 1+3+11+12+13+7
=250+50+100+200+50+20
=670
Expenditure method=4+9+5+(14-2)+15-6+7-(8-10)
=120+20+550+(10-20)+60-10+20-(100-20)
=670
18 (a) 1881 1

19 2015 1

20 Value added tax and service tax 1

21 (c )SAARC 1

22 (d) 1

23 (a) 1

24 Organic farming 1

25 Cultivation of fruits vegetables, tuber crops, etc 1

26 (b) 1

27 Agricultural sector 1

28 Both followed mixed economy, same time of independence, planning in similar way as 3
1951 and 1956,large public sector and raise in public expenditure, economic reforms at
same time 1991 and 1988 or any other relevant point.

29 Low productivity, sustainable agricultural, low investment, land settlement system, 3

commercialization of agricultural or any other relevant point.

OR

211
 a) Ans. Both birth rate and death rate were very high nearly 48 and 40 per
thousand.
b) Infant mortality rate was 218 per thousand
c) Life expectancy was 32 years
d) Literacy rate was nearly 16 percent
30 Disagree , HCF is a narrow concept but human development is a browed concept , HCF 4
have only quantitative aspect but human development has both quantitative and
qualitative, HCF contribute in achieve human development or any other relevant point.
OR
MGNREGA is a large scale employment generating program of Indian government
passed in 2005 and launched in 2006 as NREGA and change name in 2011, 2 Oct, as,
Mahatma Gandhi memory.
It provide garneted 100 Days wage employment in a financial year to household whose
adult members volunteer to do unskilled work.
31 (i) Agriculture sector (b) 1+1+1
(ii) Disguised (c ) +1=4
(iii) Cannot (b)
(iv) Both (c )

32 Reforms introduced in China, both initial and later phases 2+1+1

Dual pricing in the reforms process =4
SEZ or any other relevant point.
33 In 1966-67 with the use of HYV seeds, irrigation fertilizers and pesticides and 2+2+2
machinery a huge production of wheat and rice known as green revolution. =6

Positive: increase income of farmers, importer to exporter, buffer stock maintains etc.

Negative: increase disparities, rural income discrimination, increasing rural

unemployment, large agriculture debt, land pollution etc.

OR

Demonetization is a process in which government withdrawal specific currency from

economy.in 2016, govt. withdrawal 500 and 1000 notes to counter black money and
corruption, to decrease inflation. it effects the Indian economy in short and long term as
partially it decreases the growth of country, block the growth path, it counter
terrariums for some time it circulate the small savings in circular flow of income etc.

34 Role as provider of small loans for between agriculture items, loans for basic 4+2=6
infrastructure, loans for machinery, credit for different productive activities. long term
credit to develop the land other resources.

Loans help to develop alternative income sources as credit for purchasing cattle’s for
animal husbandry, horticulture fisheries, etc, needs credit for develop the
infrastructure etc.

Or any other relevant point and explanation of above points.

212
 KENDRIYA VIDYALAYA SANGATHAN
DELHI REGION
SET II
Marking Scheme- (2024-25)

Section A
(Introductory Macroeconomics)

1.Answer:
(a) Statement I is true and Statement II is false

2. Answer:
(a) G D P = G N P
3. Answer:
(b) average propensity to consume
4. Answer:
(d) capital, debit
5.Answer:
(c) Unit of account
6. Answer: Money multiplier is the number by which total deposits can increase due to a given change
in deposits. It is inversely related to legal reserve ratio.
7. Answer:
(b) consumption, investment
8. Answer:
(d) (i) and (iv)
9. Answer:
(c) 40,600
10. Answer:
(a) ₹ 1,000 crore

11. Answer:
Yes. I agree with the given statement.
Since, in accounting sense; Current Account + Capital Account = 0
If an economy is facing the situation of current Aocount Deficit (CAD), the same must be financed
through surplus in capital account in order to bring BoP in equilibrium.
CAD may be set-off through net capital inflows. Transactions like selling off assets or borrowing from
abroad, may be instrumental in balancing CAD in balance of payments account. This will balance the
BoP in accounting sense.

