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CU Paper Sem-IV (C…

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solve entire paper with full proper answers according to

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CU Economics Honours — DSC CCF-8

Indian Economics – I | 2025 | Complete Solved Paper
I have solved the entire paper, including all questions in Group A, Group B and Group
C, even though the examination asks students to answer only the specified number of
questions. The answers are framed in exam-ready language and according to the
marks allotted. The question paper is for 75 marks, with Group A carrying 2 marks per
question, Group B 5 marks, and Group C 10 marks. 6. CU Paper Sem-IV (CCF) Indian…

GROUP – A
Answer any ten questions

2 marks each

1(a). What is Urban Bias in Indian Planning?

Urban bias refers to the tendency of development policies and planning to favour urban
areas over rural areas in terms of investment, infrastructure, employment opportunities
and public services.

In India, greater emphasis on industries and urban infrastructure sometimes resulted in

comparatively lower investment in agriculture and rural development, creating
disparities between urban and rural areas.

1(b). State two reasons behind the failure of Nehru-Mahalanobis

Plan.
The Second Five-Year Plan (1956–61), based on the Mahalanobis strategy, faced several
difficulties.

Two important reasons were:

 1. Excessive emphasis on heavy industries led to inadequate attention to agriculture
and consumer goods.
2. Shortage of foreign exchange and rising imports of capital goods created serious
balance-of-payments difficulties.

Thus, although industrial capacity increased, the plan generated considerable economic
pressures.

1(c). What is meant by Hidden Momentum of Population Growth?

Hidden momentum of population growth means the tendency of a population to
continue growing even after fertility has fallen to or below replacement level.

This occurs because a large proportion of the population may be in the young
reproductive-age group. Therefore, even if each woman has fewer children, the large
number of potential mothers results in continued population growth for some time.

1(d). Define Replacement Level of Fertility.

Replacement-level fertility is the level of fertility at which a couple has just enough
children to replace themselves in the population, so that the population eventually
becomes stable in the absence of migration.

In general, replacement-level fertility is approximately 2.1 children per woman in a

population with low mortality.

1(e). Mention two major causes behind the macroeconomic crisis

of 1991.
Two major causes were:
1. Large fiscal deficit: Persistent government expenditure exceeding revenue increased
public debt and macroeconomic imbalances.
2. Balance of Payments crisis: Imports increased faster than exports, while foreign
exchange reserves fell to extremely low levels.

Other contributing factors included the Gulf War, rise in oil prices, decline in remittances
and loss of investor confidence.
1(f). What is FEMA?
FEMA stands for Foreign Exchange Management Act, 1999.

It replaced the earlier Foreign Exchange Regulation Act (FERA), 1973. FEMA was
introduced to facilitate external trade and payments and promote the orderly development
of the foreign exchange market.

1(g). Distinguish between FDI and FPI.

Basis FDI FPI

Meaning Foreign Direct Investment Foreign Portfolio Investment

Nature Investment with a significant Investment in financial assets such as

degree of control/influence over an shares and bonds
enterprise

Control Usually involves managerial Generally does not involve managerial

influence control

Duration Relatively long-term Often more short-term and volatile

Example: Setting up a manufacturing plant in India is FDI, while purchasing Indian

company shares is FPI.

1(h). State the trickle-down theory in connection with poverty

eradication.
The trickle-down theory argues that economic growth initially benefits higher-income
groups and businesses, but the resulting increase in production, investment and
employment eventually spreads to poorer sections of society.

Thus, according to this approach:

Economic growth → higher investment → more employment → higher incomes →

reduction in poverty.

However, growth does not automatically benefit everyone equally, so redistribution and
targeted welfare policies may also be necessary.
1(i). What is PL-480?
PL-480, officially known as the Agricultural Trade Development and Assistance Act of
1954, was a United States programme that provided agricultural commodities, particularly
food grains, to developing countries.

India received substantial quantities of wheat and other food grains under PL-480,
especially during periods of food shortage.

It helped India meet food requirements but also created a degree of dependence on
imported food.

1(j). Mention two important policies of the Indian government in

the Education sector.
Two important education policies are:
1. National Education Policy (NEP), 1986 – aimed at expanding access to education,
improving quality and promoting equality of educational opportunity.
2. National Education Policy (NEP), 2020 – introduced major reforms including the
5+3+3+4 school structure, multidisciplinary higher education, vocational education
and greater emphasis on foundational learning.

