UPSC CSE Prelims
Indian Economy: Historical Background & Economic Reforms Previous Year Questions (PYQs)
Showing solved Previous Year Questions for Chapter: Indian Economy: Historical Background & Economic Reforms
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With reference of the Indian economy after the 1991 economic liberalization, consider the following statements:
- Worker productivity (per worker at 2004-05 prices) increased in urban areas while it decreased in rural areas.
- The percentage share of rural areas in the workforce steadily increased.
- In rural areas, the growth in non-farm economy increased.
- The growth rate in rural employment decreased.
Which of the statements given above is/are correct?
Detailed Explanation:
Answer: Option 2 — 3 and 4 only
After the 1991 economic liberalization, rural India underwent structural changes with the expansion of non-farm sectors and a relative slowdown in rural employment growth. Statements 3 and 4 correctly capture these post-liberalization trends, while Statements 1 and 2 misrepresent the actual outcomes.
✅ Statement 3 – Correct: Rural non-farm economy growth expanded significantly post-1991 as diversification into manufacturing, construction, retail, and services provided alternative income sources beyond agriculture.
❌ Statement 1 – Incorrect: Worker productivity increased in both urban and rural areas after liberalization; it did not decrease in rural areas despite sectoral shifts.
❌ Statement 2 – Incorrect: The percentage share of rural areas in the workforce steadily decreased (not increased) as rural-to-urban migration accelerated due to better employment opportunities in industrial and service sectors.
✅ Statement 4 – Correct: The growth rate in rural employment decreased because agricultural sector contraction and inadequate labor absorption in new rural sectors created employment bottlenecks despite economic diversification.
With reference to India’s Five-Year Plans, which of the following statements is/are correct?
- From the Second Five-Year Plan, there was a determined thrust towards substitution of basic and capital goods industries.
- The Fourth Five-Year Plan adopted the objective of correcting the earlier trend of increased concentration of wealth and economic power.
- In the Fifth Five-Year Plan, for the first time, the financial sector was included as an integral part of the Plan.
Select the correct answer using the code given below.
Detailed Explanation:
Answer: Option 1 — 1 and 2 only
This question tests knowledge of the evolution of India's Five-Year Plans and their changing objectives. Statements 1 and 2 are correct as they accurately reflect the industrial thrust of the Second Plan and the equity focus of the Fourth Plan, while Statement 3 is incorrect regarding the timing of financial sector integration.
✅ Statement 1 – Correct: The Second Five-Year Plan (1956-1961), based on the Mahalanobis Model, emphasized rapid industrialization with a determined thrust on substitution of basic and capital goods industries to build a strong industrial base.
✅ Statement 2 – Correct: The Fourth Five-Year Plan (1969-1974) adopted the objective of correcting the earlier trend of increased concentration of wealth and economic power through measures like nationalization of 14 major banks (1969) and the MRTP Act.
❌ Statement 3 – Incorrect: The financial sector was not included as an integral part of planning during the Fifth Five-Year Plan (1974-1979); it was integrated from the Ninth Five-Year Plan (1997-2002) onwards.
📝 Short Notes: India's Five-Year Plans - Key Features
| Five-Year Plan | Period | Key Focus/Features |
|---|---|---|
| First Plan | 1951-1956 | Agriculture, irrigation, power; based on Harrod-Domar model |
| Second Plan | 1956-1961 | Rapid industrialization; Mahalanobis Model; focus on heavy and basic industries |
| Third Plan | 1961-1966 | Self-reliance and self-sustained growth; faced setbacks due to wars and droughts |
| Fourth Plan | 1969-1974 | Growth with stability; correcting wealth concentration; bank nationalization (1969) |
| Fifth Plan | 1974-1979 | Garibi Hatao; poverty alleviation and employment generation; terminated in 1978 |
| Ninth Plan | 1997-2002 | Financial sector integrated as part of planning; economic reforms consolidation |
Which of the following has/have occurred in India after its liberalization of economic policies in 1991?
- The share of agriculture in GDP increased enormously.
- The share of India’s exports in world trade increased.
- FDI inflows increased.
- India’s foreign exchange reserves increased enormously.
Select the correct answer using the codes given below :
Detailed Explanation:
Answer: Option 2 — 2, 3 and 4 only
After the 1991 economic liberalization, India witnessed significant structural changes in its economy. The service sector expanded rapidly while agriculture's contribution to GDP declined, foreign trade and investment increased substantially, and forex reserves grew dramatically due to improved external sector management.
❌ Statement 1 – Incorrect: The share of agriculture in GDP has consistently decreased since 1991, falling from around 30% to approximately 15-18%, as the service and industrial sectors expanded.
✅ Statement 2 – Correct: India's share in world exports increased from less than 0.5% in 1991 to around 1.7-2% currently, reflecting greater global economic integration.
✅ Statement 3 – Correct: FDI inflows increased dramatically from negligible amounts (less than $100 million annually) in the pre-liberalization era to billions of dollars annually post-1991.
✅ Statement 4 – Correct: India's foreign exchange reserves grew enormously from about $1 billion in 1991 (barely covering 2 weeks of imports) to over $600 billion in recent years, reflecting improved macroeconomic stability.
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Which of the following are associated with ‘Planning’ in India?
- The Finance Commission
- The National Development Council
- The Union Ministry of Rural Development
- The Union Ministry of Urban Development
- The Parliament
Select the correct answer using the code given below.
Detailed Explanation:
✅ Statement 2 – Correct: The National Development Council (NDC) was the apex body for approving and reviewing Five-Year Plans in India, directly associated with national planning.
✅ Statement 5 – Correct: Parliament has constitutional authority to approve Five-Year Plans and budgetary allocations for planned development.
❌ Statement 1 – Incorrect: The Finance Commission deals with tax devolution and grants-in-aid between Centre and States, not with formulating development plans.
❌ Statement 3 – Incorrect: The Union Ministry of Rural Development implements sectoral schemes like MGNREGA and PMAY-G, not overall national planning.
❌ Statement 4 – Incorrect: The Union Ministry of Urban Development (now Ministry of Housing and Urban Affairs) executes urban-specific programs, not macro-level planning.
The main objective of the 12th Five-Year Plan is
Detailed Explanation:
The 12th Five-Year Plan (2012-2017) had the theme "Faster, Sustainable and More Inclusive Growth".
It aimed for 8% GDP growth, 4% growth in agriculture, 10% growth in manufacturing, and focused on reducing regional disparities and poverty through inclusive development.