BLS LLB 5 Years Sem 1 Economics 2023-24 - ATKT 75/25 Question Paper with Solutions

The private sector is that part of the economy which is owned, controlled and managed by private individuals or private bodies, whether individuals, partnerships, companies or cooperatives, and which is operated primarily for profit.

Its features:

1. Private ownership of capital and assets.
2. Profit as the principal motive.
3. Decisions taken on commercial considerations, guided by the price mechanism.
4. The owner bears the risk and takes the reward.

Examples: Tata Steel, Reliance Industries, Infosys, HDFC Bank, and equally the small trader, the private clinic and the family-run workshop.

The Green Revolution is the substantial increase in agricultural production, particularly of food grains, achieved in India from the mid-1960s through the adoption of modern agricultural technology under the New Agricultural Strategy of 1966.

Its components (the "package"):

1. High-yielding variety (HYV) seeds, chiefly of wheat and rice.
2. Chemical fertilisers.
3. Assured irrigation.
4. Pesticides.
5. Mechanisation and improved implements.
6. Institutional credit and minimum support prices.

It is associated with Dr M. S. Swaminathan in India and Dr Norman Borlaug internationally, and was concentrated in Punjab, Haryana and western Uttar Pradesh.

Its result: India moved from importing food grains under the American PL-480 programme in the 1960s to self-sufficiency and now to exporting agricultural produce.

Normative economics is the branch of economics that deals with what ought to be. It expresses value judgments about what is desirable and prescribes policy, rather than merely describing what exists.

Its features:

1. It is prescriptive, not descriptive.
2. It rests on value judgments, ethical, political or social.
3. Its statements cannot be tested as true or false against evidence.
4. It is also called welfare economics or policy economics.

Examples: "The government should raise the minimum wage." "Income inequality in India is too high." "The poor ought to receive free healthcare."

The test: if a statement contains should, ought, must, good, bad, fair or unjust, it is normative.

Stock is the total quantity of a commodity available with the seller at a given point of time, whether or not it is offered for sale.

Supply is the quantity of a commodity that a seller is willing and able to offer for sale at a given price during a given period of time.

Stock is potential supply; supply is that part of the stock actually brought to market at a given price. Therefore Supply ≤ Stock.

Public expenditure is the spending incurred by central, state and local governments to satisfy collective needs and to promote economic and social welfare. It is one of the four divisions of public finance, along with public revenue, public debt and financial administration.

Its classification:

1. Revenue expenditure: recurring, and creating no asset. Salaries, pensions, interest payments, subsidies, maintenance.
2. Capital expenditure: creating a durable asset or reducing a liability. Roads, bridges, schools, defence equipment.

It is also classified as developmental (education, health, irrigation) and non-developmental (defence, administration, interest).

Meaning

Oligopoly is a market structure in which there are a few large sellers of a commodity, each large enough that its decisions affect the others and are affected by them. The word comes from the Greek oligos (few) and polein (to sell).

Where there are only two sellers it is called duopoly.

Features

1. A few sellers, and many buyers. The number is small enough that each firm knows its rivals individually. Together they supply the bulk of the market.

2. Interdependence in decision-making. This is the defining feature. No oligopolist can decide price or output without asking what its rivals will do in response. In every other market form a firm looks only at its own costs and its own demand; here it must anticipate reaction. This is why game theory is used to analyse oligopoly.

3. Barriers to entry. Large capital requirements, economies of scale, control of technology or raw materials, patents, brand loyalty and licensing keep new firms out, which is what allows the few to remain few.

7. Products may be homogeneous or differentiated. Pure oligopoly deals in identical products such as steel, cement and aluminium; differentiated oligopoly in branded products such as automobiles, telecommunications and soft drinks.

8. Indeterminate demand curve. Because a firm cannot know how rivals will react, it cannot know its own demand curve with certainty, which is why there is no single accepted theory of price determination under oligopoly.

Examples in India

Telecommunications, automobiles, cement, steel, aviation, paints and soft drinks.