1(k). What is meant by Structural Retrogression in Indian

industry?
Structural retrogression refers to a situation where the structure of an economy or
industry moves backwards rather than towards greater industrialisation and
modernisation.

In the Indian context, it can refer to a decline in the relative importance of manufacturing or
organised industrial activity while lower-productivity activities gain importance.

Thus, instead of moving from low-productivity activities towards high-productivity

manufacturing, the economy may experience a movement in the opposite direction.

1(l). What does FRBM Act stipulate? When was it enacted?

The Fiscal Responsibility and Budget Management (FRBM) Act was enacted in 2003.

Its main objective is to promote:

 fiscal discipline,
reduction of excessive fiscal deficits,
prudent management of public debt, and
greater transparency in government finances.

It seeks to ensure that government borrowing and expenditure remain fiscally sustainable.

1(m). Mention two causes behind the unimpressive performance of

Indian Public Sector.
Two major causes were:
1. Low efficiency and productivity due to bureaucratic management, weak incentives
and inadequate accountability.
2. Political interference and excessive government control, which often resulted in
inefficient decision-making and poor utilisation of resources.

Other problems included technological obsolescence, overstaffing and financial losses.

1(n). State the objectives behind reforms in tax policy in India.

The major objectives were:
1. Simplification of the tax system.
2. Reduction in tax rates and removal of excessive exemptions.
3. Broadening of the tax base.
4. Improving tax compliance and administration.
5. Increasing government revenue while reducing distortions in economic activity.

The overall objective was to create a simpler, more efficient and growth-oriented tax
system.

1(o). What is the full form of CENVAT?

CENVAT stands for:

Central Value Added Tax

It was a system designed to provide credit for central excise duties paid on inputs so that
the tax burden would effectively fall on the value added rather than being repeatedly
imposed on the same product.
GROUP – B
Answer any five questions

5 marks each
I have answered all eight questions for complete preparation.

2. What is meant by School Transition to Work? What

does it indicate?
2 + 3 marks

Meaning
School-to-work transition refers to the process through which young people move from
the education system into the labour market.

It includes the period between:

Leaving school/college → acquiring skills → searching for employment → obtaining

stable employment.

A smooth transition means that young people can obtain productive and decent
employment relatively quickly after completing education.

What does it indicate?

The school-to-work transition indicates:
1. Absorption capacity of the labour market: It shows whether the economy is
generating sufficient employment opportunities for educated youth.
2. Skill-employment matching: It indicates whether the skills acquired through
education match the requirements of employers.
3. Quality of employment: A long transition may indicate unemployment,
underemployment, informal employment or poor-quality jobs.
4. Effectiveness of education: If educated young people remain unemployed for long
periods, it suggests a mismatch between the education system and labour-market
requirements.
5. Economic development: A successful transition enables young people to contribute
to production and economic growth.

Conclusion
Thus, school-to-work transition is an important indicator of the employment prospects of
youth, skill mismatch and the ability of an economy to create productive jobs.

3. Discuss the causes behind regional disparities in

growth and development in India.
5 marks
Regional disparities refer to differences in income, employment, infrastructure,
industrialisation, education and living standards among different states and regions of
India.

Major causes
1. Unequal availability of natural resources

States differ in the availability of minerals, water, fertile land, forests and other natural
resources. Resource-rich regions may have greater opportunities for industrialisation.

2. Differences in infrastructure

Regions with better roads, railways, electricity, ports, telecommunications and irrigation
attract more investment.

3. Unequal industrialisation

Industrial activity is concentrated in certain states and regions because of better

infrastructure, markets, skilled labour and historical advantages.

4. Agricultural differences

Differences in soil quality, rainfall, irrigation and adoption of modern agricultural technology
result in different agricultural productivity.

5. Human capital differences

States with better education, healthcare and skilled labour generally experience faster
economic growth.

6. Historical factors

Colonial development patterns and the early concentration of industries in certain regions
created persistent regional advantages.

7. Government policies
The location of public-sector enterprises, infrastructure investment and state-level policies
can influence the pace of regional development.

Conclusion
Regional disparities arise from a combination of historical, geographical, economic,
infrastructural and institutional factors. Balanced regional development requires
investment in infrastructure, human capital, agriculture and employment opportunities in
relatively backward regions.