12. Answer:
Domestic Income (NDP_FC)
= Household Consumption Expenditure + Net Exports + Gross Fixed Capital Formation + Change in
Stock + Net Exports – Consumption of Fixed Capital – Net Indirect Taxes
= 600 + 200 + 200 + 40 + (-40) – 40 – 120
= ₹ 840 crore
OR

(ii) (a) Externalities Externalities refer to benefits (positive externalities) or harms (negative
externalities) which are caused by one entity or economic agent to another without being

213
paid/penalised for it.
(b) Operating Surplus It is the sum total of rent. royalties, interest and profits. It is also known as non-
wage income which is paid to the factors other than labour.
(c) Consumption Goods Goods which are consumed by the ultimate consumers or meet the immediate
need of the consumer are called consumption goods. It may include services as well. Consumer goods
are always final goods in nature.

13. Answer:
Given, Change in Investment (ΔY) = ₹ 1,000 crore

Increase in Income (ΔY) = 10,000-4,000

= ₹ 6,000

14. Answer:

(i) When ex-ante aggregate demand is more than ex-ante aggregate supply, it means that households
are planning to consume more than what the firms expect them to consume. This will lead to
unintended fall in inventories.

To restore the desired/intended level of inventories, producers may expand production. As a result,
there may be an increase in the level of output, employment and income in the economy.

Or (ii) Reverse repo rate is the rate at which commercial banks may park their surplus funds with the
central bank. In order to decrease inflation in an economy, Reserve Bank of India (RBI) may increase
the reverse repo rate. With the increase in reverse repo rate, it becomes lucrative for commercial
banks to park surplus funds with the central bank.
Consequently, this may lead to reduction in their lending capacity. Thereby, fall in the aggregate
demand curbs the level of inflation

15. Answer:
Under this function, central bank accepts the deposits from commercial banks and also advances loans
to them as and when required. It maintains reserves of all commercial banks and utilises it to settle
inter-bank claims, Being the supreme authority of the banking system, it acts as the financier of last
recourse to the commercial banks. It forwards short-term credit to the commercial banks against
approved securities. The central bank supervises; regulates and controls the commercial banks. The

214
regulation of banks may be related to their licensing, branch expansion, liquidity of assets,
management, amalgamation and liquidation.

16. Answer:

(i) (a) Fiscal Deficit = Revenue Deficit + Capital Expenditure + Non-debt creating Capital Receipts
= 10 + 15 – (50/100 × 20) = ₹ 15 crore

(b) Primary Deficit = Fiscal Deficit – Interest Payments

= 15 – 4 = ₹ 11 crore
(ii) Two features of public goods are
(a) Non-excludable
(b) Non-rivalrous
Or
(iii) The government may need to correct the fluctuations (income, employment and prices) in the
economy. These may depend upon the level of aggregate demand, which in turn depends upon the
spending decision of households and firms. To stabilise the economy, under the state of
inflation/deflation, government may alter taxes/expenditure, accordingly. During inflation,
government reduces its expenditures while during deflation, government increases its expenditures.

(iv) Expenditure incurred by the government under Ayushmaan Bharat Scheme for providing free
medicines to the economically backward section does not lead to any creation of assets or reduction in
liabilities. Hence, it can be classified as revenue expenditure. Revenue expenditure refers to the
expenditure which neither create any asset nor reduce liabilities of the government.

17. Answer:
(i) (a) Yes, it will be included in domestic income as goods purchased by American tourist is the
expenditure made by him in India and will be included as exports.
(b) No, it will not be included in domestic income because it is difficult to ascertain their market value.
Moreover, such transactions are not undertaken for any monetary consideration.

(ii) No, capital goods are those final goods which help in the production of other goods and services. A
machine purchased by a firm will be a capital good when it is used for the production of other goods
and services. However, if it is purchased by a firm for resale purposes in the same year, it will be
considered as an intermediate good and not a capital good.

Section B
(Indian Economic Development)

18. Answer:
(d) Growth, equity, modernisation, self-reliance

19. Answer:
(c) Percentage of people below poverty line (national)
20. Answer:
(b) (i), (ii) and (iii)
21. Answer:
(c) horticulture
215
22. Answer:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion
(A)
23. Answer:
(c) dual pricing 24. (d) (i), (ii) and (iii)
24. Answer:
(d) (i), (ii) and (iii)
25. Answer:
(b) Liberty indicator
26. Answer:
(b) Statement I is false and Statement II is true
27. Answer:
(c) C-(iii)
28. Answer:
(i) India’s demographic indicators were in a dilapidated state during the colonial period as
(a) The overall literacy level was less (below 16%).
(b) Life expectancy was very low ( 32 years).
(c) Alarming infant mortality rate (218 / 1000).
Or
(ii) The pre-independent India’s occupational structure experienced growing regional variation as
(a) Parts of Madras Presidency, Bombay and Bengal witnessed a decline in dependence of the
workforce on the agricultural sector with a commensurate increase in the manufacturing and the
services sectors.
(b) There had been an increase in the share of workforce in agriculture in states such as Orissa,
Rajasthan and Punjab.
29. Answer:
On-the-job trainings have become an integral part of work environment in the recent times as they
add to the productive capacity of employees. Firms encourage such trainings, as the benefits
outweighs the cost of these trainings. It enables employees to develop skills and adapt modern
technologies/ideas. Thus, Ravya’s decision to attend on -the-job training sessions will have a positive
impact in human capital formation.

