BLS LLB 5 Years Sem 1 Economics 2024-25 Question Paper with Solutions

Examples:

• Micro: how the price of onions in a Mumbai market is fixed; the output decision of a single textile mill; the wage of a particular worker.
• Macro: India's GDP growth rate; the national rate of unemployment; the general rate of inflation measured by the Consumer Price Index.

1. Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), 2005. It guarantees 100 days of unskilled wage employment in a financial year to every rural household whose adult members volunteer for it, and provides an unemployment allowance if work is not given within 15 days. It is a statutory right, not a discretionary scheme, which distinguishes it from everything before it. It attacks poverty twice over: by providing wage income directly, and by creating durable rural assets such as water conservation works and roads.

2. National Food Security Act, 2013. It gives a legal entitlement to subsidised food grain, 5 kg per person per month for priority households and 35 kg per household under the Antyodaya Anna Yojana, through the public distribution system, covering up to 75% of the rural and 50% of the urban population.

Other schemes worth naming: Pradhan Mantri Awas Yojana (housing), Pradhan Mantri Jan Dhan Yojana (financial inclusion), PM-KISAN (income support to farmers), Ayushman Bharat PM-JAY (health cover), Deendayal Antyodaya Yojana (rural and urban livelihoods) and PMEGP (self-employment).

The prosperity phase (also called expansion or boom) is the upswing of the trade cycle, in which the level of economic activity rises above the long-term trend.

Its features:

1. Output and employment rise, and resources approach full employment.
2. Income and demand rise, so consumption expands.
3. Prices and profits rise, since demand grows faster than supply can respond.
4. Investment increases, as firms expand capacity in an optimistic climate.
5. Bank credit expands and the money supply grows.
6. Business confidence is high and new firms enter.

It ends at the peak (boom), where resources are fully employed, costs and prices are at their highest and further expansion becomes impossible, after which the cycle turns into contraction.

Other functions worth naming: monitoring and evaluating the implementation of programmes; advising on national priorities; developing mechanisms for village-level plans to aggregate upwards; and paying special attention to sections of society at risk of not benefiting from economic progress.

Its visible outputs include the SDG India Index, the National Multidimensional Poverty Index, the Aspirational Districts Programme and the Atal Innovation Mission.

An adverse (deficit) balance of payments arises when a country's autonomous payments exceed its autonomous receipts, so the gap must be met by drawing on foreign exchange reserves or by official borrowing.

Two principal causes:

1. A high and rising import bill. For India this is dominated by crude petroleum, gold and electronic goods. Crude oil is the largest single item, and because demand for it is price-inelastic, a rise in world prices raises the import bill immediately with no corresponding fall in quantity.
2. Slow growth of exports. Exports may lag because of low competitiveness, inflation at home which makes Indian goods dear abroad, poor quality or infrastructure, or recession in importing countries which reduces their demand.

Other causes worth naming: heavy debt servicing, that is interest and repayment on external borrowings; volatile capital flows, since portfolio investment can leave at short notice; demonstration effect, where consumers demand imported goods; development imports of capital goods and technology; and structural changes in world demand.

Introduction

Law and economics are both concerned with the same underlying fact: resources are scarce, and rules are needed to decide who gets what. Economics explains how scarce resources are allocated; law creates and enforces the rights that make the allocation binding. A lawyer who does not understand the economics of a transaction cannot advise on it properly.

The points of significance

1. Economic legislation cannot be applied without economics. Whole statutes are built on economic concepts. The Competition Act, 2002 turns on "relevant market", "dominant position" and "appreciable adverse effect on competition"; the Insolvency and Bankruptcy Code, 2016 on solvency, going-concern value and liquidation value; the Consumer Protection Act, 2019 on unfair trade practice; the Income Tax Act on income, capital and expenditure. None of these can be argued without the economics behind them.

5. Corporate and commercial practice. Advising on mergers, valuations, transfer pricing, banking and securities requires an understanding of markets, cost and risk. A merger notification to the Competition Commission is an economic document as much as a legal one.

6. Public finance and taxation. Tax law rests on public finance: the distinction between direct and indirect taxes, incidence and impact, and the constitutional division of taxing powers under the Seventh Schedule.

7. Labour and welfare law. Minimum wages, bonus and social security legislation rest on theories of wage determination and on the economics of the labour market.