4. What were the objectives behind introducing

Industrial Licensing Policy in India?
5 marks
Industrial licensing became an important part of India's industrial policy after
Independence, particularly under the Industrial Policy Resolution of 1956.

Under the licensing system, firms required government permission to establish or expand
industrial units.

Objectives
1. Planned development

Licensing allowed the government to direct industrial investment according to national

planning priorities.

2. Prevention of concentration of economic power

It was intended to prevent excessive concentration of industries and economic power in a

few private hands.

3. Balanced regional development

The government could encourage industries to locate in relatively backward regions.

4. Control of scarce resources

Licensing helped allocate scarce capital, foreign exchange, raw materials and other
resources towards priority industries.

5. Development of strategic industries

The government could promote industries considered essential for economic development
and national security.

Conclusion
Thus, industrial licensing was introduced as an instrument of planned industrialisation,
resource allocation, balanced regional development and prevention of economic
concentration.

5. How far is the Gini Coefficient useful as a measure of

inequality?
5 marks
The Gini coefficient is a statistical measure of inequality in the distribution of income or
wealth.

It is derived from the Lorenz Curve.

Interpretation
The value of the Gini coefficient generally ranges from:
0 → perfect equality
1 → perfect inequality

It can also be expressed between 0 and 100.

Usefulness
1. Simple measure

It summarises the degree of inequality in a single number.

2. Easy comparison

It allows comparison of inequality between different regions, states or countries.

3. Based on entire distribution

Unlike some measures that focus only on particular groups, the Gini coefficient considers
the overall distribution.

4. Useful for policy analysis

Changes in the coefficient can help evaluate whether income distribution has become
more or less unequal.
Limitations
However, it has limitations:
Different distributions can sometimes have the same Gini coefficient.
It does not explain why inequality exists.
It does not indicate the absolute level of income.
It does not distinguish between inequality caused by differences in education, wealth,
age or other factors.

Conclusion
The Gini coefficient is a useful and widely used summary measure of inequality, but it
should preferably be used along with the Lorenz curve and other distributional
indicators.

6. Write a short note on Right to Education Act.

5 marks
The Right of Children to Free and Compulsory Education Act, 2009, commonly known
as the Right to Education (RTE) Act, made elementary education a legal right for
children in India.

It came into force on 1 April 2010.

Main provisions
1. Free education

Children in the specified age group are entitled to free elementary education in a
neighbourhood school.

2. Compulsory education

The government and local authorities have the responsibility of ensuring admission,
attendance and completion of elementary education.

3. Age group

The Act provides for free and compulsory education for children between 6 and 14 years.

4. Norms and standards

It lays down norms relating to schools, teachers, infrastructure and pupil-teacher ratios.
5. Inclusion

It aims to increase educational access for disadvantaged and weaker sections.

Importance
The Act seeks to promote:
universal elementary education,
equality of educational opportunity,
reduction of educational exclusion, and
improvement in school participation.

Conclusion
The RTE Act represents an important step towards making elementary education a
fundamental entitlement and ensuring universal access to schooling.

7. Explain the main reasons behind the Balance of

Payments crisis in India in the late 1980s.
5 marks
India experienced a severe Balance of Payments crisis in 1990–91. The crisis
developed due to several structural and immediate factors.

Major reasons
1. Large fiscal deficits

Government expenditure increased substantially relative to revenue. Persistent fiscal

deficits contributed to macroeconomic instability.

2. Rapid growth of imports

Imports, particularly capital goods, petroleum and other essential commodities, increased
considerably.

3. Slow export growth

India's exports did not grow sufficiently to finance the increasing import bill.

4. External debt

Heavy reliance on external borrowing increased India's debt-servicing obligations.

5. Gulf War

The Gulf crisis of 1990 led to a sharp increase in international oil prices. This increased
India's import expenditure.

6. Fall in foreign exchange reserves

The growing external imbalance caused foreign exchange reserves to decline sharply.

7. Loss of international confidence

As the crisis intensified, international lenders and investors became increasingly cautious
about India's ability to meet its external obligations.

Result
By 1991, India's foreign exchange reserves had fallen to a critically low level, creating a
serious external payments crisis.

This crisis eventually led to the introduction of the New Economic Policy of 1991,
involving liberalisation, privatisation and globalisation.

