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Subject: Economics

  • Describe the benefits of deriving electric energy from sunlight in contrast to the conventional energy generation. What are the initiatives offered by our Government for this purpose?

    India ranks 3rd globally in Solar Power capacity, (IRENA 2025) with 1.16 GW production. Solar energy is critical for objective of 500 GW of clean energy by 2030.

    Benefits of Deriving Electric Energy from Sunlight vs Conventional Energy Generation

    Sunlight is inexhaustible, unlike fossil fuels that are finite and depleting. India receives 4-7 kWh/m²/day solar radiation.

    Enhances Energy Security – Reduces dependence on imported coal, oil, and gas. (India imports over 85% of crude oil)

    Once installed, solar projects have minimal maintenance and no fuel cost, unlike thermal plants dependent on continuous coal supply.

    Decentralised and Inclusive – Solar energy supports off-grid and rooftop systems. Eg- Solar Pumps under PM Kusum

    Promotes Improved Public Health – Solar reduces air pollution-related diseases linked with thermal power. Eg- asthma, cardiovascular illnesses.

    Solar energy is critical for achieving India’s NDC targets of 50% non-fossil electricity by 2030 and Net Zero by 2070.

    Generates Green Jobs in solar manufacturing, installation, maintenance. India’s RE sector employs 3.7 lakh+ workers (IRENA 2024).

    Government Initiatives to Promote Solar Energy in India

    National Solar Mission – Target of 280 GW solar capacity by 2030.

    PM-KUSUM Scheme – Promotes solar pumps and solarisation of agricultural feeders.

    PM Surya Ghar Muft Bijli Yojana (2024) – Supports rooftop solar installation for households with subsidy and free electricity up to 300 units/month.

    Solar Parks and Ultra Mega Solar Power Projects – Eg- Bhadla (Rajasthan) and Pavagada (Karnataka). (target of 40 GW by March 2026)

    PLI Scheme – Encourages domestic manufacturing of high-efficiency solar PV modules and cells.

    Green Energy Corridor – Strengthens transmission infrastructure.

    International Solar Alliance (ISA) – India’s global initiative to promote solar energy in tropical countries.

    Solar Cities Programme – Promotes solar-based infrastructure in urban and semi-urban areas.

    PM JANMAN: electrifying one lakh un-electrified households in Tribal and PVTG habitations across 18 states

    State-level initiatives

    SMART Solar Scheme (Maharashtra) – Offers subsidies up to 95% for 1 kW rooftop solar system

    Indira Soura Giri Jala Vikasam (Telangana) – 100% subsidy for solar-powered irrigation systems

    These initiatives underscore India’s vision of inclusive, secure, and clean energy for all (SDG -7).

  • What are the challenges and opportunities of food processing sector in the country? How can income of the farmers be substantially increased by encouraging food processing?

    Food processing refers to the transformation of raw agricultural commodities into value-added, marketable, and storable products through physical, chemical, or biological methods.

    Challenges of the Food Processing Sector in India

    Low Level of Processing – Only ~10% of total agricultural produce is processed (vs 60-70% in developed countries).

    Post-harvest losses of 15-20% due to shortage of cold-storage, and transport infrastructure.

    Fragmented Supply Chain – 86% of farmers are small/marginal – limits aggregation

    High Logistics Cost of 13-14% of GDP (vs 8-9% in developed countries).

    Delay in project implementation – Eg- only 25 out of 42 approved Mega Food Parks operational

    Regulatory & Compliance Issues – Complex FSSAI norms and licensing delays discourage small processors.

    Low Exports – 16% of India’s agri-exports are processed products, compared to 25% in the US and 49% in China.

    Micro and small units struggle to access formal credit, collateral, and working capital.

    Skill gap – Only 3% of the food processing workforce is formally trained

    Quality & Safety Gaps – Inconsistent adherence to food safety standards, and limited testing infrastructure. Eg- Rejection of Indian exports by EU.

    Negligible R&D (<0.5% of sectoral GVA) – stall innovation in packaging and product design

    Opportunities of Food Processing Industry in India

    Large agricultural base

    Second-largest producer of fruits and vegetables.

    Wide product spectrum – Includes dairy, fruits & vegetables, meat, fisheries, beverages, ready-to-eat (RTE), and organic foods.

    Lifestyle Shift – 65% of Indians under 35, rising incomes, urbanization & busy lifestyles have boosted demand for ready-to-eat & processed foods.

    Rapid growth in Organised retail and “shopping mall culture”- better supply chain management. Eg- D-mart

    Export potential – India exports processed foods to 200+ countries

    Nearly 70% of food processing units operate in the unorganised MSME sector – generate rural employment and entrepreneurship.

