UPSC Economics 2026 — Paper II

(a) Two directives: (i) 'critically examine' the drain theory of Dadabhai Naoroji, i.e. state its content and components and then weigh the criticisms against it; (ii) explain how the theory located the root cause of Indian poverty in the colonial relationship itself. Both halves must be answered in about 150 words. (b) 'Elucidate' the given statement - explain and substantiate why commercialisation of agriculture in British India was a coerced rather than a voluntary/natural process, using indigo and other cash crops as the illustrative evidence. The indigo reference is compulsory. (c) 'Assess the efficacy' - deliver a reasoned verdict, with evidence, on how well post-Independence land tenurial reforms achieved one specific objective: the abolition of intermediaries (zamindari, jagirdari, inamdari, mahalwari tenures). The answer must be confined to intermediary abolition, not to ceilings or tenancy reform except by way of comparison. (d) 'Give your views' on a two-part proposition - that the Green Revolution delivered food security and that it simultaneously widened regional disparities. The answer must substantiate both halves with evidence and end in a clear personal judgement. (e) Two sub-parts: (i) set out the different methods of measuring poverty in India - the successive official expert-group methodologies and the non-monetary/multidimensional alternatives; (ii) choose one as most appropriate and defend the choice with reasons. The second part is compulsory and must be argued, not merely asserted.

• Dadabhai Naoroji, Poverty and Un-British Rule in India (1901)
• Home Charges
• unrequited exports / export surplus as the form of the drain
• guaranteed interest on railway capital
• Naoroji's per capita income estimate of about Rs 20 per annum
• Theodore Morison / official rebuttal that the transfers were payments for services and returns on capital
• Permanent Settlement, 1793 and cash land revenue as the structural compulsion
• dadni (system of advances) and the indigo contract
• tinkathia system in Champaran (indigo on 3 kathas of every bigha)
• Indigo Revolt / Blue Mutiny, 1859-60; Indigo Commission, 1860
• Deccan cotton boom (1861-65), crash and Deccan Riots, 1875
• recurrent famines of 1876-78, 1896-97 and 1899-1900
• Madras Estates (Abolition and Conversion into Ryotwari) Act, 1948 as the first such law
• UP Zamindari Abolition and Land Reforms Act, 1950
• Constitution (First Amendment) Act, 1951 - Articles 31A, 31B, Ninth Schedule
• about 2 crore (20 million) tenants brought into direct relation with the State
• resumption for 'personal cultivation' (sir/khudkasht) as the principal loophole
• Committee on State Agrarian Relations and the Unfinished Task in Land Reforms, 2009
• New Agricultural Strategy 1965-66; High Yielding Varieties Programme 1966-67
• Norman Borlaug; M. S. Swaminathan; C. Subramaniam
• foodgrain output 50.8 mt (1950-51) to 108.4 mt (1970-71), about 358 mt in 2024-25
• PL-480 imports and the end of ship-to-mouth existence
• Punjab, Haryana, western Uttar Pradesh versus eastern India and the rainfed Deccan
• scale-neutral but not resource-neutral (C. H. Hanumantha Rao)
• Bringing Green Revolution to Eastern India, 2010-11
• Task Force under Y. K. Alagh, 1979; 2400 kcal rural and 2100 kcal urban norms
• Lakdawala Expert Group, 1993; State-specific lines; CPI-AL and CPI-IW updating
• Tendulkar Committee, 2009; 21.9 per cent for 2011-12
• Rangarajan Committee, 2014; 29.5 per cent for 2011-12 (not formally accepted)
• Alkire-Foster methodology; NITI Aayog National MPI (3 dimensions, 12 indicators)
• a reasoned choice of the most appropriate method

(a) Three linked tasks: (i) evaluate the overall success of post-Independence land reforms component by component; (ii) explain the inter-State variation - why success was limited in some States and absent in others; (iii) connect land reforms to the wider transformation of Indian agriculture. All three must be addressed in about 300 words. (b) Two tasks: (i) analyse the relationship between the Green Revolution and capital formation in Indian agriculture, distinguishing public from private investment and their sequencing; (ii) answer directly whether this strategy-led growth trickled down to small and marginal farmers, arguing both sides before concluding. (c) 'Compare and contrast' requires both similarities and differences: set out the economic thought of D. R. Gadgil and of V. K. R. V. Rao on Indian economic planning and on development strategy, show where they converged, and then sharpen where they diverged. A one-sided biography of either economist does not answer the question.