8. Discuss, briefly, the reforms undertaken by the Indian

government in labour market after 1991.
5 marks
After 1991, India introduced several measures aimed at making the labour market more
flexible and improving employment opportunities.

Major reforms
1. Greater flexibility in labour regulations

The government attempted to reduce excessive rigidity in labour regulations and make it
easier for firms to adjust employment according to economic conditions.

2. Promotion of private investment

Economic liberalisation increased the role of private enterprises, creating greater

employment opportunities outside the public sector.

3. Skill development
Greater emphasis was placed on vocational education, technical training and skill
development.

4. Expansion of social security

Various programmes were introduced or expanded to provide social protection to workers,

particularly those outside the formal sector.

5. Labour-code reforms

The government later consolidated numerous central labour laws into four major labour
codes covering:

wages,
industrial relations,
social security, and
occupational safety, health and working conditions.

Conclusion
Post-1991 labour-market reforms attempted to balance labour flexibility, employment
generation, investment and worker protection. However, informal employment and
inadequate social security remained major challenges.

9. Mention the effects of devaluation of Rupee on the

Indian economy.
5 marks
Devaluation means an official reduction in the value of a country's currency under a fixed
or managed exchange-rate system.

India undertook significant rupee devaluation in 1991 as part of its response to the external
crisis.

Effects
1. Promotion of exports

Indian goods become relatively cheaper for foreign buyers, encouraging exports.

2. Reduction in imports

Imported goods become more expensive in domestic currency, which may discourage
imports.
3. Improvement in Balance of Payments

Higher exports and reduced import demand can help improve the external balance.

4. Increase in import costs

Petroleum, machinery, raw materials and other imported goods become more expensive.

5. Inflationary pressure

Higher import prices can increase production costs and contribute to domestic inflation.

6. Export competitiveness

Devaluation improves the international price competitiveness of Indian producers.

Conclusion
Devaluation can help correct an external imbalance by encouraging exports and
discouraging imports, but it can also create inflationary pressure and raise the cost of
imported inputs.

GROUP – C
Answer any three questions

10 marks each
Again, all five questions are solved below.

10. “Indian plans are good in papers but are not so

good in implementation.” — Discuss.
10 marks

Introduction
Economic planning in India began with the First Five-Year Plan in 1951. Planning was
adopted to achieve rapid economic growth, structural transformation, employment
generation, poverty reduction and social justice.

Indian Five-Year Plans often contained ambitious objectives and detailed strategies.
However, there was frequently a gap between planned targets and actual
implementation.

Why were Indian plans considered good on paper?

1. Clearly defined objectives

Plans generally identified major national objectives such as:
economic growth,
poverty reduction,
employment generation,
industrialisation,
agricultural development,
self-reliance, and
reduction of regional disparities.

2. Priority-based allocation
Planning attempted to direct scarce resources towards priority sectors such as agriculture,
infrastructure and heavy industries.

3. Long-term perspective
Five-Year Plans provided a long-term framework for economic transformation.

4. Social objectives
Planning was not limited to GDP growth. It also incorporated objectives such as social
justice, reduction of inequality and balanced development.

Why was implementation weak?

1. Administrative weaknesses
Implementation often suffered from bureaucratic delays, weak coordination and inadequate
administrative capacity.

2. Lack of effective monitoring

Targets were sometimes established without sufficiently strong systems for monitoring
progress and correcting failures.

3. Resource constraints
Financial resources were often insufficient to achieve all the targets established in the
plans.

4. Political interference
Political considerations could influence the allocation and implementation of projects.

5. Centre-State coordination problems

Many development programmes required cooperation between the Central and State
governments. Weak coordination sometimes slowed implementation.

6. Inadequate infrastructure
Shortages of electricity, transport, irrigation and other infrastructure constrained the
execution of development programmes.

7. Corruption and leakages

Leakages in public expenditure reduced the effectiveness of government programmes.

8. Unrealistic targets
Some plans established highly ambitious targets that were difficult to achieve because of
unforeseen economic and external circumstances.

9. External shocks
Wars, droughts, oil-price increases and international economic crises disrupted
implementation.

10. Weak implementation at the grassroots

Even when policies were well designed at the national level, inadequate local institutions
sometimes prevented effective implementation.

Balanced assessment
It would be incorrect to say that Indian planning completely failed.