30. Answer:
China is the most populous country in the worid. Its annual population growth rate was very high. The
one-child norm introduced in China in the late 1970 s is the major reason for fall in the population
growth rate.

However, this measure led to a decline in the sex ratio. The number of females per 1,000 males in
China is approximately 949 . One-child policy and prevalent son preference is the prime reason behind
the skewed sex ratio.

31. Answer:
(i) (a) False. Agricultural marketing is a process that involves the assembling, storage, processing,
transportation, packaging, grading and distribution of different agricultural commodities across the
country.
(b) True. Jan-Dhan Yojana has promoted thrift habits and efficient allocation of financial resources,
particularly in rural areas. Formal banking system has mobilised a substantial amount under this
yojana.
This also helps in financial inclusion and increasing money supply by organising small savings.
Or
216
(ii) Various government departments/enterprises employ people and increase their output of goods
and services, leading to direct employment.
When the output of goods and services from government enterprises increases, then private
enterprises which receive raw materials from government enterprises will also raise their output.
Subsequently, private enterprises using these output are indirectly benefitted with increase in scale of
production. This leads to an increase in the number of employment opportunities indirectly in the
economy.

32. Answer:
The given image depicts the drift of the Indian workforce from the formal sector to the informal sector
employment.
This situation is popularly known as ‘informalisation of the workforce’. In India, informal sector
includes millions of farmers, agricultural labourers, non-farm casual wage labourers, owners of small
enterprises and the self-employed people. The workforce in the informal sector does not get regular
income. They do not have any protection or regulation from the government. Workers may be
dismissed without any compensation/notice.
The government is taking steps to safeguard the interests of the workers in the informal sector.

33. Answer:
(i) Before the advent of Green Revolution, a large proportion of agricultural produce was consumed by
the farmers themselves instead of being sold in the market. Green revolution led to an increase in the
growth of agricultural output.
After the green revolution, a greater proportion of the agro-produce (wheat and rice) was sold by the
farmers in the market. This led to the attainment of marketed surplus and converted India into a food
surplus economy from the food scarce one.

(ii) In order to protect domestic industries, India followed the import substitution policy. This policy
aimed, at substituting imports with domestic production.
The domestic industries were protected from foreign competition by using the following tools
(a) Tariffs Tariffs are a tax on imported goods that make imported goods dearer or expensive and
discourage their usage leading to fall in imports.
(b) Quotas Quotas specity the quantity of goods that can be imported.
Or

(iii) Land reforms were inevitable in the post-independence era. The policy makers of independent
India introduced land reforms such as land ceiling, abolition of intermediaries etc.
Land ceiling means fixing up the maximum size of landhoiding which could be owned by an individual.
This step was essential to promote equity in the agricultural sector so as to reduce the concentration
of land ownership in a few hands.

(iv) Yes. In order to improve efficiency, infuse professionalism and enable Public Sector Undertakings
(PSUs) to compete more effectively in the liberalised global environment, the government identified
profit making PSUs.
Government declared them as Maharatnas, Navratnas and Miniratnas. PSUs were given greater
managerial and operational autonomy. in taking various decisions.
As a result, over the years these Maharatnas, Navratnas and Miniratnas have performed exceedingly
well and established themselves as market leaders

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34. Answer:
(i) Sustainable development is the development that meets the need of the present generation without
compromising the ability of the future generations to meet their own needs.
(ii) The Indian Government has accelerated the pace of green growth as India is
(a) Facing the grave reality of depleting natural resources, limited supply of water, minerals and fossil
fuels. This has created a number of environmental issues in the recent past in India.
(b) To counter the climate threat, India has committed to achieve net zero target by the year 2070.
This will facilitate much needed decarbonisation of Indian industries, reduce dependency on fossil fuel
imports and to become a market leader in the sunrise industry.

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