8. Environmental law. The polluter pays and precautionary principles, adopted by the Supreme Court of India, are economic ideas: they internalise a negative externality, making the producer bear a cost that would otherwise fall on society.

Conclusion

Economics gives the lawyer the reasoning behind the rule. Law supplies the sanction; economics explains the consequence. That is why economics is taught in the first semester of a five-year law course rather than as an optional extra.

The three-sector model

Adding government:

• Leakage: taxes paid by households and firms to the government.
• Injection: government expenditure on goods, services and transfer payments.

The four-sector model

Adding the foreign sector:

• Leakage: payments for imports.
• Injection: receipts from exports.

Leakages and injections

The economy is in equilibrium when S + T + M = I + G + X. When injections exceed leakages the flow expands, raising income and employment; when leakages exceed injections it contracts.

What BRICS is

BRICS is a plurilateral grouping of major emerging economies. The acronym BRIC was coined by the economist Jim O'Neill of Goldman Sachs in 2001; the countries began meeting formally in 2006, held their first summit in 2009, and South Africa joined in 2010, making it BRICS.

From 2024 the grouping expanded, and with Indonesia's entry on 6 January 2025 it has eleven members: Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, Saudi Arabia, the United Arab Emirates and Indonesia. India hosts the eighteenth summit at New Delhi in September 2026.

Its nature is distinctive: no charter, no secretariat, no binding decisions, and a chair that rotates annually. It is a consultative grouping, not a treaty organisation.

Objectives

1. Reform of global economic governance, to secure a greater voice for developing countries in the IMF, the World Bank and the UN Security Council.
2. Development finance without policy conditionality.

2. Development finance without conditionality: the New Development Bank has financed Indian metro rail, renewable energy, water and road projects.
3. External insurance, since the Contingent Reserve Arrangement stands behind India's own reserves.
4. Energy security, with Russia, Iran, Saudi Arabia and the UAE inside the same grouping as one of the world's largest crude importers.
5. Cooperation on climate finance, counter-terrorism, health and digital payments.

Limitations

Divergence between India and China, India's caution about proposals to move away from the US dollar, the absence of any binding mechanism, and the difficulty of agreement among eleven members with very different interests, keep BRICS a forum for coordination rather than a bloc with a single position.

Governing principles

1. Most Favoured Nation: a concession to one member extends to all.
2. National Treatment: imported goods treated no worse than domestic goods once inside the market.
3. Binding tariff commitments and their progressive reduction.
4. Transparency.
5. Special and differential treatment for developing countries.

Main agreements

GATT for goods, GATS for services, TRIPS for intellectual property, the Agreement on Agriculture, and the agreements on anti-dumping, subsidies and safeguards.

How the WTO helps India

1. Predictable market access through bound tariffs in every member market.
2. Dispute settlement, which lets a smaller economy compel a larger one to comply.
3. Services exports, underpinned by the GATS framework.

2. The commodity is likely to be a necessity, with few close substitutes, taking a small share of the buyer's income, and one whose consumption cannot easily be postponed. Salt, medicine, petrol and food grains behave this way.
3. Its demand curve is steep, closer to vertical than to horizontal.
4. Total revenue rises when the price rises. If 100 units sold at ₹100 gave revenue of ₹10,000, then 94 units at ₹110 give ₹10,340, so the seller gains from the increase.

(b) Calculation by the formula

Formula:

Ep = percentage change in quantity demanded ÷ percentage change in price

Substituting:

Ep = (−6%) ÷ (+10%)
Ep = −0.6

The minus sign only reflects the inverse relationship between price and quantity and is conventionally ignored, so:

(a) Three strategies adopted to increase agricultural productivity

1. The Green Revolution (from the mid-1960s). The central strategy, introduced under the New Agricultural Strategy of 1966 with the guidance of Dr M. S. Swaminathan and Dr Norman Borlaug. It rested on a package: high-yielding variety (HYV) seeds, chiefly of wheat and rice; chemical fertilisers; assured irrigation; pesticides; and mechanisation. It transformed India from a food-importing country dependent on PL-480 shipments into a self-sufficient and now exporting one.

(b) Are pesticides and chemical fertilisers harmful for human health?