Planning contributed significantly to:

development of heavy industries,

expansion of infrastructure,
agricultural development,
creation of scientific and technical institutions,
expansion of education and health services,
 development of the public sector, and
reduction of dependence on imports in several sectors.

However, the implementation gap often prevented planned objectives from being fully
achieved.

Conclusion
The statement is partly justified. Indian plans were generally strong in terms of identifying
national priorities and establishing long-term objectives, but implementation was
weakened by administrative inefficiency, resource constraints, coordination
problems, leakages, political interference and unforeseen shocks.

Therefore, the major lesson is that successful planning requires not only good plans but
also effective institutions, monitoring, accountability and efficient implementation.

11. What is Industrial Sickness? Briefly discuss the

reasons behind industrial sickness in India.
3 + 7 marks

Meaning of Industrial Sickness

3 marks
Industrial sickness refers to a situation where an industrial enterprise experiences
persistent financial and operational difficulties and is unable to generate sufficient
resources to meet its obligations.

A sick industrial unit typically suffers from:

continuous losses,
decline in production,
inadequate working capital,
inability to repay loans, and
deterioration in financial health.

Industrial sickness can ultimately result in closure or loss of employment.

Causes of Industrial Sickness in India

7 marks
1. Financial mismanagement
Poor financial planning, excessive borrowing and inefficient use of funds can make firms
financially weak.

2. Obsolete technology
Failure to adopt modern technology can increase production costs and reduce
competitiveness.

3. Poor management
Inadequate managerial skills, poor decision-making and weak organisational structures
may result in declining productivity.

4. Shortage of working capital

Insufficient working capital can prevent firms from purchasing raw materials, paying
workers and maintaining continuous production.

5. Labour problems
Frequent strikes, industrial disputes and low labour productivity may adversely affect
production.

6. Inadequate infrastructure
Power shortages, transport bottlenecks and poor infrastructure increase production costs.

7. Competition
Increased domestic and international competition can make inefficient firms financially
unviable.

8. Changes in demand
A decline in demand for a firm's products can result in unsold inventories, lower capacity
utilisation and financial losses.

9. Policy and regulatory problems

Excessive regulation, delays and changes in government policies may adversely affect
industrial enterprises.

10. External factors

Inflation, recession, exchange-rate changes and increases in the prices of imported inputs
can also contribute to industrial sickness.

Conclusion
Industrial sickness is generally the result of a combination of internal inefficiency and
external economic conditions. Improving management, technology, infrastructure,
finance and market competitiveness is essential for preventing industrial sickness.

12. Critically discuss the New Economic Policy adopted

by Indian Government in 1991.
10 marks

Introduction
India faced a severe macroeconomic and Balance of Payments crisis in 1991. Foreign
exchange reserves fell sharply, inflationary pressures increased and external debt
obligations became difficult to manage.

In response, the Government introduced the New Economic Policy (NEP) of 1991.

The reforms are broadly associated with:

Liberalisation + Privatisation + Globalisation (LPG)

Major features of the New Economic Policy

1. Industrial liberalisation
The government substantially reduced industrial licensing requirements.

This increased freedom for private enterprises to establish and expand industrial units.

2. Reduction of public-sector reservation

The number of industries reserved exclusively for the public sector was reduced.

3. Disinvestment
The government began selling portions of its ownership in selected public-sector
enterprises.

4. Foreign investment
Policies were introduced to encourage Foreign Direct Investment (FDI) and greater
participation of foreign capital.
5. Trade liberalisation
Import restrictions and quantitative controls were gradually reduced.

Tariffs were also reduced over time.

6. Exchange-rate reforms
The exchange-rate system was reformed and the rupee was significantly devalued in
1991.

7. Financial-sector reforms
Reforms were introduced to improve the efficiency and competitiveness of banks and
financial institutions.

8. Tax reforms
The government attempted to simplify taxation, lower rates and broaden the tax base.

Merits of the New Economic Policy

1. Higher economic growth
India experienced a significant acceleration in economic growth over the subsequent
decades.

2. Greater competition
Liberalisation increased competition and encouraged firms to improve productivity and
efficiency.

3. Expansion of private sector

The role of private enterprises increased substantially.

4. Foreign investment
India became increasingly integrated with the international economy and attracted greater
foreign investment.

5. Technological improvement
Greater international competition and foreign investment facilitated the introduction of new
technologies.

