Economics Optional Coaching

Economics Optional has a strong success rate among high achievers, particularly those with a solid educational background and foundation. This subject is technical, analytical, and logical while also having equal current relevance. Aspirants who have prior knowledge of this subject are unquestionably at a competitive edge and can easily finish the syllabus in much less time due to subject familiarity. It could take some time for an aspirant to finish the syllabus if they are a novice in the field.

Advanced Microeconomics and Macroeconomics, International Economics, Money, Banking and Public Finance, Growth and Development are the key themes of UPSC Economics Paper I. Paper II examines economic conditions in India before and after independence. Aspirants who are adept at using and understanding graphs may do well in economics papers.

Check: UPSC Economics Syllabus

The student benefits from having this optional subject by being better prepared to answer questions pertaining to it on the Prelim Test. Additionally, the overlap is substantial as the Economics optional subject would cover almost 50%-60% of the UPSC curriculum for General Studies Paper III. The Personality Test will benefit from covering themes like political news, economic news, and government schemes and policies.

The knowledge of Economics is considered a coveted feature both among the policy-makers and academia. The bureaucrats with a background in Economics are highly sought after in several departments and ministries. This is one of the reasons for making Economics a popular choice as an Optional subject in the UPSC CSE. But there are other reasons for the popularity of Economics. The subject can be regarded as a bridge between pure science and humanities. Economics examines the problems of society, like unemployment, inequality, and poverty and prescribes the solutions in a systematic manner using scientific approaches like using economic models that involve graphs and mathematical analysis.

Yet, Economics is not a pure science but a behavioural science. Thus, the graphs or mathematical analysis are not an end in itself. These are guides to understand the actual behaviour of economic agents like the consumers, producers, government, and the financial sector. The final goal is always to ensure better welfare of all the agents in the end. To achieve such goals, Economics also studies the impacts of various policies like fiscal policy, monetary policy, agricultural policy, industrial policy, infrastructure policy, and foreign trade policy on various economic agents. These policy details are also helpful in answering the General Studies questions of the exam, almost at all stages, including the Prelims, the Mains, and the UPSC Interview.

Paper I

1. Advanced Micro Economics :

(a) Marshallian and Varrasiam Approaches to Price Determination.
(b) Alternative Distribution Theories; Ricardo, Kaldor, Kaleeki.
(c) Markets Structure: Monopolistic Competition, Duopoly, Oligopoly.
(d) Modern Welfare Criteria: Pareto Hicks and Scitovsky, Arrow’s Impossibility Theorem, A. K. Sen’s Social Welfare Function.

2. Advance Macro Economics :

Approaches to Employment Income and Interest Rate determination: Classical, Keynes (IS)-LM) curve, Neo-classical synthesis and New classical, Theories of Interest Rate determination and Interest Rate Structure.

3. Money-Banking and Finance :

(a) Demand for and Supply of Money: Money Multiplier Quantity Theory of Money (Fisher, Pique and Friedman) and Keyne’s Theory on Demand for Money, Goals and Instruments of Monetary Management in Closed and Open Economies. Relation between the Central Bank and the Treasury. Proposal for ceiling on growth rate of money.

(b) Public Finance and its Role in Market Economy: In stabilisation of supply, allocative, of resources and in distribution and development. Sources of Government revenue, forms of Taxes and Subsidies, their incidence and effects. Limits to taxation, loans, crowding-out effects and limits to borrowings. Public expenditure and its effects.

4. International Economics :

(a) Old and New Theories of International Trade.

(i) Comparative advantage,
(ii) Terms of Trade and Offer Curve.
(iii) Product Cycle and Strategic Trade Theories.
(iv) Trade as an engine of growth and theories of underdevelopment in an open economy.

(b) Forms of Protection: Tariff and quota.

(c) Balance of Payments Adjustment: Alternative Approaches.

(i) Price versus income, income adjustments under fixed exchange rates.
(ii) Theories of Policy Mix.
(iii) Exchange rate adjustments under capital mobility.
(iv) Floating Rates and their Implications for Developing Countries : Currency Boards.
(v) Trade Policy and Developing Countries.
(vi) BOP, adjustments and Policy Coordination in open economy macromodel.
(vii) Speculative attacks.
(viii) Trade Blocks and Monetary Unions.
(ix) WTO : TRIMS, TRIPS, Domestic Measures, Different Rounds of WTO talks.

