(a) Examine the alternative model of planning given by C. N. Vakil. (10 marks) (b) Is service-led growth in India sustainable ?…

(a) Alternative Model of Planning by C. N. Vakil

C. N. Vakil and P. R. Brahmananda, in 'Planning for an Expanding Economy' (1956), proposed the 'Wage-Goods Model' as an alternative to the heavy-industry-focused Mahalanobis strategy during the Second Five-Year Plan. They identified the principal growth bottleneck not as a deficiency of machines or heavy capital goods, but as a critical shortage of wage-goods—basic consumption essentials such as foodgrains, cloth, and edible oils.

Vakil argued that India possessed vast surplus labour with zero marginal productivity in agriculture. Mobilizing this disguised unemployment for capital creation required an adequate supply of wage-goods to prevent inflationary pressures, operating through the 'wage-goods multiplier'. Since the poor have a high marginal propensity to consume basic necessities and negligible demand for heavy industrial output, prioritizing capital goods restricted employment expansion. The subsequent food shortages of the 1960s, inflationary spikes, and reliance on PL-480 imports vindicated Vakil’s thesis that agricultural development and wage-goods production must precede heavy industrialization.

(b) Sustainability of Service-Led Growth in India

India's post-1991 growth has been uniquely driven by the services sector, led by high-productivity IT-BPM exports (e.g., TCS, Infosys) and financial services, which contribute over 53% to Gross Value Added (GVA). It has real strengths: services exports (IT, business services and a fast-growing base of Global Capability Centres) earn a large and stable surplus that offsets the merchandise trade deficit, are less import-intensive, and use India's skilled workforce and digital infrastructure. However, the long-term sustainability of this model remains precarious.

High-end modern services are skill-intensive and exhibit low employment elasticity, fostering 'jobless growth' that fails to productively absorb the 45% of the workforce still engaged in low-productivity agriculture. Unlike the East Asian model, which transitioned surplus agrarian labour into low-skilled, export-oriented manufacturing, India skipped this intermediate phase. This pattern aligns with Dani Rodrik’s concept of 'premature deindustrialization', generating deep economic dualism between an enclave of organized service professionals and a massive informal sector. Service-led growth cannot be inclusive or structurally sustainable unless complemented by labour-intensive manufacturing and substantial human capital investments in lower-tier services.

(c) Implications of Depreciating Rupee on the Indian Economy

A depreciating Rupee produces divergent macroeconomic effects across external and domestic sectors. On the positive side, it enhances the price competitiveness of merchandise exports, improves the profit margins of export-oriented software and pharmaceutical firms, and inflates the domestic purchasing value of inward remittances, where India leads globally.

Conversely, the negative implications dominate India's import-dependent structure. Because the country imports over 80% of its crude oil alongside critical fertilizers and electronics, depreciation fuels imported inflation, widening the Current Account Deficit (CAD) and fiscal subsidy burdens. It also inflates the Rupee cost of external debt servicing for corporations holding unhedged External Commercial Borrowings (ECBs). As demonstrated during the 2013 'Taper Tantrum' and the 2022 global monetary tightening episode, the short-run J-curve effect exacerbates balance-of-payments pressures before any export gains materialize, requiring decisive foreign exchange management by the Reserve Bank of India.

(d) FDI in Multi-Brand Retail Sector in India

Foreign Direct Investment (FDI) in Multi-Brand Retail Trading (MBRT) involves balancing modern retail efficiencies against the livelihoods of traditional retailers. Proponents argue that global retail giants introduce modern supply-chain logistics, build farm-gate cold-storage infrastructure, reduce post-harvest agricultural wastage, eliminate intermediaries to improve farmer incomes, and generate formal retail employment.

Opponents highlight the risk of massive displacement of unorganized kirana stores, which lack the scale to withstand predatory pricing, deep discounting, and monopsonistic supply-chain control. Consequently, the 2012 policy permitted up to 51% FDI under the government approval route, subject to stringent riders: a minimum investment of USD 100 million, 50% of the first tranche in back-end infrastructure within three years, 30% sourcing from small industries, stores only in cities with over 10 lakh population, and implementation left to state-level discretion. In practice few global retailers entered (Tesco's joint venture with Tata was the main case), because of these conditions and political uncertainty. The 2018 clarifications on e-commerce foreign investment reinforced these firewalls against inventory-based models. A cautious approach remains essential to modernize supply chains without undermining unorganized retail livelihoods.

(e) Poverty as 'Capability Deprivation'

Amartya Sen reformulated the conceptualization of poverty by defining it as 'capability deprivation' rather than merely low income. In Sen's framework, income is only an instrumental means, whereas real poverty lies in the lack of substantive freedoms and capabilities to achieve basic 'functionings'—the states of being and doing that individuals have reason to value, such as being adequately nourished, educated, healthy, and socially integrated.

This approach critiques traditional unidimensional measures based on Engel's law or minimum caloric intake thresholds, such as those established by the Dandekar-Rath study, the Alagh task force, and the Lakdawala, Tendulkar and Rangarajan committees. Income thresholds overlook non-monetary deprivations, gender inequalities within households, and structural conversion handicaps (e.g., illness or physical disability). Sen's capability perspective underpins the UNDP Human Development Index and the Multidimensional Poverty Index (MPI) utilized by NITI Aayog, which estimates that the share of multidimensionally poor Indians fell from 29.17% in 2013-14 to 11.28% in 2022-23. Income poverty still matters, however, and the capability approach faces problems in choosing and weighting capabilities. Eliminating poverty requires universal public provisioning of quality healthcare, education, and social safety nets.