5. To promote active collaboration in the economic, social, cultural, technical and scientific fields.
6. To cooperate with other international and regional organisations.

Structure

1. Summit of heads of state or government, the highest authority, meant to meet annually.
2. Council of Ministers, of foreign ministers.
3. Standing Committee of foreign secretaries.
4. Secretariat at Kathmandu, headed by a Secretary-General.

Two Charter rules govern its working: decisions are taken by unanimity, and bilateral and contentious issues are excluded from its deliberations.

Achievements

1. The South Asian Free Trade Area (SAFTA), signed 2004 and in force from 1 January 2006, providing for phased tariff reduction.
2. The SAARC Development Fund, the South Asian University at Delhi, and the SAARC Disaster Management Centre.

Origin of the terms

The terms were coined by the Norwegian economist Ragnar Frisch in 1933, from the Greek mikros (small) and makros (large).

Meaning

Microeconomics studies individual economic units: a single consumer, a single firm, a single industry, a single market, a single price. It is also called price theory.

Macroeconomics studies the economy as a whole: aggregates such as national income, total output, total employment, the general price level and the balance of payments. It is also called income and employment theory.

The distinctions

Their interdependence

The two are complementary, not opposed. Macroeconomic aggregates are built from microeconomic units: national income is the sum of individual incomes, and the general price level is an average of individual prices. Equally, no firm can plan without knowing the macroeconomic environment of interest rates, inflation and demand.

• Ey = 1: unitary. Demand rises exactly in proportion to income.
• 0 < Ey < 1: necessities. Demand rises less than proportionately. Examples: food grains, salt, basic clothing.

2. Zero income elasticity (Ey = 0): neutral goods. Demand does not change with income. Examples: common salt, matchboxes.

3. Negative income elasticity (Ey < 0): inferior goods. Demand falls as income rises, because the consumer switches to a better substitute. Examples: coarse cereals such as bajra and jowar, second-hand clothing, low-grade rice.

Worked example

If a household's income rises from ₹40,000 to ₹50,000 (a rise of 25%) and its demand for restaurant meals rises from 4 to 6 a month (a rise of 50%), then:

Ey = 50 ÷ 25 = 2

Since Ey > 1, restaurant meals are a luxury for that household.

Importance

2. Labour shortage caused by reverse migration. Millions of migrant workers returned to their home States during the lockdown, many on foot. When production was permitted to resume, the workers were not there. Units lost trained labour they had taken years to develop, and had to re-recruit and retrain at higher wages, which raised costs exactly when revenue was lowest.

3. Disruption of supply chains and of raw material availability. Transport restrictions, closed borders between States and the shutdown of larger supplier factories broke the flow of inputs. Prices of available materials rose. Units dependent on imported components, particularly from China, faced both scarcity and delay, and small firms could not hold buffer stocks as large firms could.

Three further problems worth naming: inability to service existing loans, pushing units towards default and sickness; the cost of compliance with sanitation and distancing norms in small premises; and the digital gap, since firms without online sales or digital payment capability lost customers to those that had them.

Government measures

Assessment

The relief was largely credit-based, and that was its limitation. A guaranteed loan helps a firm whose problem is liquidity; it does not help a firm whose customers have disappeared, because a loan must be repaid out of sales that are not happening. Many units therefore closed permanently despite the schemes, and the sector's recovery was slower than that of large organised firms, which is a principal reason the post-pandemic recovery is described as K-shaped.

Exports shifted from primary commodities, tea, jute, cotton, spices, the pattern of a colonial economy, to manufactured and high-value goods: engineering goods, refined petroleum products, gems and jewellery, pharmaceuticals, chemicals and textiles. India imports crude oil and exports refined petroleum, which is value addition in its plainest form, and has become the largest supplier of generic medicines by volume in the world.

Imports shifted from food grains, imported under the American PL-480 programme in the 1960s, to capital goods, raw materials, crude oil, gold and electronics. The change matters because importing capital goods indicates investment in productive capacity, whereas importing food indicated dependence. India now exports rice.