5. Growth and Development :

(a) (i) Theories of growth: Harrod’s model;
(ii) Lewis model of development with surplus labour.
(iii) Balanced Unbalanced Growth.
(iv) Human Capitals and Economic Growth.
(v) Research and Development and Economic Growth.

(b) Process of Economic Development of less developed countries: Myrdal and Kuzments on economic development and structural change : Role of Agriculture in Economic Development of less developed countries.

(c) Economic Development and International Trade and Investment, Role of Multinationals.

(d) Planning and Economic Development: changing role of Markets and Planning, Private-Public Partnership.

(e) Welfare indicators and measures of growth—Human Development Indices. The basic needs approach.

(f) Development and Environmental Sustainability—Renewable and Non-renewable Resources, Environmental Degradation, Intergenerational equity development.

Paper II

Indian Economics in Post-Independence Era:

Land System and its changes, Commercialization of agriculture Drain theory, Laissez faire theory and critique. Manufacture and Transport : Jute, Cotton, Railways, Money and Credit. Indian Economy after Independence :

A. The Pre-Liberalization Era:

(i) Contribution of Vakil, Gadgil and V.K.R.V. Rao.
(ii) Agriculture: Land Reforms and land tenure system, Green Revolution and capital formation in agriculture.
(iii) Industry Trends in composition and growth, Role of public and private sector, small scale and cottage industries.
(iv) National and Per capita income: Patterns, trends, aggregate and sectoral composition and changes therein.
(v) Broad factors determining National Income and distribution, Measures of poverty, Trends in poverty and inequality.

B. The Post-Liberalization Era :

(i) New Economic Reform and Agriculture: Agriculture and WTO, Food processing, Subsidies, Agricultural prices and public distribution system, Impact of public expenditure on agricultural growth.
(ii) New Economic Policy and Industry: Strategy of industrialization, Privatisation, Disinvestments, Role of foreign direct investment and multinationals.
(iii) New Economic Policy and Trade: Intellectual property rights: Implications of TRIPS, TRIMS, GATS and new EXIM policy.
(iv) New Exchange Rate Regime: Partial and full convertibility, Capital account convertibility.
(v) New Economic Policy and Public Finance: Fiscal Responsibility Act, Twelfth Finance Commission and Fiscal Federalism and Fiscal Consolidation.
(vi) New Economic Policy and Monetary System. Role of RBI under the new regime.
(vii) Planning: From central Planning to indicative planning, Relation between planning and markets for growth and decentralised planning: 73rd and 74th Constitutional amendments.
(viii) New Economic Policy and Employment: Employment and poverty, Rural wages, Employment Generation, Poverty alleviation schemes, New Rural, Employment Guarantee Scheme.

Dynamic subject means that a significant part of the syllabus of the subject changes every year or over a few years period. Contrary to common belief, Economics is among the least dynamic Optional subjects. It can be clearly seen through the syllabus. Paper 1 includes the economic theories that were all proposed decades or even a couple of centuries ago. So, Paper 1 is entirely static and there are no chances of any change in the syllabus on a year- to-year basis.

Even in Paper 2, more than 90% of the paper is static. The reason is that roughly 50% of the questions come from the Indian economy before independence and post-independence till 1991. There is no dynamic part as this can be considered as economic history to be done in a more analytical manner.

Even in the post-1991 economy, which accounts for about 50% of the questions, most questions are on the reforms that were taken during the 1990s and the 2000s and on economic parameters during these two decades. Some questions may arise on the economic issues of the 2010s and even of the last couple of years, and this can be regarded as the only dynamic part. But such questions never have a weightage of even 10% and during many years’ exams, no questions were asked about these recent developments in the economy.

In fact, the current affairs on Economics that every student prepares for their GS exams is more than enough to cover the dynamic part of the syllabus. The expectation from the students in Paper 2 is that they should be able to link the theories covered in the first paper with the Indian economy, rather than expecting them to memorize each and every current affairs detail.