Yes, in excess and when misused they are harmful, and the evidence is clear. My reasons:

1. Pesticide residues enter the food chain. Residues remain on grain, fruit and vegetables and are consumed directly. Long-term exposure is associated with serious illness, and pesticides are bioaccumulative, building up in the body over years rather than passing through.

2. Contamination of groundwater and soil. Nitrates from excessive urea leach into groundwater. Because a very large part of rural India drinks untreated groundwater, contamination reaches people who never handled the chemicals at all.

3. Direct exposure of farm workers. Those who mix and spray, often without protective equipment or training, suffer acute poisoning. This is the most immediate and most documented harm.

4. Loss of nutritional quality and soil health. Continuous chemical use degrades soil organic matter and micronutrients, which lowers the nutritional value of the crop itself.

(a) Legal provisions by which population growth can be controlled

1. Constitutional provisions

• Entry 20A of the Concurrent List, inserted by the 42nd Constitutional Amendment, 1976, expressly covers "population control and family planning", so both Parliament and the State legislatures may legislate on it.
• Article 47 directs the State to raise the level of nutrition and public health.
• Article 21 and Article 21A (right to education) support the measures that reduce fertility indirectly.

⚠️ An important caution: there is no central law compelling any citizen to limit family size, and coercive sterilisation during the Emergency (1975 to 1977) produced a lasting public backlash. India's approach is therefore based on incentive, education and voluntary choice, not compulsion, and an answer should say so.

(b) Two methods for appropriate use of the labour force created by increased population

1. Skill development and education, to convert the population into a demographic dividend. A large population is a liability when unskilled and an asset when trained. The demographic dividend is the growth advantage a country enjoys while its working-age share is high and its dependency ratio low. India's instruments are the Skill India Mission, the Pradhan Mantri Kaushal Vikas Yojana, industrial training institutes, and the vocational education promoted by the National Education Policy 2020. Training converts a job-seeker into an employable worker, and raises output per worker rather than merely adding workers.

(a) Did the New Industrial Policy 1991 cause industrial growth in India?

Yes, substantially, though not exclusively. The policy removed the constraints that had held industry back, but growth also depended on factors outside it.

What the New Industrial Policy, 1991 did:

1. Abolished industrial licensing for all industries except a short list reserved on strategic, security and environmental grounds, ending the "licence-permit raj" under which a firm needed government permission to start, expand or change its product.

4. Whole industries grew that had barely existed: information technology, telecommunications, automobile components and pharmaceuticals, in which India became a significant exporter.
5. Access to imported inputs at lower tariffs made Indian manufacturing competitive.

But the qualifications must be stated:

1. Growth has not created jobs in proportion. Manufacturing's share of GDP has remained close to 15 to 17% for decades, and industrial growth has been relatively capital-intensive, which is why "jobless growth" is the standard criticism.
2. Small-scale industry suffered from competition with large domestic firms and cheap imports for which it was unprepared.
3. Regional concentration: investment went to States that already had infrastructure, widening regional inequality.
4. Other factors contributed: a young workforce, a large domestic market, the information technology opportunity of the 1990s, and later demand from a growing middle class. The policy removed obstacles; it did not by itself create the industries.

Two further examples worth adding: the rise of services exports, chiefly software and business services, which grew from almost nothing in 1991 to India's largest single export category; and the change in the direction of trade, from the United Kingdom and the erstwhile USSR towards the United States, the UAE, China and the European Union, with growing trade with East and South East Asia under the Act East policy.

Introduction

A market in economics means not a place but the whole set of buyers and sellers of a commodity in contact with one another. Markets are classified by the number of sellers, the nature of the product, the conditions of entry and the degree of control over price. The three forms compared here are the principal ones.

The comparison

The three forms explained

1. Perfect competition is a theoretical benchmark rather than a description of any real market. Its conditions are a very large number of buyers and sellers, a homogeneous product, free entry and exit, perfect knowledge, perfect mobility of factors and no transport costs. Because the product is identical and buyers know everything, no seller can charge more than the ruling price without losing every customer, so each is a price taker facing a horizontal demand curve. In the long run free entry competes away any supernormal profit, and each firm produces at the minimum point of its average cost curve, which is why perfect competition is the standard of efficiency against which the others are judged.