3. A changed direction of trade, and a much higher volume.

Trade reoriented from the United Kingdom and the erstwhile USSR and Eastern bloc, which dominated in the decades after independence, towards the United States, the United Arab Emirates, China and the European Union, with rapidly growing trade with East and South East Asia under the Look East and later Act East policies.

The volume grew enormously after the 1991 reforms: trade was around 15% of GDP at the start of the 1990s and has since run at roughly three times that share.

The question

The question asks whether liberalisation, the opening of the economy begun in 1991, has helped Indian agriculture. It requires a discussion, so both sides must be argued before a conclusion is reached.

Arguments that liberal policy has helped

1. Access to world markets and higher prices. Removing export restrictions allows farmers to sell at world prices when those are higher than domestic ones. India has become a significant exporter of rice, spices, marine products, cotton and tea, and is the world's largest exporter of rice.

2. Better inputs and technology. Liberalisation permitted the import of improved seeds, machinery, drip and sprinkler irrigation systems and modern agro-chemicals, and allowed foreign firms to bring agricultural technology into India.

2. Competition from subsidised foreign produce. Developed countries subsidise their farmers heavily, so imports can undercut Indian produce even where Indian costs are genuinely lower.

3. The benefits are unequally distributed. Export markets, cold chains and contract farming reach large and irrigated farms; the marginal farmer with about one hectare, who is the typical Indian cultivator, is largely untouched.

4. Neglect of public investment. The reforms were industrial and financial in focus. Public investment in irrigation, research and extension slowed, and subsidies substituted for it.

5. Input costs rose with the reduction of subsidies on fertiliser and power in some periods, squeezing margins.

6. Rural distress. Indebtedness and farmer suicides persisted through the liberalisation decades, which is the strongest single argument that liberalisation alone did not solve the sector's problems.

The context

India is the world's most populous country, with more than 140 crore people. Population control has been a policy objective since 1952, when India became the first country in the world to adopt an official family planning programme. Law supports that objective, though, as explained below, it does not compel it.

The laws and their importance

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. Its importance is that it settled the legislative competence question.
• Article 47 directs the State to raise the level of nutrition and public health.
• Article 21A, the right to education, and Article 21, the right to life, support the measures that reduce fertility indirectly.

5. The Right of Children to Free and Compulsory Education Act, 2009. Its importance: female education is the single strongest predictor of lower fertility, operating through later marriage, better knowledge and availability of contraception, greater autonomy in household decisions, and a higher opportunity cost of a woman's time.

6. Policy instruments with legal effect. The National Population Policy, 2000, which set the goal of a stable population by 2045; and two-child norms adopted by several States as a qualification for contesting local body elections or receiving certain benefits.

⚠️ The limit of the legal answer

There is no central law compelling any citizen to limit family size. Coercive sterilisation during the Emergency (1975 to 1977) produced a lasting public backlash and set the programme back by years. India's approach since has been deliberately based on incentive, education and voluntary choice, and any answer on this subject should say so, because the absence of a compulsory law is itself the most significant fact about it.

• The Competition Act, 2002 turns on "relevant market", "dominant position" and "appreciable adverse effect on competition". Defining a relevant market requires cross elasticity of demand: two products belong in the same market if buyers switch readily between them when the price of one changes.
• The Insolvency and Bankruptcy Code, 2016 turns on solvency, going-concern value and liquidation value.
• The Consumer Protection Act, 2019 turns on unfair trade practice and on information asymmetry.
• Tax statutes turn on income, capital, expenditure and incidence.

3. Law and Economics as a school of jurisprudence. Founded by Ronald Coase in The Problem of Social Cost (1960) and developed by Richard Posner in Economic Analysis of Law (1973), it tests a legal rule by the efficiency of the outcome it produces rather than by principle alone. The Coase theorem holds that where transaction costs are low, the parties will bargain to an efficient outcome regardless of how the right was initially assigned, which has direct application to nuisance, easements and property disputes.

