Economics 2023 Paper II 50 marks 150 words Compulsory Examine

Q5

Answer the following questions in about 150 words each: (a) Distinguish between explicit and implicit subsidies. Explain the trends in explicit subsidies on irrigation and fertilizer in India during post-economic reform period. (10 marks) (b) Examine the salient features of the Action Plan for Disinvestment, 2009. (10 marks) (c) What do you mean by horizontal fiscal disequilibrium in a federal setup and how did the XIIth Finance Commission correct such imbalance in India? (10 marks) (d) Show how Liquidity Adjustment Facility (LAF) in India emerged as an effective monetary policy instrument to control market fluctuations in the short run. (10 marks) (e) Examine the effectiveness of universal basic income as an approach to poverty alleviation in India. (10 marks)

हिंदी में प्रश्न पढ़ें

निम्नलिखित में से प्रत्येक प्रश्न का उत्तर लगभग 150 शब्दों में लिखिए : (a) सुप्तक एवं अंतर्निहित अनुदानों में अंतर कीजिए। भारत में आर्थिक सुधारोत्तर की अवधि में, सिंचाई एवं उर्वरक से जुड़े सुप्तक अनुदानों में प्रवृत्तियों की व्याख्या कीजिए। (10 अंक) (b) विनिवेश कार्य योजना, 2009 की मुख्य विशेषताओं का परीक्षण कीजिए। (10 अंक) (c) संघीय ढांचे में क्षैतिज राजकोषीय असंतुलन से आप क्या समझते हैं और भारत में इस असंतुलन को बारहवें वित्त आयोग ने कैसे दूर किया? (10 अंक) (d) दर्शाइए कि किस तरह भारत में अल्प काल में बाजार-उच्चावचनों को नियंत्रित करने हेतु तरलता समायोजन सुविधा (एल० ए० एफ०) एक प्रभावी मौद्रिक नीति के रूप में उभरी है। (10 अंक) (e) भारत में गरीबी निवारण के संदर्भ में, सार्वभौमिक बुनियादी आय की प्रभावशीलता का परीक्षण कीजिए। (10 अंक)

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Directive word: Examine

This question asks you to examine. 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 'examine' requires critical analysis with evidence across all five sub-parts. Allocate approximately 30 words (20% time) to each sub-part since marks are equal. Structure: brief definitional opening for (a), (c), (d); direct feature listing for (b); balanced argumentation for (e). Use post-1991 data for (a), specific Commission recommendations for (c), and RBI operational mechanisms for (d). Conclude each part with a one-line critical observation.

Key points expected

  • (a) Explicit vs implicit subsidy distinction with opportunity cost logic; post-reform trends showing declining fertilizer subsidy as % of GDP but rising absolute outlays, shift to nutrient-based subsidy (NBS) 2010, and irrigation subsidy linked to AIBP and Pradhan Mantri Krishi Sinchayee Yojana
  • (b) Action Plan 2009 features: higher disinvestment target (raising ₹25,000 crore annually), revival of PSU IPOs, creation of CPSE ETF, minority stake sale strategy, and use of proceeds for social sector schemes
  • (c) Horizontal fiscal disequilibrium definition (unequal fiscal capacity across states despite similar responsibilities); XII FC corrections: higher tax devolution (30% to 32%), grants for local bodies, and equalization through sector-specific grants
  • (d) LAF mechanism through repo and reverse repo rates; emergence post-1998 Narasimham II and 2004 liquidity crisis; effectiveness in overnight rate corridor management and sterilization of capital flows
  • (e) UBI effectiveness debate: JAM trinity feasibility, Sikkim/Telangana pilots, replacement of 950+ subsidies vs. exclusion errors, fiscal cost (~4.9% GDP), and political economy constraints

Evaluation rubric

DimensionWeightMax marksExcellentAveragePoor
Concept correctness25%12.5Precise definitions: explicit/implicit subsidy distinction captures budgetary vs. opportunity cost dimensions; horizontal fiscal disequilibrium correctly contrasted with vertical imbalance; LAF distinguished from MSF and OMO; UBI differentiated from targeted transfersBasic definitions present but conflates horizontal with vertical imbalance or treats LAF as synonymous with repo rate alone; misses implicit subsidy's opportunity cost aspectFundamental errors: confuses disinvestment with privatization, treats LAF as fiscal policy instrument, or defines horizontal disequilibrium as inter-temporal borrowing
Diagram / model10%5LAF corridor diagram showing repo-reverse repo band with overnight call money rate movement; or subsidy incidence diagram showing deadweight loss; or fiscal federalism flow chart for (c)Verbal description of corridor mechanism without graphical representation; or diagram present but mislabeled axesNo diagram where applicable (especially for LAF corridor); or irrelevant diagram such as AD-AS for monetary policy
Quantitative reasoning20%10Specific data points: fertilizer subsidy decline from 2% GDP (1990s) to ~0.7% (recent); XII FC award of ₹20,777 crore grants; LAF daily operations in ₹ lakh crore range; UBI cost estimates of 4-5% GDP; disinvestment target ₹25,000 crore (2009)Vague references to 'declining trend' or 'substantial cost' without specific figures; mentions NBS 2010 without percentage shiftsNo quantitative data; or invented statistics; or grossly incorrect magnitudes (e.g., UBI at 0.5% GDP)
Indian / empirical examples25%12.5Specific schemes: NBS 2010, PM-KISAN as partial UBI substitute, CPSE ETF launch 2014, Sikkim UBI pilot, XII FC's road/bridge grants to backward states, RBI's 2013 FCNR-B swap sterilization via LAFGeneric references to 'green revolution subsidies' or '1991 reforms' without scheme specificity; mentions Finance Commission without award specificsNo Indian examples; or irrelevant international comparisons dominating; confuses XIII FC with XII FC recommendations
Policy implication20%10Critical evaluation: subsidy reform trade-offs (food security vs. fiscal consolidation), disinvestment's strategic sector retention, LAF's limitation during structural liquidity deficits, UBI's political viability vs. JAM readiness, and horizontal equalization's incentive effects on state tax effortDescriptive policy listing without trade-off analysis; or purely normative conclusions without evidenceNo policy implications drawn; or contradictory recommendations (e.g., expand subsidies while advocating fiscal consolidation without reconciliation)

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