Q8
(a) How do the current Finance Commission's recommendations align with the Government's Fiscal Consolidation goals? Elucidate. (20 marks) (b) Why was the public sector given a leading role in industrial development during the pre-liberalisation era? Explain. (15 marks) (c) Discuss the initiatives launched by the Reserve Bank of India (RBI) to promote financial inclusion. (15 marks)
हिंदी में प्रश्न पढ़ें
(a) वर्तमान वित्त आयोग की सिफारिशें सरकार के राजकोषीय समेकन लक्ष्यों के साथ किस प्रकार संरेखित हैं? स्पष्ट कीजिए। (20 अंक) (b) उदारीकरण-पूर्व अवधि के दौरान सार्वजनिक क्षेत्र को औद्योगिक विकास में अग्रणी भूमिका क्यों दी गई? स्पष्ट कीजिए। (15 अंक) (c) वित्तीय समावेशन को बढ़ावा देने के लिए भारतीय रिज़र्व बैंक (आर. बी. आई.) द्वारा शुरू की गई पहलों पर चर्चा कीजिए। (15 अंक)
Directive word: Elucidate
This question asks you to elucidate. 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 'elucidate' demands clear, detailed explanation with logical exposition. Structure: Introduction (2-3 lines) linking fiscal federalism to inclusive growth; Body—spend ~40% word budget on part (a) given 20 marks, covering 15th FC's tax devolution, revenue deficit grants, and performance-linked incentives aligning with FRBM targets; ~30% each on (b) and (c). For (b), explain the 'commanding heights' philosophy, Mahalanobis strategy, and market failure rationale; for (c), discuss RBI's institutional framework (BC model, SHG-bank linkage, PMJDY, digital payments). Conclude with integrated reflection on evolving state-market balance in Indian development.
Key points expected
- Part (a): 15th Finance Commission's vertical devolution (41%), revenue deficit grants to states, performance-based incentives for power sector and disaster management, and their alignment with Centre's fiscal deficit reduction targets
- Part (a): Tension between FC's mandate (cooperative federalism) and fiscal consolidation—conditionalities vs. unconditional transfers, and the 'escape clause' under FRBM
- Part (b): Pre-liberalisation rationale—Mahalanobis model's emphasis on capital goods, scarcity of private capital, need for import substitution, and strategic control over 'commanding heights' (II Five Year Plan)
- Part (b): Market failure arguments—externalities in heavy industry, coordination problems, income inequality concerns, and political economy of development planning
- Part (c): RBI's institutional initiatives—Business Correspondent model, SHG-bank linkage programme, licensing of payment banks and small finance banks, regulatory sandbox
- Part (c): Technology-driven inclusion—UPI, JAM trinity, PMJDY achievements (account penetration), differentiated bank licensing, and financial literacy initiatives
Evaluation rubric
| Dimension | Weight | Max marks | Excellent | Average | Poor |
|---|---|---|---|---|---|
| Concept correctness | 25% | 12.5 | Precise articulation of 15th FC's Article 280 mandate vs. fiscal consolidation; accurate distinction between plan/non-plan expenditure abolition; correct exposition of Mahalanobis strategy's capital-output ratio; precise RBI regulatory categories (PBs, SFBs, LABs) and their differentiated roles | Basic understanding of FC's devolution percentage and general fiscal deficit goals; vague reference to 'public sector dominance' without Mahalanobis linkage; generic mention of 'financial inclusion schemes' without RBI-specific institutional mechanisms | Confuses Finance Commission with Planning Commission; misstates 15th FC devolution percentage; conflates pre-liberalisation industrial policy with post-1991 reforms; describes PMJDY as RBI initiative rather than GoI scheme |
| Diagram / model | 15% | 7.5 | Mahalanobis two-sector model diagram showing optimal investment allocation between consumer and capital goods; or flow diagram of fiscal transfers showing vertical/horizontal devolution; or BC model institutional architecture showing last-mile connectivity | Simple tabular presentation of FC recommendations or timeline of RBI initiatives; textual description without graphical representation of resource flows | No diagrams where models clearly apply; irrelevant IS-LM or AD-AS diagrams not suited to structural/institutional questions |
| Quantitative reasoning | 20% | 10 | Specific data: 15th FC's 41% vertical devolution, revenue deficit grants of ₹1.18 lakh crore (2021-26); PMJDY accounts (50 crore+), deposit mobilisation; credit-deposit ratios in underbanked districts; BC network coverage statistics | Rounded figures for devolution percentage and approximate PMJDY account numbers; general reference to 'increased financial access' without metrics | No quantitative backing; invented statistics; confusion between 14th and 15th FC award percentages |
| Indian / empirical examples | 20% | 10 | State-specific illustrations: Kerala's performance on FC health indices; Odisha's disaster management; Gujarat's industrial PSUs (Gujarat State Fertilizers); regional disparities in BC penetration (Eastern vs. Southern states); success of Kerala's Kudumbashree in SHG-bank linkage | Generic reference to 'southern states' or 'eastern states' without specificity; standard examples like SAIL or BHEL for part (b); PMJDY as sole example for part (c) | No Indian empirical grounding; uses developed country examples inappropriately; anachronistic examples (post-1991 reforms cited for pre-liberalisation era) |
| Policy implication | 20% | 10 | Critical assessment: whether FC's performance-linked grants actually incentivise fiscal discipline; evaluation of RBI's regulatory forbearance vs. consumer protection in BC model; forward-looking analysis of GST compensation cess ending and its implications for state finances; recommendations for strengthening cooperative federalism | Descriptive conclusion restating recommendations; uncritical acceptance of stated policy objectives; generic suggestion to 'strengthen financial inclusion' | No evaluative dimension; purely narrative response; conclusion contradicts body arguments; irrelevant policy prescriptions outside question scope |
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