    Increasing Farmers’ Income through Food Processing

    Encourages production of horticulture, millets, oilseeds, spices – create new income sources beyond cereals.

    Strengthening FPOs – Processors procure directly from FPOs, giving assured prices and eliminating middlemen. Eg- Sahyadri FPO in Maharashtra

    Employment generation – rural non-farm jobs in grading, sorting, packaging, logistics, and processing units.

    Promotion of women entrepreneurship – Eg- Lijjat Papad

    Zero-Waste Processing using circular economy models. Eg- converting fruit peels to bio-plastics

    As India moves forward under the Make in India vision, the food processing industry will continue to be a key driver of economic growth, ensuring food security, quality, and global competitiveness.

  • Explain the meaning of investment in an economy in terms of capital formation. Discuss the factors to be considered while designing a concession agreement between a public entity and a private entity.

    Investment refers to the creation or addition of capital assets in an economy that enhance its productive capacity. It involves machinery, infrastructure, technology, and human skills.

    Meaning of Investment in Terms of Capital Formation

    Addition to Capital Stock- Eg- Samruddhi Expressway, Foxconn Plant in Chennai.

    Gross Capital Formation (GCF)- additions to fixed assets, inventories, valuables. Eg- Solar Plant in Rajasthan.

    Enhances Productive Capacity- Eg- Dedicated Freight Corridors boosting logistics efficiency.

    Savings and Investment Link- Higher savings enable greater capital formation. Eg- Sovereign Green Bonds funding renewable energy assets.

    Includes Physical, Human and Social Capital- Eg- Skill India Mission, Metro rail projects.

    Creates jobs, improves productivity, accelerates growth. Eg- Sagarmala driving port-led industrialisation.

    Factors to Consider While Designing a Concession Agreement (Public-Private)

    Political / Policy

    Clear Scope Definition- project components, performance standards, service quality benchmarks, and asset ownership.

    Model of partnership – Eg- Hybrid annuity model or BOT Model

    Concession Period based on asset life, investment size, and recovery period. Eg- 20-30 years for highways.

    Economic

    Risk Allocation between government and private entity

    Revenue Model- Eg- tariffs, user charges, annuity payments, or viability gap funding.

    Financial Structure- Terms on capital investment, debt-equity ratio, refinancing rules.

    Social

    Environmental & Social Safeguards- Compliance with EIA and land acquisition laws.

    Transparency and Accountability- Public disclosures, third-party audits, and periodic review.

    Technological

    Performance Metrics- KPIs, service standards, monitoring, penalties, incentives.

    Legal

    Dispute Resolution- arbitration method.

    Renegotiation Rules- framework for handling unforeseen demand or cost shocks.

    Termination Clauses- rules for default, compensation, and asset handback.

    Kelkar Committee recommendations

    Prioritizing service delivery over fiscal benefits in contracts

    Establishing independent sector regulators

    Better risk allocation between stakeholders

    Utilizing advanced risk management techniques

    A well-designed concession agreement ensures efficient public-private collaboration, ultimately leading to sustainable high-quality infrastructure delivery and realisation of a $40 Trillion economy by 2047.

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

    The GST, implemented on 1 July 2017, unified India’s fragmented indirect tax system into a single, destination-based tax, aimed at creating a ‘one nation, one tax’ System.

    Rationale behind the GST (Compensation to States) Act, 2017

    GST subsumed major state taxes (VAT, entry tax, octroi). To prevent short-term revenue loss, the Act assured 14% annual revenue growth for 5 years (2017-22).

    Addressing Loss of Fiscal Autonomy – Compensation ensured states’ fiscal stability during structural shifts.

    Cooperative Federalism- States agreed to adopt GST in exchange for legal assurance of compensation from the Centre.

    Creating Predictability in Budgeting – Guaranteed revenue helped states plan welfare schemes, salaries, and capital projects without fear of instability.

    Compensation Fund Mechanism- A dedicated GST Compensation Cess (on luxury/sin goods like tobacco, coal, automobiles) was created to finance the compensation pool.

    Impact of COVID-19 on the GST Compensation Fund

    According to the 41st GST Council meeting, states projected a for 2020-21. With an estimated , the shortfall in the GST compensation fund was expected to be .

    was due to GST implementation-related revenue gaps, and

    was attributed to the COVID-19-induced economic shock

    The Centre admitted an unprecedented shortfall, stating it could not fully compensate states from the fund.

    Borrowing Controversy

    The Centre asked states to borrow via RBI under two options.

    Many states (Kerala, Punjab, Chhattisgarh) argued that the borrowing burden should lie with the Centre, not states.

    Breakdown of Consensus in GST Council – For the first time since 2017, the Council saw voting instead of consensus. States alleged weakening of cooperative federalism.