6. Expansion of exports and services

India's service sector, particularly IT and business services, expanded significantly.

Criticisms of the New Economic Policy

1. Employment concerns
High economic growth did not always generate sufficient formal and productive
employment, giving rise to concerns about jobless growth.

2. Inequality
The benefits of liberalisation have not been distributed equally across all income groups
and regions.

3. Regional disparities
Investment has tended to concentrate in states and regions with better infrastructure and
human capital.

4. Pressure on small industries

Small and inefficient domestic firms faced increased competition from larger domestic and
foreign firms.

5. Agricultural concerns
The reforms initially focused more strongly on industry and services, while agriculture
continued to face structural problems.

6. Greater external dependence

Greater integration with global markets exposed India to international shocks.

Overall assessment
The New Economic Policy represented a major transformation from a highly regulated
economy towards a more market-oriented and globally integrated economy.

It helped overcome the immediate crisis and improved efficiency, investment and
competitiveness. However, the reforms did not automatically solve problems such as
poverty, unemployment, inequality and regional disparities.

Conclusion
The NEP of 1991 was an important turning point in India's economic history. It successfully
addressed many structural weaknesses and created conditions for faster growth, but the
benefits of growth need to be supported by inclusive development, employment
generation, social protection and investment in human capital.

13. “Growth alone cannot solve the problem of poverty

and unemployment.” — Justify the statement.
10 marks

Introduction
Economic growth means an increase in the production of goods and services, generally
reflected by an increase in real GDP.

Economic growth is necessary for poverty reduction and employment generation, but it is
not sufficient by itself.

Hence, the statement that “growth alone cannot solve the problem of poverty and
unemployment” is justified.

Why growth is important

1. Creates employment opportunities
Expansion of production can increase demand for labour and generate employment.

2. Raises incomes
Higher production and employment can increase household incomes.

3. Increases government revenue

Economic growth expands the tax base, giving the government greater resources for
welfare programmes.

4. Enables public investment

Higher government revenue can finance expenditure on:
education,
healthcare,
infrastructure, and
 social security.

Thus, growth creates the resources required for poverty reduction.

Why growth alone is insufficient

1. Unequal distribution of income
If the benefits of growth are concentrated among richer groups, poor households may
receive little benefit.

For example:

GDP ↑ → income of rich ↑↑ → income of poor ↑ only slightly

In such a situation, poverty may persist despite rapid economic growth.

2. Jobless growth
Growth may occur in highly capital-intensive sectors that generate relatively few jobs.

For example, increased output through automation may raise GDP without creating
sufficient employment.

3. Sectoral imbalance
If growth is concentrated in sectors such as finance, IT and capital-intensive industries,
workers without specialised skills may not benefit.

4. Rural poverty
A large section of India's poor has historically depended on agriculture and informal
employment. Growth concentrated in urban areas may not adequately improve rural
livelihoods.

5. Human capital constraints

Poor households may lack access to:
quality education,
 healthcare,
nutrition,
skills and
productive assets.

Therefore, they may be unable to take advantage of new economic opportunities.

6. Regional disparities
Growth may be concentrated in certain states and cities, leaving backward regions behind.

7. Informal employment
Even when employment increases, many workers may remain in informal jobs
characterised by:
low wages,
insecure employment,
poor working conditions, and
limited social security.

Policies required along with growth

1. Employment-oriented growth
Growth should be concentrated in sectors capable of generating large numbers of
productive jobs.

2. Investment in education and health

Human-capital development enables poor households to participate effectively in
economic opportunities.

3. Skill development
Vocational training and skill programmes can reduce skill mismatch.

4. Rural development
Investment in irrigation, rural infrastructure, agriculture and non-farm activities can increase
rural employment.

5. Social security
Programmes for food security, employment support and income protection can protect
vulnerable groups.

6. Redistribution
Progressive taxation and targeted transfers can ensure that the gains from growth are more
widely shared.

Growth with equity

The desirable objective is therefore:

High growth + employment generation + equitable distribution + human

development

This is often referred to as inclusive growth.

Conclusion
Economic growth provides the resources and opportunities necessary for reducing
poverty and unemployment, but it does not automatically ensure that these benefits reach
all sections of society.

Therefore, India requires inclusive, employment-intensive and regionally balanced

growth, supported by education, healthcare, skill development, social protection and
appropriate redistributive policies.

