UPSC Economics Syllabus - Economics Optional Syllabus PDF for Papers 1 and 2

by Vajiram & Ravi

The UPSC Economics syllabus for Paper 1- includes Microeconomics, Macroeconomics and Growth and Development, and the Economics Optional syllabus for Paper 2- includes the Indian Economy before the liberalisation and post-liberalisation period.

This subject combines technical, analytical, and logical elements with contemporary relevance. Generally, a background in economics during one's undergraduate studies or a fundamental understanding of introductory mathematics and statistics is preferred in economics.

While Paper I in UPSC Economcis Optional Syllabus is majorly conceptual and static, Paper 2 requires greater attention to contemporary events with greater emphasis on updated information and conceptual clarity.

UPSC Economics Syllabus for Prelims

Since 2014, the UPSC Civil Services Preliminary Examination has consistently featured approximately 15-25 questions from the UPSC Economics syllabus each year. Therefore, choosing Economics as an optional subject can significantly contribute to your performance in the UPSC CSE Prelims. A solid conceptual understanding gained from Paper I and Paper II of the optional subject will enable you to tackle a majority of these questions. For instance, Economics PYQs in UPSC Prelims have covered topics such as Five-Year Planning, Monetary and Fiscal Policy, and International Economics.

However, it can indirectly benefit your performance in the CSAT paper, especially if the optional subject has helped you improve your analytical and quantitative reasoning skills.

What is UPSC Economics Optional Syllabus?

The Economics optional syllabus seamlessly blends both static and dynamic elements in an easily understandable manner. The UPSC Economics Optional syllabus consists of two papers (Paper-I and Paper-II), each carrying 250 marks, totalling 500 marks.

UPSC Economics Syllabus for Paper 1

The UPSC Economics optional syllabus for Paper 1 is predominantly conceptual and theoretical in nature, which can be advantageous for achieving high marks. However, due to the technicalities of the subject matter, it also requires a substantial portion of your optional subject preparation.

Macro Topic

Micro Topics

Advanced Micro Economics

- Approaches to Price Determination: Marshallian and Varrasiam.

- Alternative Distribution Theories; Ricardo, Kaldor, Kaleeki.
- Market Structure: Monopolistic Competition, Duopoly, Oligopoly.
- Modern Welfare Criteria: Pareto Hicks and Scitovsky, Arrow’s Impossibility Theorem, A. K. Sen’s Social Welfare Function.

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.

Money-Banking and Finance

- Demand for and Supply of Money:

  • Money Multiplier Quantity Theory of Money (Fisher, Pique and Friedman) and Keynes 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 the growth rate of money.

- 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.

International Economics

- Old and New Theories of International Trade:

  • Comparative advantage
  • Terms of Trade and Offer Curve
  • Product Cycle and Strategic Trade Theories
  • Trade as an engine of growth and theories of underdevelopment in an open economy.

- Forms of Protection: Tariff and quota.

- Balance of Payments Adjustment: Alternative Approaches.

  • Price versus income, income adjustments under fixed exchange rates.
  • Theories of Policy Mix.
  • Exchange rate adjustments under capital mobility.
  • Floating Rates and their Implications for Developing Countries: Currency Boards.
  • Trade Policy and Developing Countries.
  • BOP, adjustments and Policy Coordination in open economy macro-model.
  • Speculative attacks.
  • Trade Blocks and Monetary Unions.
  • WTO: TRIMS, TRIPS, Domestic Measures, Different Rounds of WTO talks.

Growth and Development

- (A) Theories of growth:

  • Harrod’s model
  • Lewis's model of development with surplus labour
  • Balanced Unbalanced Growth
  • Human Capital and Economic Growth
  • Research and Development and Economic Growth.

- 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.

- Economic Development and International Trade and Investment, Role of Multinationals.

- Planning and Economic Development: Changing Role of Markets and Planning, Private-Public Partnership.

- Welfare indicators and measures of growth—Human Development Indices. The basic needs approach.

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

Economics Optional Syllabus - Paper 2

UPSC Economics syllabus for Paper 2 revolves around the Indian economy. You will study various reforms and policies introduced from independence until now. Therefore, students will need to stay updated on various economic developments by reading newspapers and magazines.

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:

The Pre-Liberalization Era:

  • Contribution of Vakil, Gadgil and V.K.R.V. Rao.
  • Agriculture: Land Reforms and land tenure system, Green Revolution and capital formation in agriculture.
  • Industry Trends in composition and growth, Role of the Public and private sector, small scale and Cottage Industries.
  • National and Per capita income: Patterns, trends, aggregate and sectoral composition and changes therein.
  • Broad factors determining National Income and distribution, Measures of poverty, Trends in poverty and inequality.

The Post-Liberalization Era:

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

Best Strategy to Prepare UPSC Economics Optional Syllabus

The initial priority of the students preparing the Economics optional syllabus should be to master the economic theories in Paper 1. For this, the students should be comfortable with graphical interpretations and basic mathematical tools like functions and differentiation. That is why we cover these graphical and mathematical concepts in general in the first few classes itself.