• the four components: intermediary abolition, tenancy reform, ceilings on holdings, consolidation and land records
• Madras Estates Abolition Act 1948; UP Zamindari Abolition and Land Reforms Act 1950
• Kerala Land Reforms Act 1963 and the 1969 amendment (in force 1 January 1970); Operation Barga, West Bengal, from 1978
• land as a State subject - Entry 18 of the State List
• resumption for 'personal cultivation' and benami transfers as the principal loopholes
• link to private capital formation, institutional credit and the Green Revolution; Amit Bhaduri's semi-feudalism (1973)
• unfinished agenda: about 86 per cent small and marginal holdings (average about 1.08 ha); Model Agricultural Land Leasing Act, 2016
• gross capital formation in agriculture; private tubewells, pumpsets, tractors as the induced investment
• public investment in irrigation, rural electrification, ICAR and State agricultural universities
• crowding-in followed by the post-mid-1980s decline in public investment; the subsidy-investment trade-off
• bank nationalisation 1969; RRBs (1975); NABARD (1982)
• scale-neutral but not resource-neutral (C. H. Hanumantha Rao)
• inverse farm-size-productivity relationship (G. S. Bhalla and G. K. Chadha)
• explicit verdict: partial and conditional trickle-down
• D. R. Gadgil - Gokhale Institute; Deputy Chairman, Planning Commission, 1967-71
• Gadgil Formula, 1969, for Central plan assistance to States
• Gadgil on cooperatives and decentralised / area planning
• V. K. R. V. Rao - Delhi School of Economics, Institute of Economic Growth, Institute for Social and Economic Change
• Rao's critique of the Keynesian multiplier in an underdeveloped economy: disguised unemployment, inelastic wage-goods supply, non-monetised sector
• shared ground: both on the National Income Committee (1949), both backing planning and the mixed economy

(a) Two directives: (i) 'trace the trajectory' - give a dated, phase-wise account of Indian industrial policy from the Nehru-Mahalanobis heavy-industry strategy of the Second Plan to the liberalisation of 1991 and after; (ii) explain specifically how the focus shifted with respect to the role of the State and the priority given to heavy industry. (b) Two linked tasks: (i) a detailed analysis of the trends in India's national income since 1947 - the growth phases, their rates and their turning points; (ii) a discussion of the structural change in the sectoral composition of GDP, including the contrast between the output shift and the employment shift. (c) Two tasks: (i) discuss how the doctrine of laissez-faire was applied in colonial India - in trade, tariff, industrial and famine policy; (ii) explain why the nationalist economists attacked that policy as an instrument of deindustrialisation. The Hindi rendering asks why they saw it as a tool against industrialisation, which is the same demand.