14. Discuss the main recommendations of Narasimham

Committee in 1991. What challenges in the banking
sector led to the formation of this committee?
7 + 3 marks

Introduction
The Narasimham Committee, headed by M. Narasimham, was constituted in 1991 to
examine India's financial and banking system and recommend reforms.

Its recommendations became an important foundation for the banking-sector reforms of

the 1990s.
A. Main recommendations of the Narasimham
Committee
7 marks

1. Reduction of Statutory Liquidity Ratio (SLR)

The Committee recommended reducing the very high SLR requirements imposed on
banks.

This would release more resources for productive lending.

2. Reduction of Cash Reserve Ratio (CRR)

The Committee recommended reducing excessive CRR requirements so that banks would
have greater lendable resources.

3. Introduction of prudential norms

Banks were recommended to follow internationally accepted prudential norms relating to:
income recognition,
asset classification,
provisioning, and
capital adequacy.

4. Capital adequacy
Banks were required to maintain adequate capital relative to their risk-weighted assets.

This would strengthen the financial position of banks.

5. Reduction of Non-Performing Assets

The Committee emphasised recognition and management of Non-Performing Assets
(NPAs).

Banks needed to improve the quality of their loan portfolios.

6. Greater operational autonomy
Public-sector banks were recommended to receive greater autonomy in their operational
and managerial decisions.

7. Strengthening competition
The Committee favoured greater competition in the banking system and recommended
allowing new private-sector banks subject to appropriate regulations.

8. Banking structure
It recommended a more efficient banking structure with different categories of banks
performing different functions.

9. Reforms in interest-rate policy

The Committee favoured greater flexibility and gradual deregulation of interest rates.

B. Challenges that led to the formation of the

Committee
3 marks

1. Financial repression
Banks operated under extensive government controls, including high reserve requirements
and administered interest rates.

2. Poor financial health

Many public-sector banks had weak balance sheets, low profitability and increasing bad
loans.

3. High NPAs and weak asset quality

Banks often failed to adequately recognise bad loans, resulting in deterioration of their
financial position.

4. Low profitability
High operating costs and inefficient lending reduced bank profitability.

5. Lack of competition
The dominance of public-sector banks reduced competitive pressure and efficiency.

Conclusion
The Narasimham Committee provided the foundation for transforming Indian banking from
a highly controlled system into a more competitive, financially sound and market-
oriented banking system.

Quick Exam Revision Sheet

GROUP A — One-line revision
Question Key answer

Urban Bias Preference of development policy towards urban areas

Nehru-Mahalanobis failure Heavy-industry bias + foreign-exchange/resource

constraints

Hidden momentum Population continues growing due to large reproductive-

age population

Replacement fertility About 2.1 children per woman

1991 crisis Fiscal imbalance + BOP crisis

FEMA Foreign Exchange Management Act, 1999

FDI vs FPI Direct/control-oriented vs portfolio investment

Trickle-down Benefits of growth eventually spread to poorer groups

PL-480 US agricultural/food assistance programme

Education policies NEP 1986 and NEP 2020

Structural retrogression Movement towards a less desirable industrial structure

FRBM Fiscal discipline and sustainable public finances;

enacted 2003
Question Key answer

Public-sector weakness Inefficiency + bureaucratic/political interference

Tax reforms Simplification + broadening tax base

CENVAT Central Value Added Tax

Most important 10-mark answers to prepare first

If this is for exam preparation, prioritise these four:

⭐ 1. New Economic Policy, 1991

Crisis → LPG reforms → merits → criticisms → conclusion

⭐ 2. Growth, Poverty and Unemployment

Growth necessary → growth not sufficient → inequality → jobless growth →
inclusive growth

⭐ 3. Narasimham Committee
Banking problems → SLR/CRR → prudential norms → capital adequacy → NPA →
autonomy → competition

⭐ 4. Indian Planning and Implementation

Objectives → planning achievements → implementation problems → balanced
conclusion

These four cover a large portion of the conceptual core of the paper.

The uploaded paper itself contains 2 pages and asks exactly these Group A, B and C
questions; the answers above have been structured according to the 2-mark, 5-mark and
10-mark divisions visible on pages 1–2. 6. CU Paper Sem-IV (CCF) Indian…

Sources

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