The students must be experts in drawing graphs that are conceptually correct, even if it is not absolutely accurate in terms of measurement. Despite the initial time invested in learning these techniques, it makes Paper 1 a highly-scoring paper among Paper 1 of other optional subjects. As many answers must be explained through graphs, the questions are often to be answered without a word limit. So, students can score well even by writing brief yet accurate answers supported by graphs.

Apart from this, while preparing for the UPSC Economics syllabus for Paper 1, it is advisable for the students to link the theories with the features of the Indian Economy. Sometimes, questions directly ask to explore such links, while at other times, students can briefly show such links themselves. It is often rewarded in terms of a few extra marks. In the classes, we try to give as many examples of applying these theories in the Indian context as possible.

Paper 2 requires good writing skills. Still, the focus is on writing accurate rather than long answers. Students must prepare for the pre-independence Indian Economy in a good manner as the syllabus is limited and questions are asked regularly from this area. Almost a similar argument applies to the post-independence and pre-1991 economies. In Paper 2, the students are also expected to memorise and analyse certain data points related to Indian economic performance, like GDP growth, share of sectors in employment, etc.

For the post-1991 economy, the questions may be asked from a more diverse area as due to the economic reforms, several new policies were introduced after 1991. Yet, various policies are interconnected. The students must identify these interconnections to write better answers. For example, industrial reforms are linked to foreign investment reforms and problems like unemployment. Agricultural performance is linked to the problems like poverty. It is worth investing more time to study the post-1991 economy for many reasons. First, it has about 50% weightage in Paper 2. Second, it can be useful in writing some answers in GS Paper 2 and 3 as well as in attempting some essay topics, even if in a partial manner.

A regular study of interconnections between Paper 1 and Paper 2 of the UPSC Economics syllabus is desirable and helps the students get extra marks in both papers.

Important Topics in UPSC Economics Syllabus

The Economics optional syllabus is divided into two papers. Paper 1 focuses on economic theories, and the paper can be classified into four major sections. The first two sections are related to Microeconomics and Macroeconomics. Under Microeconomics, we study the theories of consumers’ and producers’ behaviour followed by the theories of main types of market structures like perfect competition, monopoly, and oligopoly. General Equilibrium and Welfare Economics are other major parts of Microeconomics.

Macroeconomics is associated with the study of economic aggregates like output level, general price level, interest rates, unemployment, wages, etc. and their behaviour. We study various schools of Macroeconomics like the Classicals, the Keynesians, the Neo Keynesians, the Monetarists, the New Classicals, and the New Keynesians and their theories on the behaviour of these Macroeconomic variables.

The third part is International Economics. Under this part of the UPSC Economics syllabus, we begin with Microeconomic theories of international trade, trade barriers, trade blocks, etc., followed by the Macroeconomic theories of the open economy, including concepts like the balance of payments and exchange rates.

The final part of the UPSC Economics optional syllabus for paper 1 is Growth and Development. Here, we first cover various theories of economic growth, like those proposed by Harrod, Domar, Solow, Lewis, and Romer. Then, inter-relationships between economic development and agriculture, population, human capital, environment, and trade are examined.

Paper 2 is on Indian Economy, and the syllabus is divided into three main parts. First, we start with the pre-independence Indian Economy to examine various features of the Indian economy, like agriculture, industries, railways, etc., during the British Rule. Second, the post-independence Indian economy includes the study of various sectors like agriculture and industries, economic problems like inequality, poverty, and unemployment, and policies like planning during the period from 1947 to 1991. The third part discusses similar features in the post-1991 period, along with several new policies and reforms that were introduced after 1991 in India.

Booklist for UPSC Economics Syllabus

The following books are recommended for preparing the UPSC Economics optional syllabus of Paper I and Paper II.

Paper I

Paper II

  • Dictionary of Economics – Graham Bannock; T.E. Baxter, Ray Rees
  • Economic Growth and Development – Mayer and Baldwin
  • Economics – Paul A. Samuelson
  • Economics Choice – Koutsweanik
  • Growth and Development – M L Jhingan
  • International Economics – Bo Soderston
  • International Economics – H.G. Mannur or Salvatore
  • International Trade – Bo Soderston
  • MacroEconomic Analysis – Edward Shapiro
  • Modern Banking – R.S. Sayers
  • Monetary Theory and Public Policy – Kenneth Kurihara
  • Money Supply in India: Concepts, Compilation and Analysis: Functions and Working – Reserve Bank of India
  • National Income Accounting – Neethu
  • Outline of Monetary Economics – A.C.I. Day
  • Public Finance – H.L. Bhatia
  • Public Finance – K.K. Andley and Sundharam
  • Indian Economy – Ramesh Singh
  • The Indian Economy – Sanjiv Verma
  • Indian Economy – Mishra and Puri
  • Indian Economy – R. Dutt and KPM Sundaram
  • Banking – S.B. Gupta
  • Economic Survey: Twelve Five Year Plan: New Industrial Policy – Government of India
  • The Economic Times
  • Economical and Political Weekly