• Mahalanobis model logic: long-run growth depends on the share of investment in the capital-goods sector; Second Five Year Plan (1956-61)
• Industrial Policy Resolution, 1956 (Schedules A, B and C; 17 and 12 industries); Industries (Development and Regulation) Act, 1951
• Hazari Committee (1967) and Dutt Committee (1969); MRTP Act, 1969; FERA, 1973
• 1980s partial liberalisation: broad-banding of capacity; Arjun Sengupta Committee MoU system
• New Industrial Policy, 24 July 1991 - delicensing except 18 industries; public sector list cut from 17 to 8
• Competition Act, 2002; FEMA, 1999; New Public Sector Enterprise Policy, 2021 - four strategic sectors
• Make in India (2014); production-linked incentive schemes (from 2020); manufacturing share still around 15-17 per cent of GVA
• National Income Committee, 1949 (P. C. Mahalanobis, with D. R. Gadgil and V. K. R. V. Rao); NSO, MoSPI
• new series with base year 2022-23 (released February 2026, replacing 2011-12); GVA at basic prices
• 'Hindu rate of growth' (Raj Krishna) of about 3.5 per cent, 1950-51 to 1980-81
• acceleration in the 1980s; post-1991 growth; the 2003-04 to 2007-08 boom; the COVID-19 contraction of 2020-21 and the rebound
• agriculture's share falling from over half of national income in 1950-51 to under a fifth of GVA; services about half or more
• manufacturing stuck around 15-17 per cent of GVA - a services-led transition deviating from the Kuznets pattern
• agriculture still employing around 45 per cent of the workforce (PLFS); the Lewis surplus-labour model
• Charter Acts of 1813 and 1833
• abolition of cotton import duties in 1882; reimposition in 1894 with the countervailing cotton excise duty; excise abolished in 1926
• revenue tariff versus protective tariff
• R. C. Dutt, The Economic History of India (1901, 1903); Dadabhai Naoroji
• M. G. Ranade, Essays on Indian Economics (1898); Friedrich List and the infant-industry argument
• Indian Fiscal Commission, 1921-22; discriminating protection from 1923; protection to steel (TISCO)
• the deindustrialisation debate: Morris D. Morris versus Amiya Kumar Bagchi - direction agreed, magnitude disputed

(a) 'Trace the evolution of the debate' - give a dated, argumentative account of how the relative roles of the public and the private sector in Indian industrial development were contested and settled at successive stages, from the pre-Independence plans and the Industrial Policy Resolutions of 1948 and 1956 through the statements of the 1970s and 1980s to the reforms of 1991. Both sides of the debate and their protagonists must appear. (b) Two sub-parts, both compulsory: (i) discuss why small-scale and cottage industries mattered in India between 1947 and 1991 - their ideological rationale, their economic functions and the policy support they received; (ii) specify the role played by the Indian States, as distinct from the Centre, in facilitating these industries in that period. (c) Two directives: (i) 'discuss' the proposition that railways were the forerunner of modern industry in India, setting out the linkages through which they could have industrialised the economy; (ii) 'critically analyse' the railways' actual role in India's economic development, weighing the gains against the ways in which the linkages were diverted abroad.

• Bombay Plan (1944) conceding a large state role; People's Plan and Gandhian Plan as alternatives
• Industrial Policy Resolution, 1948 (four categories) and IPR 1956 - Schedule A (17), Schedule B (12), Schedule C; 'commanding heights'
• Industries (Development and Regulation) Act, 1951 and licensing
• liberal critique: B. R. Shenoy; Forum of Free Enterprise (A. D. Shroff); Swatantra Party (Rajagopalachari) and the 'licence-permit-quota raj'
• Hazari (1967) and Dutt (1969) Committees; MRTP Act, 1969; bank nationalisation, 19 July 1969; FERA, 1973
• 1977 and 1980 statements and 1980s partial liberalisation; Arjun Sengupta Committee (1984) MoU system
• New Industrial Policy, 24 July 1991 - delicensing except 18 industries, public sector list cut from 17 to 8, FDI opening, disinvestment
• Karve Committee (Village and Small Scale Industries Committee, 1955)
• Second Five Year Plan pairing heavy industry with small and cottage industry; employment and dispersal rationale
• Small Scale Industries Board (1954), SIDO (1954), NSIC (1955), KVIC (1956)
• reservation of items for the small-scale sector from 1967; the 'tiny' sector in the 1977 statement
• State role: State Financial Corporations (SFC Act, 1951), State Small Industries Development Corporations, industrial estates
• District Industries Centres (from 1978, after the 1977 statement), run by the States
• 'dwarf' problem - the growth disincentive of threshold-linked concessions
• railways as 'forerunner of modern industry' (Karl Marx, 1853)
• Bombay-Thane line, 16 April 1853; Dalhousie's Railway Minute, 1853
• guarantee system - 5 per cent guaranteed return on British railway capital, deficits met from Indian revenues
• stores purchase in England; imported locomotives, rails and rolling stock
• backward linkages: coal (Raniganj, Jharia), TISCO (1907), railway workshops such as Jamalpur (1862)
• port-oriented discriminatory freight-rate structure
• balanced verdict: Daniel Thorner (Investment in Empire, 1950) versus Dave Donaldson (Railroads of the Raj)

