(a) What are the causes of industrial backwardness in India? Critically evaluate the role of the New Industrial Policy, announced in July 1991, towards correcting such backwardness. (20 marks)

(b) Examine the implications for India due to agreements

Question

(a) What are the causes of industrial backwardness in India? Critically evaluate the role of the New Industrial Policy, announced in July 1991, towards correcting such backwardness. (20 marks)

(b) Examine the implications for India due to agreements on agriculture that are signed under the World Trade Organisation (WTO) in 1995. (15 marks)

(c) Why is a National Employment Policy necessary for India? What are the initiatives taken by the Government to facilitate employment generation? Explain. (15 marks)

UPSC Answer Check · Accepted Answer

India’s developmental trajectory reflects an incomplete structural transformation, where industrial, agricultural trade, and employment policies have often operated in silos, hindering equitable growth.

Industrial Backwardness and Critical Evaluation of NIP 1991

Industrial backwardness in pre-1991 India was rooted in the colonial legacy of deindustrialization, low gross domestic capital formation, chronic technology gaps, and acute logistical deficits. This was aggravated by regulatory failures under the License-Permit Raj, output curbs under the Monopolies and Restrictive Trade Practices (MRTP) Act 1969, rigid foreign exchange controls under FERA 1973, extensive Small Scale Industry (SSI) reservations that prevented economies of scale, and severe technical skill shortages.

The New Industrial Policy (NIP) of July 1991 sought to dismantle these constraints by abolishing industrial licensing for most sectors, removing MRTP asset thresholds, liberalizing Foreign Direct Investment (FDI) via automatic routes, diluting FERA into FEMA, and shrinking the public sector's reserved domain through disinvestment.

Critical Evaluation and Verdict: NIP 1991 successfully dismantled state-enforced entry barriers, curbed rent-seeking, enhanced industrial efficiency, and spurred globally competitive capital- and knowledge-intensive sectors like automobiles and pharmaceuticals. However, on the metric of structural transformation, the policy fell short. Manufacturing’s share of GDP has remained virtually stagnant at 15–17%, producing a trajectory of "jobless growth". By liberalizing product markets while leaving factor markets (land, labour) unreformed and physical infrastructure deficient, NIP 1991 exposed domestic MSMEs to premature global competition without fostering the mass labour-intensive manufacturing base necessary to absorb rural surplus labour.

Implications of the WTO Agreement on Agriculture (1995)

The WTO Agreement on Agriculture (AoA) introduced rules across three core pillars: market access (tariffication of non-tariff barriers), domestic support reduction (disciplining Aggregate Measurement of Support or AMS), and the phase-out of export subsidies (formalized at the Nairobi Ministerial, 2015).

For India, the implications are two-fold:
Market Access and Vulnerability: Tariffication allowed India to expand exports in commodities like rice and marine products. However, high non-tariff barriers (sanitary and phytosanitary measures) in developed markets, combined with heavily subsidized Western farm imports under Green Box exemptions, continually threaten domestic smallholders.
Domestic Policy Constraints: India’s Minimum Support Price (MSP) and Public Distribution System (PDS) operations face constraints under the 10% de minimis product-specific AMS ceiling, which relies on an outdated 1986–88 external reference price that ignores inflation. Although the Bali Ministerial (2013) secured an interim "Peace Clause" protecting India's public stockholding for food security from legal challenges, a permanent negotiated solution remains unresolved.

Rationale for a National Employment Policy and Government Initiatives

A National Employment Policy (NEP) is essential to harness India’s fleeting demographic window, address the structural stagnation where over 45% of the workforce remains in low-productivity agriculture, formalize the overwhelming 85%+ informal sector, mitigate technology- and AI-led labour displacement, and institutionalize international labour standards (ILO Convention C122).

To generate employment, the Government has implemented key multi-pronged interventions:
Rural Safety Net: MGNREGA provides guaranteed wage employment, mitigating seasonal distress.
Skill Development: Skill India, anchored by the National Skills Qualifications Framework (NSQF), aims to bridge the industry-academia skill mismatch.
Manufacturing and Enterprise: Make in India, Startup India, PM MUDRA Yojana, and Production Linked Incentive (PLI) schemes across 14 key sectors incentivize labour-absorbing domestic manufacturing.
Labour Reforms and Social Security: Rationalization of 29 central labour laws into four Labour Codes to improve ease of doing business while extending statutory minimum wages, and the e-Shram portal to provide targeted social security architecture for unorganized and gig economy workers.

Conclusion

A fragmented approach cannot resolve India's economic challenges. Overcoming structural backwardness requires an integrated strategy where trade policy safeguards agricultural livelihoods, industrial policy targets labour-intensive manufacturing, and a dedicated National Employment Policy transforms demographic potential into formal, high-productivity jobs.

(a) What are the causes of industrial backwardness in India? Critically evaluate the role of the New Industrial Policy, announced…

Model answer

What "Critically evaluate" is asking you to do

Structure that answers it

Where marks are lost

How this answer will be evaluated

Approach

Key points expected

Evaluation rubric

Must cover

Loses marks

Earns more

Extra mark

Must cover

Loses marks

Earns more

Extra mark

Must cover

Loses marks

Earns more

Extra mark

Practice this exact question

More from Economics 2025 Paper II