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UPSC Economics Optional – How to Prepare?
ABOUT UPSC ECONOMICS OPTIONAL
Economics as an optional in UPSC Mains has been gaining steady popularity, mainly due to the fact that few toppers had chosen this subject and many others have got handsome marks in the past few years. But that shouldn’t be the criterion that determines whether you chose a subject as your optional.
I am not going to demystify myths regarding scoring in UPSC Mains examination. Let’s just keep it simple and straight, you choose a subject if you find it intriguing and interesting, else you shouldn’t to a large extent.
The rewards you reap will inevitably be positively correlated to your efforts and if you attempt a paper well enough, you are bound to get good marks, no matter whatever subject you chose – the same applies to Economics optional for UPSC as well.
QUESTIONS OVER THE YEARS FOR UPSC ECONOMICS OPTIONAL
Paper 1 deals with the theoretical aspects of economics (Don’t mistake Economics Optional paper to be just an extension of what you have read while preparing for your Prelims, it’s a lot more than that). The questions in this section are usually not straight forward and requires some amount of analytical thinking. It requires you to have an understanding and grasp over the concepts. That said, it doesn’t necessarily mean the questions are tough. Once you are thorough with the theory, application pretty much becomes simpler.
Further, while mathematical component remains core to Economics study during graduation, UPSC does not require you to flaunt your derivation skills. Its always good to keep it simple and precise.
Paper 2 is concerned with the Indian economy and this is one paper that shouldn’t take much of an effort on your part to grasp. This paper is an extension of all what you learn during prelims and mains. The questions are relatively simple and require some form of critical thinking. So one must be able to back arguments with relevant data. Yes, you heard it right, you need to mug up some facts and figures for this paper. Writing an essay is not the focal point of this paper and you need to be able to display your understanding of the economic history and the current scenario ably backed by numbers.
While paper 2 seems the simpler of the lot, scoring patterns have displayed that Paper 1 tends to be more scoring. This is more so to do with the fact that Paper 1 has one right answer and if you hit the bulls eyes, you end up scoring more.
UPSC ECONOMICS OPTIONAL PREPARATION STRATEGY
Now getting straight to business, this strategy to deal with UPSC Economics optional has been devised keeping in mind that a lot of students who chose the subject are pretty much new to it. So I have made an effort to include basic books as well as books that would be a good read. (Indian authors are painful to read, but then they pretty much serve you everything from the exam point of view. The advice would be to start with foreign authors for concepts and then move to Indian books to strengthen your answers).
For a start, you can read Principles of Economics by Gregory Mankiw. This book highlights all the concepts of the subject in lucid terms and you are bound to enjoy Economics for life.
UPSC ECONOMICS OPTIONAL PAPER 1
| UPSC ECONOMICS OPTIONAL PAPER 1 | ||
|---|---|---|
| ADVANCED MICRO ECONOMICS | ||
| Syllabus | Books to Refer | Previous Year UPSC Questions |
| Marshallian and Walrasian Approaches to Price determination | There are no books that really cover this topic in its entirety. But you can refer to Advanced Economic Theory by H.L. Ahuja for this purpose. Further notes from DSE can also be used along with useful material online. | |
| Alternative Distribution Theories: Ricardo, Kaldor, Kalecki | One has to go back Advanced Economic Theory by H.L. Ahuja again. This book pretty much covers all the distribution theories decently. | Q 1. In what way Kaldor’s model of income distribution is basically a Keynesian theory? Q 2. Explain the backward sloping supply curve of labour as a choice between income and leisure. |
| Markets Structure:Monopolistic Competition, Duopoly, Oligopoly | Obviously you can chose to start with H.L. Ahuja and move onto Hal. R. Varian’s Microeconomic Analysis. Microeconomics by Robert Pindyck and Daniel Rubinfield is also a good read for this purpose. | Q 1. Under perfect competition, in the short run, find out graphically, without using average cost curve, the conditions in equilibrium for the existence of (i) normal profit, (ii) supernormal profit and (iii) loss. Q 2. Explain how Nash equilibrium provides a solution to the problem of strategic interdependence among firms in an oligopolistic market. |
| Modern Welfare Criteria: Pareto Hicks & Scitovsky, Arrow’s Impossibility Theorem, A.K. Sen’s Social Welfare Function | H.L. Ahuja again is the guy for you as no other book mentions Scitovsky also in great detail. In addition you can refer to the book On Economic Inequality by Amartya Sen. | Q 1. How is Kaldor-Hicks compensation principle an improvement over Pareto optimality criterion? What are Scitovsky’s views in this regard? |
| ADVANCED MACRO ECONOMICS | ||
|---|---|---|
| Syllabus | Books to Refer | Previous Year UPSC Questions |
| 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. | Modern Economics by H.L. Ahuja, Macroeconomics by Gregory Mankiw and Macroeconomics by Richard Froyen will be the one stop all books to cover these topics exhaustively. A Macroeconomics reader by Snowdon and Vane can be an excellent value addition. | Q1. ”Under rational expectations hypothesis, systematic monetary policy will be ineffective.” Explain this statement using a suitable model. Q 2. Explain the meaning and significance of money illusion on the part of workers in the Keynesian theory of employment. |