(a) Analyse two specific outcomes of the TRIPS Agreement for the Indian pharmaceutical sector - the pricing of generic drugs and their availability. The answer must connect India's TRIPS-compliant patent regime to what happened to generic prices and supply, not merely describe TRIPS. (b) Two sub-parts: (i) distinguish current account convertibility from capital account convertibility, defining both precisely; (ii) explain why India has been cautious about moving to full capital account convertibility. Both must be answered within about 150 words. (c) Two sub-parts: (i) explain the core objectives of the Fiscal Responsibility and Budget Management Act, 2003 as stated in the Act itself; (ii) deliver a reasoned verdict on whether it has succeeded, supported by the record of compliance, suspension and amendment. (d) Explain the evolution of the RBI's role as monetary authority - from a development central bank using monetary policy for stabilisation and plan financing, through monetary targeting and the multiple indicator approach, to statutory flexible inflation targeting - and identify what actually changed institutionally. (e) 'How far' requires a graded verdict: state what DBT was meant to achieve, assess the evidence that it has achieved those objectives, set out where it has fallen short, and conclude with a qualified judgement rather than a yes or no.

• TRIPS in force 1 January 1995; India's product-patent regime from 1 January 2005 (Patents (Amendment) Acts 1999, 2002, 2005)
• Patents Act, 1970 process-patent regime as the pre-TRIPS base
• Section 3(d) and Novartis AG v. Union of India (2013)
• Section 84 compulsory licence; Natco Pharma v. Bayer (2012), sorafenib
• Doha Declaration on the TRIPS Agreement and Public Health (2001)
• Drugs (Prices Control) Order, 2013 / NPPA; India as the largest supplier of generics by volume
• current account transactions - goods, services, primary and secondary income
• capital account transactions - FDI, portfolio investment, ECB, deposits, loans, immovable property
• FEMA, 1999 - current account free unless restricted; capital account only as specified
• IMF Article VIII obligations accepted in August 1994
• Tarapore Committees (1997, 2006) and their preconditions
• impossible trinity; sudden-stop episodes (1991, 1997-98, 2013)
• FRBM Act, 2003; FRBM Rules, 2004
• objectives: inter-generational equity, macroeconomic stability, removing fiscal impediments to monetary policy, transparency
• elimination of the revenue deficit and a 3 per cent fiscal deficit target by 31 March 2008
• ban on RBI primary subscription from 1 April 2006 - end of automatic monetisation
• suspension in 2008-10; off-budget borrowing as circumvention
• N. K. Singh Committee (2017) debt anchor; 2018 amendment
• explicit, differentiated verdict on success
• ad hoc Treasury Bills and automatic monetisation, ended 1 April 1997
• Chakravarty Committee, 1985 - monetary targeting
• multiple indicator approach, 1998
• Urjit Patel Committee (2014); Monetary Policy Framework Agreement (2015); Finance Act, 2016
• 4 per cent CPI target with a 2-6 per cent band (retained for 2026-31)
• six-member MPC; Governor's casting vote; flexible targeting with growth in the preamble
• DBT launched 1 January 2013
• JAM trinity - Jan Dhan, Aadhaar, mobile
• PAHAL for LPG, nationwide from 1 January 2015; PM-KISAN (February 2019)
• de-duplication and reported savings
• exclusion errors from biometric and Aadhaar-seeding failure and last-mile banking
• savings are not the same as leakage plugged; graded verdict

(a) 'Critically examine' the effect of the New Economic Policy of 1991 on the Indian corporate sector, and then discuss three named consequences separately: privatisation, the surge in foreign direct investment, and the impact on domestic industry of the entry of multinational corporations. All three must be covered and the treatment must weigh gains against costs. (b) 'Examine the implications' of the WTO agreements for Indian agriculture under three specified heads - food security, subsidies and market access. The Agreement on Agriculture must be the analytical frame, and each of the three heads must be addressed with the relevant provisions and India's negotiating position. (c) Two linked tasks: (i) elaborate on indicative planning in India - what it means, how and when India adopted it, and what its objectives are; (ii) explain the role NITI Aayog plays within this new framework. Both must be covered in about 250 words.