7. Constitutional adjudication. Testing a restriction on trade under Article 19(6) against the freedom guaranteed by Article 19(1)(g) requires an assessment of economic consequence. The Directive Principles, especially Articles 38, 39 and 43, are statements of economic objectives given constitutional form.

8. Regulation as a response to market failure. SEBI, TRAI, the RBI and the electricity commissions exist because markets fail in identifiable ways: information asymmetry, natural monopoly, public goods and externalities. Regulatory law is the legal answer to a diagnosed economic problem, and a lawyer who cannot name the failure cannot argue about the remedy.

9. 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. The Code on Wages, 2019 provides a statutory floor wage, which is an intervention in a market.

10. 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.

Part 1: Meaning of the Balance of Payments

The Balance of Payments (BoP) is a systematic record of all economic transactions between the residents of a country and the rest of the world during a given period, usually a year. It is prepared on the double-entry principle, every transaction being entered twice, once as a credit and once as a debit, so in the accounting sense the BoP always balances.

It is broader than the balance of trade, which records only visible merchandise and is a part of it.

Structure of the BoP

A. Current Account, recording transactions in goods, services, income and transfers:

1. Visible trade: exports and imports of goods. Their balance is the balance of trade.
2. Invisible trade: services such as software, business services, travel, transport, insurance and banking.

• Adverse (deficit) BoP: autonomous payments exceed autonomous receipts.
• Favourable (surplus) BoP: receipts exceed payments.

Disequilibrium is classified as cyclical, arising from the trade cycle; structural, arising from a lasting change in the pattern of production or demand; temporary, from a short-term cause such as a crop failure; and fundamental, a deep and persistent mismatch.

Part 2: Causes of an adverse balance of payments

A. Causes on the import side

1. High and rising import bill. In India this is dominated by crude petroleum, the largest single item, whose demand is highly price-inelastic, so a rise in world prices raises the bill immediately with no offsetting fall in quantity. Gold and electronic goods follow.
2. Development imports. A developing country building industry must import capital goods, machinery and technology, so a deficit can be a sign of investment rather than distress.
3. Population growth, which raises consumption of imported goods including edible oils and pulses.

3. Volatile portfolio flows, since FPI is "hot money" and can leave overnight, as it did in 1991 and again in 2008 and 2013.
4. Capital flight in a crisis of confidence.

D. Structural and other causes

1. Structural change in world demand or in the country's own production pattern.
2. Exchange rate misalignment: an overvalued currency makes exports dear and imports cheap.
3. Political instability, deterring investment and encouraging outflow.

Measures to correct an adverse BoP

Monetary: raising interest rates to attract capital and restrain domestic demand; deflation to reduce domestic prices. Trade: export promotion through duty drawback, RoDTEP, EXIM Bank credit and ECGC cover; import substitution through Make in India and the PLI schemes; tariffs and quotas within WTO limits. Exchange rate: devaluation, making exports cheaper and imports dearer. Structural: raising productivity, quality and infrastructure, which is the only lasting remedy.

Definition

The South Asian Association for Regional Cooperation (SAARC) is a regional intergovernmental organisation of the countries of South Asia, established to promote the welfare of their peoples and to accelerate economic, social and cultural development through collective self-reliance.

It was founded on 8 December 1985 at Dhaka, when the Charter was signed by the heads of state of seven countries. Its Secretariat is at Kathmandu, established in 1987, headed by a Secretary-General.

Members and observers

Eight members: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka as founders, and Afghanistan, which joined in 2007.

Nine observers, including China, Japan, the United States, the European Union, Iran, South Korea, Australia, Myanmar and Mauritius.

The region contains roughly a fifth of the world's population, which is what makes SAARC's underperformance significant.

3. Bilateral and contentious issues are excluded from its deliberations under the Charter. This was intended to insulate the organisation from the region's disputes.

4. Summit-driven structure.

• Summit of heads of state or government, the highest authority, intended to be annual.
• Council of Ministers, of foreign ministers, meeting twice a year.
• Standing Committee of foreign secretaries.
• Technical Committees and the Secretariat at Kathmandu.