| MONEY - BANKING & FINANCE | ||
|---|---|---|
| Syllabus | Books to Refer | Previous Year UPSC Questions |
| Demand 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. | Modern Economics by H.L. Ahuja, Money & Banking by N.K. Sinha and Macroeconomics by Richard Froyen. | Q 1. “If the interest elasticity of demand for money is low, the monetarists could predict the real GNP simply by the -use of money supply.” Explain this statement. Q 2. Explain repo rate and reverse repo rate. How do changes in the repo rate affect EMIs of borrowers? Q 3. Show that liquidity preference is neither necessary nor sufficient for the existence of involuntary unemployment in Keynesian system. Q 4. Derive money multiplier when a part of money supply is exogenous and the other part is endogenous. Q 5. In the event of persistent inflation in an economy, what changes the Central Bank will bring about in (i) reserve ratios, (ii) bank rate and (Hi) open market operations? |
| Public Finance and its Role in Market Economy: In stabilization of supply, allocation of resources and in distribution and development. Sources of Govt. 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. | The book to refer on the topic is Public Finance in Theory and in Practice by Musgrave and Musgrave. | Q.1 “Subsidies have both positive and negative impacts on the economy.” Explain this statement and illustrate your answer with Indian experience. |
| INTERNATIONAL ECONOMICS | ||
|---|---|---|
| Syllabus | Books to Refer | Previous Year UPSC Questions |
| (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 under development in an open economy. (b) Forms of Protection: Tariff and quota. (c) Balance of Payments Adjustments: 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 macro-model. (vii) Speculative attacks (viii) Trade Blocks and Monetary Unions. (ix) WTO: TRIMS, TRIPS Domestic Measures, Different Rounds of WTO talks. | Well, I am not going to go topic wise as there is only one book for this purpose. The bible of International Economics by Dominick Salvatore (Pretty much the Laxmikant of International Economics). This will be one of the best reads that you will ever find for all the topics in this section. | Q 1. How do depreciation and appreciation in the external value of a currency impact a country’s balance of payments? Q 2. In the context of a two- country model, derive foreign trade multiplier and explain its working. What will be its repercussion? |
| ECONOMIC GROWTH AND DEVELOPMENT | ||
|---|---|---|
| Syllabus | Books to Refer | Previous Year UPSC Questions |
| Theories of growth | The best book is Advanced Macroeconomics by David Romer, Development Economics by Debraj Ray and Thirlwall would suffice to cover all the theories of growth. You can additionally refer to H.L. Ahuja in case you want. | Q 1. Do you think that the root of Harrod’s instability problem lies in the assumption of wage- price rigidity? Give arguments in favour of your answer. Q 2. “Balanced and unbalanced growth strategies are not substitutes but complementary to each other.” Explain this statement. 3. In an economy having two sectors, namely, goods-producing sector and Research and Development (R &D) sector, prove with the help of new growth theory that (i) both capital and aggregate output must grow at the same rate and (ii) per capita output must grow at the rate of growth of technology. |
| Process of Economic Development of Less developed countries: Myrdal and Kuznets on economic development and structural change: Role of Agriculture in Economic Development of less developed countries. | Economic Theory and Underdeveloped Regions By Myrdal along with Thirlwall is the book that must be referred in this area. | Q 1. What is ‘immiserizing growth? How can it be prevented through trade policy interventions? |
| 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, Inter generational equity development. | Dominick Salvatore can be referred to again. In addition, Modern Economics by H.L. Ahuja can be used. | Q 1. Distinguish between Monetary union and Economic union. Do the proliferating trading blocks adversely affect the free trade in the world? Give reasons for your answer. Q2. What is indicative planning? In this context, explain how State and markets can play a synergetic role in economic development. Q3. How does carbon trading help in reducing environmental degradation? Q4. What do you mean by ‘green accounting*? Discuss how this concept can be incorporated in national income. |
UPSC ECONOMICS OPTIONAL - PAPER 2
| Indian Economy | ||
|---|---|---|
| Syllabus | Books to Refer | Previous Year Questions |
| Indian Economy in Pre- 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. | There are only two books that one needs to refer for this paper in addition to your normal prelims and mains studies. One is by Uma Kapila and the other by Dutt and Sundaram. Try to get your hands on the latest edition, so that the data will be updated. This will be your one stop shop for all the topics. In addition you will have to follow The Hindu and EPW for a critical perspective. | Q 1. How did railways contribute to India’s economic development in the pre-independence era ? Q 2. What specific trade policies during the British period led to the decline of Indian industry ? Explain. Q 3. During the British Rule, India was rooted with seeds of modernisation, but the country remained underdeveloped. Discuss. |