• New Industrial Policy, 24 July 1991; delicensing except 18 industries; removal of MRTP pre-entry scrutiny
• abolition of the Controller of Capital Issues (1992); SEBI Act, 1992
• disinvestment versus privatisation: minority stake sales from 1991-92; strategic sales 1999-2004 (BALCO, VSNL, Hindustan Zinc, Maruti, Modern Foods)
• Air India to the Tata group (January 2022); New Public Sector Enterprise Policy, 2021
• 51 per cent automatic FDI approval in 34 industries (1991), later 100 per cent in most sectors; FEMA, 1999
• MNC entry: consumer gains versus the Bombay Club's 'level playing field' (1993); differentiated outcome
• critical balance: twin balance sheet problem and IBC, 2016; weak employment growth; manufacturing stuck around 15-17 per cent of GVA
• Agreement on Agriculture (1 January 1995): market access, domestic support, export competition
• Amber, Blue and Green Boxes; AMS; 10 per cent de minimis for developing countries; Article 6.2
• MSP procurement counted as market price support against a fixed 1986-88 external reference price
• Bali Peace Clause (December 2013), made open-ended in November 2014; permanent solution on public stockholding pending
• removal of quantitative restrictions by April 2001; high bound versus low applied tariffs
• Nairobi decision (2015) eliminating export subsidies; SPS and TBT barriers to Indian exports
• G-33: special products and the special safeguard mechanism
• indicative versus imperative planning; French planification as the model
• Eighth Five Year Plan (1992-97) as India's first explicitly indicative plan
• objectives: strategic direction, coordination, targets as signals, an enabling environment
• Planning Commission (Cabinet Resolution, 15 March 1950) replaced by NITI Aayog (1 January 2015); Twelfth Plan (2012-17) the last
• NITI Aayog: Prime Minister as Chairperson, Governing Council of Chief Ministers; no fund allocation
• cooperative and competitive federalism; indices such as the SDG India Index; Aspirational Districts Programme (2018)

(a) Three tasks: (i) give a reasoned view on the proposition that development without employment generation is meaningless; (ii) critically analyse the phenomenon of jobless growth in post-reform India, testing the claim against evidence; (iii) discuss its impact on poverty and on social sector outcomes. All three must appear. (b) Two tasks: (i) discuss the structure of fiscal federalism in India - the constitutional assignment of taxes and expenditures and the transfer machinery; (ii) explain how successive Finance Commissions have addressed vertical imbalance (between the Union and the States as a whole) and horizontal imbalance (among the States). (c) Discuss two specific components of the post-1991 industrial strategy - deregulation and delicensing - and analyse their impact on industrial efficiency. The answer must define each component concretely and then assess efficiency in its allocative, technical and dynamic senses, with evidence.

• Amartya Sen's capability approach; UNDP Human Development Report 1996 on 'jobless growth'
• falling employment elasticity; near-zero employment growth between the NSS 61st (2004-05) and 66th (2009-10) rounds
• PLFS from 2017-18: 6.1 per cent unemployment in 2017-18, then falling unemployment and rising participation
• premature deindustrialisation; the 'missing middle' of dwarf firms; informality
• Tendulkar head count: about 45 per cent (1993-94) to 21.9 per cent (2011-12)
• social sector: public health about 2 per cent of GDP (NHP 2017 target 2.5); education about 3 per cent (6 per cent target, Kothari / NEP 2020)
• transfer-and-insurance response (MGNREGA, now VB-G RAM G; NFSA 2013; Ayushman Bharat; Code on Social Security) and the job-poor rather than jobless counterargument
• Seventh Schedule; Articles 268-270, 275, 280, 282, 293 and 279A
• GST Council (Article 279A): Union one-third, States two-thirds, three-fourths majority
• vertical imbalance and horizontal imbalance, each defined
• Eightieth Amendment: single divisible pool (Tenth Finance Commission)
• devolution share: 29.5 (Eleventh), 30.5 (Twelfth), 32 (Thirteenth), 42 (Fourteenth), 41 (Fifteenth); 41 retained by the Sixteenth for 2026-31
• horizontal criteria of the Fourteenth and Fifteenth Commissions (income distance, population, area, forest, demographic performance, tax effort)
• cesses and surcharges outside the divisible pool
• New Industrial Policy, 24 July 1991 - delicensing except 18 industries under the IDRA, 1951; public sector reserved list cut from 17 to 8
• removal of MRTP pre-entry scrutiny; Competition Act, 2002
• abolition of the Controller of Capital Issues (1992); de-reservation of small-scale items 1997-2015; removal of quantitative restrictions by 2001
• allocative, technical (X-efficiency, Leibenstein) and dynamic efficiency
• factor-market and exit constraints: IBC 2016; four labour codes (in force from 21 November 2025); the twin balance sheet problem
• manufacturing stuck around 15-17 per cent of GVA; the 'missing middle'