5. Emphasis on economic cooperation, expressed principally through SAFTA.

6. Specialised institutions: the SAARC Development Fund, the South Asian University at Delhi, the SAARC Disaster Management Centre, the SAARC Agriculture Centre and the SAARC Food Bank.

7. Sovereign equality and non-interference, with cooperation not to be a substitute for bilateral or multilateral arrangements.

Achievements

1. India-Pakistan hostility, which paralyses a body that requires unanimity.
2. The unanimity rule itself, which gives one member a veto over all.
3. The exclusion of bilateral disputes, so the organisation cannot address what actually divides it.
4. Asymmetry: India is far larger than all the others combined, which creates suspicion of dominance.
5. Poor connectivity: closed borders, limited transport links, restrictive visas.
6. Weak implementation, since agreements are signed and not ratified or acted upon.

India's response

India has shifted its regional effort to BIMSTEC, which joins South and South East Asia and excludes Pakistan, and to bilateral arrangements under the Neighbourhood First policy, while retaining SAARC as a standing framework in reserve.

Price ↑ → Quantity demanded ↓
Price ↓ → Quantity demanded ↑

Demand schedule

Plotting price on the vertical axis and quantity on the horizontal axis and joining the points gives the demand curve, which slopes downward from left to right.

Assumptions of the law

The law holds only if "other things remain equal". The assumptions are:

1. No change in the income of the consumer.
2. No change in the price of related goods, substitutes and complements.
3. No change in taste, preference or fashion.
4. No expectation of a future change in price.

1. Giffen goods. Strongly inferior goods forming a large part of a poor household's budget. A price rise makes the household so much poorer in real terms that it abandons the costlier substitute and buys more of the cheap staple. Named after Sir Robert Giffen, whose observation of bread among nineteenth-century English labourers was reported by Marshall. Example: coarse cereals such as bajra for a very poor family.
2. Veblen goods (conspicuous consumption). Luxury goods bought for display of status, where the high price is itself the attraction. Described by Thorstein Veblen, The Theory of the Leisure Class (1899). Example: diamonds, designer handbags, luxury watches.
3. Expectation of a further price change. If buyers expect prices to rise further they buy more now despite the higher price. Example: gold or property in a rising market.
4. Ignorance and the price-quality illusion. Buyers treat a high price as a signal of quality and buy the dearer of two identical goods.
5. Necessities of life, whose demand changes little with price: salt, life-saving medicine, food grains.
6. Speculative demand in share and commodity markets, where a rising price attracts more buyers.

Introduction

India is a developing mixed economy. It has the size and growth rate of a major economy, being among the largest in the world by total GDP, while remaining low in per capita terms. That contrast is the organising fact of the whole subject, and it runs through every feature below.

Note that the question asks for the economic features specifically, as distinct from the social features, caste, joint family, illiteracy, gender, which are asked separately.

A. Features of 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 single most important indicator of the standard of living and the primary reason India is classified as developing.

7. Infrastructure deficits in power, transport, storage and logistics, all improving from a low base.

8. Population pressure. A very large population, though the total fertility rate has fallen to about 2.0, below replacement level, so growth now comes chiefly from momentum.

B. Features of a mixed economy

9. Coexistence of the public and private sectors. Both operate side by side, with a joint sector as a third form. Since the New Industrial Policy 1991 the industries reserved for the public sector fell from 17 to a handful.

10. 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.

11. Regulation in the public interest, through SEBI, TRAI, the RBI and the electricity commissions, and competition law under the Competition Act, 2002.

12. Constitutional direction. The Directive Principles, especially Articles 38, 39 and 43, direct the State towards distributive justice.

Conclusion

The Indian economy is best described as a large, fast-growing, services-led mixed economy carrying an unfinished structural transition. Its central task is unchanged since independence: to move workers out of low-productivity agriculture into higher-productivity industry and services fast enough to raise incomes before the demographic window closes.