3. Monopolistic competition, developed by Edward Chamberlin (The Theory of Monopolistic Competition, 1933) and independently by Joan Robinson, is the realistic middle case and describes most consumer goods markets. There are many sellers, but each sells a differentiated product, distinguished by brand, packaging, quality, or merely by advertising. Differentiation gives each firm a small monopoly over its own brand and therefore a downward-sloping demand curve and some control over price; free entry means that in the long run only normal profit survives. Its defining feature is selling cost: heavy expenditure on advertisement, which does not exist in the other two forms.

The central comparison to draw

Perfect competition gives efficiency without variety: identical goods at the lowest possible cost. Monopoly gives neither: restricted output at a high price. Monopolistic competition gives variety at a price: consumers get choice and product improvement, but each firm operates with excess capacity, producing less than the output at which its average cost would be lowest, and the cost of advertising is recovered in the price.

Introduction

India is a developing mixed economy: it has the size and growth rate of a major economy together with the structural weaknesses of a developing one. It is among the largest economies in the world by total GDP while remaining low in per capita terms, and that contrast runs through every feature below.

A. Features as a developing economy

1. Low per capita income. Total GDP is large, but divided by a population above 140 crore it leaves per capita income far below that of developed countries. This is the primary reason India is classified as developing.

2. Heavy dependence on agriculture. Agriculture contributes roughly 18% of Gross Value Added but supports about 45% of the workforce. That gap between the share of output and the share of employment is the defining structural distortion of the Indian economy and the direct cause of low labour productivity.

B. Features as a mixed economy

8. Coexistence of the public and private sectors. Both operate side by side. Since the New Industrial Policy 1991 the list of industries reserved for the public sector has shrunk almost to nothing, and disinvestment has reduced the State's commercial role further, most visibly in the sale of Air India in January 2022.

9. Economic planning alongside the market. Five Year Plans directed the economy from 1951 to 2017; NITI Aayog replaced the Planning Commission in 2015 and advises rather than allocates.

10. Regulation in the public interest, through sectoral regulators (SEBI, TRAI, RBI, the electricity commissions) and competition law under the Competition Act, 2002.

11. Constitutional direction. The Directive Principles, especially Articles 38, 39 and 43, direct the State towards distributive justice, and the Preamble commits India to a socialist as well as a democratic republic.

C. Features of the post-1991 economy

12. Liberalisation, privatisation and globalisation (LPG). Industrial licensing dismantled, tariffs cut, foreign investment welcomed, and the rupee made convertible on the current account in 1994.

Introduction and classification

MSMEs are enterprises classified under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. The classification became a composite criterion of investment in plant and machinery and annual turnover, with the distinction between manufacturing and service enterprises abolished, from 1 July 2020. The limits were raised again in the Union Budget 2025-26 with effect from 1 April 2025:

Their importance is not in dispute: MSMEs contribute roughly 30% of India's GDP, about 45% of its exports, and employ on the order of 11 crore people, second only to agriculture.

6. Shortage of skilled labour. They cannot match the wages, training or security offered by large firms, so trained workers leave.

7. Infrastructure: irregular power, poor roads, inadequate storage and costly premises.

8. Regulatory and compliance burden. Multiple registrations, inspections, labour law and tax compliance impose a fixed cost that a small firm bears disproportionately.

9. Competition from large domestic firms and from cheap imports, particularly from China, without a corresponding rise in their own competitiveness.

10. Informality. A large majority of units remain unregistered, and are therefore outside the reach of credit, schemes and protection alike.

11. Sickness and closure. A large number become sick, having borrowed against assets they then lose.

12. The COVID-19 shock. The pandemic and the lockdowns of 2020 hit MSMEs hardest, since they had the thinnest cash reserves, and many closed permanently.

The measures

1. Udyam Registration, a free online registration that formalises an enterprise and is the gateway to every other benefit.

9. PM Vishwakarma, launched in 2023, supporting traditional artisans and craftspeople with training, toolkits and credit.

10. Priority sector lending norms of the RBI, obliging banks to lend a stipulated share to the sector.

11. Technology and quality support through cluster development, testing centres and the Zero Defect Zero Effect certification.

