(a) Define capital account convertibility. Examine Tarapore Committee (I and II) recommendations on capital account convertibility of rupee. (20 marks)

(b) Analyse the effects of TRIPS Agreement on Indian agriculture. (15 marks)

(c) How does the Ne

Question

(a) Define capital account convertibility. Examine Tarapore Committee (I and II) recommendations on capital account convertibility of rupee. (20 marks)

(b) Analyse the effects of TRIPS Agreement on Indian agriculture. (15 marks)

(c) How does the New Economic Policy change the structure of employment in India? Evaluate. (15 marks)

UPSC Answer Check · Accepted Answer

(a) Capital account convertibility and Tarapore Committees 
Capital account convertibility means the freedom to convert domestic financial assets into foreign financial assets and vice versa, including cross-border borrowing, lending, portfolio investment and direct investment, without quantitative restrictions. The First Tarapore Committee (1997) treated CAC as a staged process: first convertibility for non-residents, then residents, and finally full convertibility. It linked each stage to preconditions—fiscal deficit below 3.5 per cent of GDP, inflation in the 3–5 per cent range, and a sustained reduction in bank NPAs—so that macroeconomic stability would precede liberalization. The first committee’s caution reflected the Asian financial crisis; the second added exchange-rate discipline after the 2004–05 capital inflow boom. The Second Tarapore Committee (2006) accepted the same logic but tightened the preconditions: fiscal deficit below 3.5 per cent, inflation 3–5 per cent, current account deficit around 3 per cent, gross NPAs reduced to 1 per cent by 2008–09 and net NPAs to 0.5 per cent, stronger financial-sector regulation, and an ERM II-style monitoring band to guard against exchange-rate overshooting. Examined critically, the recommendations were prudent because they recognized that CAC amplifies capital-flow volatility and can constrain monetary autonomy under the impossible trinity. Yet full CAC was not implemented because the 2008 global financial crisis showed how quickly portfolio inflows can reverse, and because India’s exchange-rate management and capital controls remained useful for stabilizing growth. Thus the committees’ verdict was sound, but the sequencing was too dependent on preconditions that India has not fully met.

(b) TRIPS and Indian agriculture 
TRIPS changed Indian agriculture by embedding intellectual-property rules in the agrarian economy. Although India retained a sui generis system under the Plant Varieties and Farmers’ Rights Act, 2001, TRIPS increased pressure to move toward a patent regime for plant varieties, biotech inputs and gene sequences. This raised seed and input costs, as in the Monsanto–Mahyco Bt cotton dispute, where royalty litigation and high seed prices squeezed small farmers. The tension between farmer’s privilege and breeder’s rights became central: farmers’ rights to save, exchange and use seeds are limited by exclusive breeder rights, weakening traditional seed networks. TRIPS also intensified bio-piracy concerns, seen in the turmeric, neem and basmati patent controversies, where foreign firms sought protection for traditional knowledge. The Article 27.3(b) debate over excluding plants, animals and essentially biological processes from patentability remains unresolved, leaving Indian agriculture exposed to IP claims while limiting public-interest exceptions.

(c) NEP and employment structure 
The New Economic Policy of 1991 altered employment by shifting growth from state-led, organised manufacturing to market-led services and informal activity. Organised-sector employment declined relative to the total workforce, while informalisation and casualisation rose. NSSO and PLFS data show that informal employment now exceeds 90 per cent of the workforce; PLFS 2017–18 records casual workers at about 39 per cent, indicating precarious employment. Growth in the 1990s–2000s was often jobless: NSSO estimates show a low employment elasticity with respect to GDP growth, and the sectoral shift moved labour from agriculture to services, bypassing manufacturing. In agriculture, feminization increased as male outmigration left women with a larger share of farm work, often without commensurate wages or social security. The trickle-down assumption that liberalization would create formal jobs is therefore not supported; instead, employment became more flexible, low-paid and unregulated. This weakens bargaining power, limits social protection and makes households more vulnerable to shocks.

Conclusion 
The integrated lesson is sequencing: CAC requires macro and financial preconditions, TRIPS compliance needs stronger farmers’ rights and anti-bio-piracy safeguards, and NEP-style growth must be paired with manufacturing, social security and formalization to convert employment into stable livelihoods, without which reforms risk deepening inequality.

(a) Define capital account convertibility. Examine Tarapore Committee (I and II) recommendations on capital account…

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