    Increased Fiscal Stress on States – Shortfalls forced states to cut capital expenditure, delay welfare payments, and increase market borrowing.

    States demanded extending the compensation period beyond June 2022 due to pandemic losses

    Strengthening the fiscal framework, improving tax buoyancy, and enhancing transparency in compensation mechanisms are essential to restore trust in India’s cooperative federalism.

  • Define potential GDP and explain its determinants. What are the factors that have been inhibiting India from realizing its potential GDP?

    Potential GDP refers to the maximum sustainable output an economy can produce without generating inflationary pressure, when all resources are fully and efficiently employed.

    Determinants of Potential GDP

    Labour Force & Human Capital – Size, skill, and productivity of the workforce.

    Capital Formation – Investment in infrastructure, machinery, and technology.

    Technology & Innovation – R&D and digital transformation driving productivity.

    Institutional Quality – Governance, regulatory efficiency, and property rights.

    Total Factor Productivity (TFP) – Efficiency in using labour and capital together.

    Prevailing Inflation Rate – Persistent inflation distorts real GDP from its potential level.

    Global Conditions – Protectionism, trade restrictions, and geopolitical tensions. Eg- Tariff Wars

    Factors Inhibiting India from Realizing Potential GDP

    Low Female Labour Force Participation – FLFPR only 41.7% (PLFS) against global average of 48%

    Slow Capital Formation – GFCF at ~29.6% of GDP (2024) vs 34% in 2023.

    Skill Mismatch & Education Gaps – Only 4.7% of workforce formally skilled (NSDC).

    Infrastructure Bottlenecks – Logistics cost ~13% of GDP vs 8% in USA

    Weak Productivity Growth – Low TFP and informal sector dominance. (83% informal sector)

    Regulatory Cholesterol – Delays, compliance burden, weak contract enforcement.

    Way Forward

    Enhance Human Capital – Invest in education, healthcare, and skill development

    Accelerate Investment & Infrastructure Growth through faster project execution under PPP.

    Create safe workplaces, flexible jobs, and childcare support to tap women’s economic potential.

    Increase R&D spending to 2.5% of GDP (currently <1% of GDP) for productivity gains.

    To realize its potential GDP and Viksit Bharat 2047, India must shift from factor accumulation to productivity-driven growth

  • Explain intra-generational and inter-generational issues of equity from the perspective of inclusive growth and sustainable development.

    Inclusive growth and sustainable development emphasise fair distribution of opportunities, resources, and benefits both within the present generation and across future generations.

    Intra-Generational Equity issues (Equity Within the Present Generation)

    Income and Wealth Inequality – the top 1% of adults in India control almost 40% of net personal wealth. (World Inequality Report)

    Social Exclusion – Caste, gender, disability, and minority identity restrict access to education, jobs, assets. Eg- Glass Ceiling for Women

    Poorer communities face greater vulnerability to pollution, floods, heatwaves, violating equity. Eg- Disaster induced migration

    Regional disparities – Eg- BIMARU States lag behind national averages in health, education and income.

    Low female labour force participation (41% vs 48% global average) limits inclusive access to economic opportunities.

    Inter-Generational Equity issues (Equity Across Future Generations)

    Climate change burden on future generations – Eg- Rising sea levels threatening the survival of low-lying island countries.

    Low social mobility- Eg – India ranks 76th in the Global Social Mobility Index (WEF), indicating persistence of inequality across generations.

    Failing to invest in research, innovation, and human capital reduces competitiveness of future generations. (R&D investment only 0.7% of GDP)

    Fiscal Burden – Unsustainable borrowing today limits fiscal space for future welfare and development spending.

    Way Forward

    Capability Approach (Amartya Sen) – increase Education and health spending to 6% and 2.5% of GDP respectively

    Strengthen progressive taxes, wealth taxes and targeted subsidies to reduce income inequality and expand welfare spending.

    Align national policies with Paris Agreement targets

    Universalise social security, pensions, maternity benefits, and unemployment allowance

    A nexus approach towards sustainability and inclusiveness is needed for ‘Sabka Saath, Sabka Vikas.’

  • Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets.

    Under Article 112, the Budget comprises the Revenue Budget, which covers routine government income and expenditure, and the Capital Budget, which deals with asset creation and long-term liabilities.

    Difference Between Revenue Budget and Capital Budget

    Components of the Revenue Budget

    Revenue Receipts

    Tax Revenue – Income tax, corporate tax, GST, customs, excise, etc.

    Non-Tax Revenue – Dividends & profits from PSUs/RBI, fees, fines, interest receipts.

    Grants-in-Aid – External grants from other countries/institutions.