Critical assessment

Three criticisms hold. First, credit guarantees address collateral, not the underlying reluctance to lend, and disbursement has consistently lagged sanction. Second, the delayed payments problem persists despite a clear statutory right, because the remedy requires the small supplier to litigate against a customer it cannot afford to lose. Third, every benefit flows to the registered minority, so the informal majority is untouched.

4. Certificates of deposit (introduced 1989): negotiable receipts issued by banks for funds deposited for a fixed period.
5. Commercial bills: bills of exchange drawn by a seller on a buyer, discountable before maturity.
6. Repurchase agreements (repo): sale of securities with an agreement to repurchase, the principal instrument of RBI liquidity management.

Features of the Indian money market

A. Traditional defects, which is what the question is usually testing:

1. Dichotomy between the organised and the unorganised sectors. The organised sector comprises the RBI, commercial banks and financial institutions; the unorganised sector comprises indigenous bankers, moneylenders, chit funds and nidhis, which lie outside RBI control. The two operate almost independently.
2. Absence of integration. Rates in one segment did not reflect rates in another, so funds did not flow freely between them.
3. Diversity of interest rates, arising from that lack of integration.

1. New instruments introduced: certificates of deposit (1989), commercial paper (1990), and 182-day and 364-day treasury bills, which widened the market beyond call money.
2. Deregulation of interest rates. The ceiling on the call money rate was removed in 1989, so rates are now market-determined.
3. Discount and Finance House of India (DFHI), 1988, established to develop a secondary market in money market instruments.
4. Liquidity Adjustment Facility (LAF), introduced 2000, through which the RBI injects liquidity via repo and absorbs it via reverse repo on a daily basis. This made the repo rate the policy rate.
5. Marginal Standing Facility (MSF), 2011, allowing banks to borrow overnight against their statutory liquidity holdings.
6. Clearing Corporation of India Limited (CCIL), 2001, which guarantees settlement and removed counterparty risk, and the Negotiated Dealing System for electronic trading.
7. Collateralised Borrowing and Lending Obligation (CBLO), later replaced by Triparty Repo (TREPS) in 2018, which became the largest segment of the overnight market.

Introduction

Public expenditure is spending by central, state and local governments to satisfy collective needs and promote economic and social welfare. Its most striking feature everywhere in the world is its continuous growth, both in absolute terms and as a proportion of national income. In India, public expenditure has grown enormously since 1947, in every category.

The two classic explanations

1. Wagner's Law of Increasing State Activity. The German economist Adolph Wagner (1883) observed that as an economy develops, the activities of the State expand more than proportionately to national income. His reasoning was that industrialisation and urbanisation create demands, for law and order, regulation, education and social services, that only the State can meet, and that these grow faster than income itself.

2. Urbanisation. Cities require water supply, sewerage, roads, transport, street lighting and policing on a scale that villages do not, and India's urban population has grown rapidly.

3. Defence expenditure. Modern defence is capital-intensive and technology-intensive, and India's security situation on two borders keeps defence among the largest items in the Union Budget.

4. The welfare State. The State has assumed responsibility for objectives it once left to individuals: food security under the National Food Security Act, 2013; employment under MGNREGA, 2005; health under Ayushman Bharat; housing under PMAY; income support under PM-KISAN. Each is a permanent recurring commitment.

5. Economic development and planning. A developing country's government must build the infrastructure private capital will not: irrigation, power, railways, ports, highways. Five Year Plans from 1951 institutionalised this, and capital expenditure on infrastructure has been the principal growth item in recent Union Budgets.

6. Subsidies. Food, fertiliser and petroleum subsidies are among the largest single items of revenue expenditure, and are politically extremely difficult to reduce.

13. International obligations: development assistance, contributions to international organisations, and diplomatic representation.

Effects, and the need for control

Growth of public expenditure raises employment, production and demand, and provides services the market will not. But financed by borrowing it produces a fiscal deficit and a growing debt, whose interest burden crowds out productive spending. This is why the Fiscal Responsibility and Budget Management Act, 2003 set targets for the deficit and the debt.

Conclusion

The growth of public expenditure is inevitable in a developing democracy: population, urbanisation, welfare obligations and past debt all push it upward, and Wagner's Law describes the tendency accurately. The question for policy is therefore not how to stop it but how to change its composition, shifting from revenue expenditure that finances current consumption to capital expenditure that creates assets and pays for itself.