Economics 2022 Paper II 50 marks Discuss

Q6

(a) What is the objective of exchange rate management? Do you think that the present regime of exchange rate management has been satisfactory in terms of building adequate foreign exchange reserves in India? Discuss. (20 marks) (b) Highlight the main features of National Policy for Skill Development and Entrepreneurship 2015. (15 marks) (c) What is the main purpose of General Agreement on Trade in Services (GATS)? What are the services covered under it? State the modes under which the services are supplied. (15 marks)

हिंदी में प्रश्न पढ़ें

(a) विनिमय दर प्रबंधन का उद्देश्य क्या है ? आपके विचार में, क्या विनिमय दर प्रबंधन की वर्तमान व्यवस्था, भारत में पर्याप्त विदेशी विनिमय भंडार बनाये रखने में संतोषप्रद है ? विवेचना कीजिए । (20 अंक) (b) कौशल विकास और उद्यमिता पर राष्ट्रीय नीति 2015 की प्रमुख विशेषताओं को चिह्नांकित कीजिए । (15 अंक) (c) सेवा में व्यापार पर सामान्य समझौता (गैट्स) का प्रमुख उद्देश्य क्या है ? इसके अंतर्गत कौन सी सेवायें आच्छादित हैं ? उन तरीकों का उल्लेख कीजिए जिनके अंतर्गत सेवाओं की आपूर्ति की जाती है । (15 अंक)

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Directive word: Discuss

This question asks you to discuss. The directive word signals the depth of analysis expected, the structure of your answer, and the weight of evidence you must bring.

See our UPSC directive words guide for a full breakdown of how to respond to each command word.

How this answer will be evaluated

Approach

The directive 'discuss' in part (a) demands a balanced examination with critical evaluation, while parts (b) and (c) require 'highlight' and 'state' respectively—factual enumeration with clarity. Allocate approximately 40% of time and words to part (a) given its 20 marks, and roughly 30% each to parts (b) and (c). Structure: brief integrated introduction on external sector and human capital; for (a) discuss objectives, evaluate RBI's managed float regime since 1993 with forex adequacy metrics (import cover, IMF ARA metric); for (b) enumerate 2015 Policy pillars—institutional architecture, apprenticeship, entrepreneurship; for (c) define GATS purpose, list 12 sectors, explain four modes with Indian examples; conclude on synergy between exchange stability, skill competitiveness and services trade.

Key points expected

  • Part (a): Exchange rate management objectives—price stability, competitiveness, reserve adequacy, crisis prevention; evaluation of India's managed floating regime with specific metrics (forex reserves ~$600bn, import cover, short-term debt coverage, IMF Assessing Reserve Adequacy framework)
  • Part (a): Critical assessment of RBI's intervention patterns—LAF, forex swaps, accumulation costs (sterilization, quasi-fiscal costs), and whether reserves are 'adequate' given capital account vulnerability
  • Part (b): National Policy for Skill Development and Entrepreneurship 2015—National Skill Development Mission, Skill India, PMKVY, National Skill Qualification Framework, Sector Skill Councils, apprenticeship reforms, entrepreneurship support (Startup India linkage)
  • Part (c): GATS purpose—progressive liberalization of services trade, transparency, predictable rules; 12 service sectors covered (business, communication, construction, distribution, education, environment, financial, health, tourism, recreation, transport, other)
  • Part (c): Four modes of supply—cross-border (Mode 1), consumption abroad (Mode 2), commercial presence (Mode 3), presence of natural persons (Mode 4); Indian examples: IT exports (Mode 1), medical tourism (Mode 2), TCS offices abroad (Mode 3), software engineers on deputation (Mode 4)

Evaluation rubric

DimensionWeightMax marksExcellentAveragePoor
Concept correctness22%11Precise definitions: for (a) distinguishes between nominal, real and effective exchange rates, explains impossible trinity; for (b) correctly identifies 2015 Policy's 5-tier institutional structure; for (c) accurately describes GATS' top-down sectoral classification and distinguishes modes without conflationBasic definitions present but conflates managed float with dirty float, mixes up 2015 Policy with earlier 2009 framework, or confuses Mode 3 and Mode 4; minor conceptual errors in reserve adequacy metricsFundamental errors: describes fixed exchange rate as current regime, confuses Skill Policy with National Education Policy 2020, or describes GATT instead of GATS; incorrect mode definitions
Diagram / model14%7For (a): draws Mundell-Fleming model or exchange rate determination diagram showing RBI intervention shifting supply curve; for (c): schematic of four modes with clear flow arrows; labels axes and equilibrium points correctlyAttempts exchange rate diagram but mislabels axes or shows incorrect shift direction; or lists modes in table format without visual representation; diagrams present but not integrated into explanationNo diagrams where appropriate; or completely incorrect diagrams (e.g., AD-AS for exchange rates); illegible sketches without labels
Quantitative reasoning18%9For (a): cites specific data—forex reserves trajectory ($300bn in 2013 to $642bn peak 2021, current levels), import cover (10+ months), short-term debt coverage ratio, REER trends from RBI; calculates reserve adequacy using IMF ARA or Greenspan-Guidotti rule; for (c): mentions India's services trade share (~30% of exports)Mentions forex reserves are 'high' or 'adequate' without specific numbers; vague reference to $500bn+ without timeline; no calculation of adequacy metrics; round figures without source contextNo quantitative data; or wildly incorrect figures (e.g., forex reserves in trillions); confuses nominal and real exchange rate movements without data
Indian / empirical examples24%12Rich empirical grounding: for (a)—2013 taper tantrum, 2020 COVID forex surge, RBI's dollar-rupee swap operations; for (b)—specific schemes (PMKVY 2.0, SANKALP, STRIVE), Sector Skill Councils (IT-ITeS, healthcare); for (c)—TCS/Infosys Mode 3 presence, Apollo hospitals Mode 2 medical tourism, Mode 4 visa constraints, India's GATS commitments vs. offersGeneric mention of 'taper tantrum' or 'Skill India' without specifics; lists PMKVY but no details; mentions 'software exports' without company or mode specificity; examples correct but not tailored to question partsNo Indian examples; or irrelevant examples (e.g., Chinese forex management for India); factually wrong examples (e.g., GATS as bilateral agreement); purely theoretical answer
Policy implication22%11Critical forward-looking analysis: for (a)—costs of reserve accumulation (quasi-fiscal, opportunity cost), need for capital account management, exchange rate flexibility for monetary policy autonomy; for (b)—implementation gaps (low placement rates, quality issues), 2015 Policy's 2020 review; for (c)—India's defensive stance in GATS, Mode 4 liberalization demands, services trade as forex earner linking back to part (a)Standard policy points without critique—'reserves are good for stability' or 'skills are important for growth'; mentions implementation challenges but generically; no integration across partsNo policy implications; or purely descriptive without evaluation; contradictory policy recommendations (e.g., fixed rate and capital account convertibility); ignores 2015 Policy's actual implementation record

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