    Revenue Expenditure

    Salaries, Pensions & Administrative Costs

    Subsidies – food, fertiliser, petroleum.

    Interest Payments on past borrowings.

    Grants to States & UTs, grants for social services.

    Expenditure on Routine Government Operations – police, defence services (revenue), judiciary.

    Components of the Capital Budget

    Capital Receipts

    Borrowings – Market loans, external loans, treasury bills.

    Disinvestment Proceeds – Sale of government equity in PSUs.

    Recovery of Loans – Repayment from states, PSUs, and others.

    Small Savings & Provident Fund Collections

    Capital Expenditure

    Creation of Assets – Roads, railways, bridges, irrigation, defence capital.

    Loans and Advances – To states, UTs, PSUs, and financial institutions.

    Investment in PSUs and Infrastructure Projects

    A healthy fiscal structure requires containing revenue expenditure and prioritising capital expenditure to strengthen productivity and economic growth.

  • Do you agree that the Indian economy has recently experienced V- shapes recovery? Give reasons in support of your answer.

  • Explain the difference between computing methodology of India’s Gross Domestic Product(GDP) before the year 2015 and after the year 2015.

    Gross Domestic Product (GDP) is the total monetary value of all final goods and services produced within a country’s borders in a given period. GDP in India is calculated by the National Statistical Office (NSO).

    The post-2015 GDP methodology aims to provide a more accurate, data-rich, and globally comparable picture of India’s economy. To improve reliability, there is a need for greater transparency.

  • “Investment in infrastructure is essential for more rapid and inclusive economic growth.”Discuss in the light of India’s experience

    The World Bank defines infrastructure as “the basic physical and organizational structures and facilities needed for the operation of a society, enterprise, or system.” It is prerequisite for rapid, inclusive and sustainable growth.

    Importance of Investment in Infrastructure for Rapid Growth

    A 1% increase in infrastructure investment can raise output by 0.4% in the same year and by 1.5% in 4 years. (IMF)

    Modern transport, logistics and energy infrastructure reduce time and transaction costs and increase competitiveness.

    Boosts Manufacturing & Exports – Eg- Port led development under Sagarmala project

    Crowds in domestic private investment and FDI –

    Facilitates Urbanisation and industrialization- Eg- industrial corridors, and smart cities support agglomeration economies and higher output.

    Energy Security through investments in renewables (48 % of the total installed capacity).

    Importance of Investment in Infrastructure for Inclusive Growth

    Bridges Rural-Urban Divide- Rural roads, irrigation networks and decentralised energy systems enhance market access and livelihoods. Eg- PMGSY

    Access to Basic Services – Water supply, sanitation, healthcare facilities, and DPI ensure equitable access for vulnerable groups. Eg- Jal Jeevan Mission

    Balanced Regional Growth- Connectivity in tribal, hilly, and northeastern regions improves mobility, education access, and economic opportunity.

    Employment Generation for low-skilled and semi-skilled workers. Eg- The PM Gati Shakti initiative is expected to create 1 crore+ jobs by 2030.

    Improves standard of living – Eg- over 4Cr houses constructed under PMAY

    Women Empowerment – Eg- SBM improving access to sanitation

    India’s Experience – Achievements and Challenges

    India has the second largest road network in the world (1.5 lakh km National Highway)

    Ports & Logistics: Sagarmala increased port capacity beyond 2,600 MTPA.

    Digital Infrastructure: Aadhaar, UPI, BharatNet deepened digital inclusion.

    Energy: Renewable capacity crossed 240+ GW, improving energy security.

    Challenges

    Lack Of Integrated Policy- India has the second largest infrastructure deficit in the world (after Brazil)

    Financing Constraints: NIP requires Rs 111 lakh crore.

    Delays in Land Acquisition & Clearances slowing project execution. Eg- Mumbai Metro

    Urban Infrastructure Deficits: Eg- 17% population living in slums

    Logistics Inefficiencies: 13-14% logistics cost compared to 8-10% global average

    Poor concession agreements and litigation in PPP projects

    Neglect of social infrastructure – Eg- health and education spending at 1.9% and 4% of GDP only

    Inadequate R&D expenditure (0.7% of GDP) hinder the adoption of innovative solutions.

    Way Forward

    Strengthen PPP Models with better risk-sharing and transparent concession agreements. (Kelkar Committee recommendations)

    Accelerate Gati Shakti Platform for integrated planning and faster clearances.

    Increase Sustainable Financing via green bonds, NIIF, and development finance institutions.

    Focus on Climate-Resilient Infrastructure in coastal, drought-prone and flood-prone regions.

    Sustainable and high-quality infrastructure is a essential for realisation of a $40 Trillion economy by 2047.