(a) Two tasks: (i) explain the intellectual property rights regime established under the WTO, i.e. the TRIPS Agreement - its scope, principles and minimum standards; (ii) discuss the specific implications of TRIPS and of GATS for India's trade policy and domestic regulations. Both agreements must be treated and the Indian implications must be concrete. (b) Three linked tasks: (i) analyse India's exchange rate regime since 1991; (ii) discuss the move towards a market-determined exchange rate and how it was sequenced; (iii) discuss how volatile capital flows have been managed under that regime. (c) Two tasks: (i) explain how decentralised planning can lead to inclusive growth in India, giving the mechanisms and the evidence; (ii) explain the role of the Seventy-third and Seventy-fourth Constitutional Amendments in creating the institutional basis for it. Both must be answered.

• TRIPS as Annex 1C of the Marrakesh Agreement (in force 1 January 1995): seven categories of intellectual property, minimum standards, national treatment and MFN, enforcement under Part III and dispute settlement; Article 27 (patents in all fields), Article 33 (20-year term), Article 27.3(b) (sui generis protection for plant varieties)
• Flexibilities: compulsory licensing (Articles 31 and 31bis) and the Doha Declaration on TRIPS and Public Health (2001)
• Indian implications of TRIPS: process to product patents (Patents Amendment Acts 1999, 2002, 2005; pharmaceuticals from 1 January 2005); Section 3(d); Section 84; Protection of Plant Varieties and Farmers' Rights Act 2001; Geographical Indications Act 1999; TKDL and Biological Diversity Act 2002; National IPR Policy 2016
• Resistance to TRIPS-plus demands (data exclusivity, patent linkage) and to the US Special 301 process; the India-South Africa waiver proposal of October 2020
• GATS: four modes of supply, positive-list scheduling, Articles XVI, XVII and VI; India's offensive interest in Modes 1 and 4 and defensive stance in Mode 3
• Administered rate under FERA (sterling peg, then a basket); two-step devaluation of 1 and 3 July 1991
• LERMS (March 1992, dual rate), unification (March 1993), IMF Article VIII acceptance (August 1994), FEMA 1999 replacing FERA
• Present regime a managed float: no target rate or band, intervention only against excessive volatility; NEER and REER as indicators
• Capital flow management: sterilisation through OMOs and the Market Stabilisation Scheme (2004), reserve accumulation, calibration of FPI debt limits, ECB framework and LRS
• Special windows - Resurgent India Bonds (1998), India Millennium Deposits (2000), FCNR(B) swap (2013) - and the impossible trinity
• 73rd Amendment (in force 24 April 1993): Part IX, Articles 243-243O, Eleventh Schedule with 29 subjects; 74th Amendment (in force 1 June 1993): Part IXA, Articles 243P-243ZG, Twelfth Schedule with 18 subjects
• Three-tier panchayats; reservation for SCs and STs and at least one-third for women; State Election Commission; State Finance Commission every five years; gram sabha; PESA 1996
• District Planning Committee under Article 243ZD (at least four-fifths elected members) and Metropolitan Planning Committee under Article 243ZE
• Kerala People's Plan Campaign (1996) and MGNREGA's gram sabha-based planning as evidence
• Articles 243G and 243W are enabling provisions, so the three Fs - functions, funds, functionaries - are incompletely devolved