| 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 their in. (v) Broad factors determining National Income and distribution, Measures of poverty, Trends in poverty and inequality. | Q 1. What was the impact of policy reservation in favour of small scale industries in India during the post-independence but pre-liberalisation era ? Q 2. Why did the socialist order fail and the country had to resort to the market economy system ? Give reasons. Q 3. Do you think that pursuit of wage-goods model could have been more appropriate for post- independence strategy of development ? Give reasons. Q 4 Explain the major factors that affected the growth rate of the economy in post-independence India till 1991. Q 5. How does population growth affect economic development of a country ? Can the age-structure of population alter the pattern of development in a country? Examine in the light of the Indian experience. Q 6. What are the different types of agricultural subsidies that are given to the farmers in India ? How can these be rationalised ? Q 7. High Minimum Support Prices (MSP) induce distortions, some of which ultimately hurt the poor. Examine its merits and demerits. Q 8. Rural poverty continues to be a chronic problem in India, which cannot be taken care of by anti- poverty programmes but by creation of permanent productive assets. Discuss. |
|
| 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, Privatization, Dis-investments, Role of foreign direct investment and multinationals. (iii) New Economic Policy and Trade: Intellectual property rights: Implications of TRIPS, TRIMS, GATTS 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 decentralized 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. | Q 1 Do you think that full convertibility of rupee on capital account will help in accelerating India’s economic growth ? Give reasons. Q 2. The ‘dichotomy of development’ in India emerged owing to ‘governance deficit’ and ‘crony capitalism’. Examine. Q 3. It is often said that the prime generator of economic growth in India in the post-liberalisation period has been the service sector. Do you agree with this view ? What has been its implication on the balance of payments in India ? Q 4. Market economy excludes poor from the consumer as well as employment market. Discuss how one can safeguard the interests of. population below poverty line. Q 5. Highlight the basic features of National Food Security Act (NFSA), 2013. Can it solve the problem of malnutrition in the country ? Discuss. Q 6. Discuss the recent initiatives for augmenting power generation in India. Q 7. What are the broad features o f the proposed GST Model ? Q 8. What are the major factors behind accumulation of non-performing assets in the Indian banking sector in recent years ? Discuss. Q 9. Financial inclusion is one of the most essential components of inclusive growth. Comment. Q 10 . What is your opinion oh the view that the economic reform process has largely bypassed agriculture ? Q 11. In the context of the information technology revolution, Digital India Programme, is a significant instrument of administrative reforms. Do you agree? Q 12. What are the main components of the National Manufacturing Policy,2014 ? Discuss. Q 13. What are the major recommendations of the Fourteenth Finance Commission? |
|
Paper 1 of UPSC Economics Optional requires you to prepare separately, while Paper 2 can be done simultaneously along with India after Independence, GS Paper 2, GS Paper 3 and Current affairs (except for few areas).
Please also note that the above-mentioned list of books is not exhaustive by any means. But this would enable you to make a start in your preparation and enable you to understand economic concepts in layman terms.
You should be working on your Optional paper as soon as you begin your preparation of UPSC Civil Services Examination.
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Ajay Jaiswal says: How important is economic survey for the optional
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As you can see, Economic Survey is relevant only to some portion of Paper 2 of the Optional. However though its usefulness is not limited. You can utilise the Survey document for updated data with regard to the Indian economy and also for areas such as fiscal policy, monetary policy, external and internal trade related aspects.
The Economic Survey mostly though plays a crucial part in your GS Paper 3 of Mains and conceptual bit of Preliminary examination.
You can read the chapter wise analysis of Economic Survey here
@AjayJaiswal As you can see, Economic Survey is relevant only to some portion of Paper 2 of the Optional. However though its usefulness is not limited. You can utilise the Survey document for updated data with regard to the Indian economy and also for areas such as fiscal policy, monetary policy, external and internal trade related aspects.
The Economic Survey mostly though plays a crucial part in your GS Paper 3 of Mains and conceptual bit of Preliminary examination.
You can read the chapter wise analysis of Economic Survey here http://selflearn.co/economic-survey-2017-highlights-for-upsc
Archana says: Thanks to selflearn for the above article, it’s really very useful. My query is about answer writing in economics. As in a micro economics question we have to adjust both theory and diagrams by keeping in mind the world limit.,, how we can effectively fit the whole stuff in the form of answer to fetch maximum marks? Your response will be valuable . Thanks.
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If you have a look at the previous years question papers, you would see that UPSC gives the following instruction,
“Graphs/illustrations, wherever required, may be drawn/given in the space provided for answering the question itself”Now, this clearly shows that UPSC does expect you to provide diagrams and it’s relevance in Economics as a subject is invaluable.
Moving to answer writing,
Firstly, space is not much of an issue here as I feel UPSC does provide ample pages for an answer.Secondly, on managing the word limit effectively –
a) Keep your introduction to a minimum (a sentence or two at the most).
b) Answer the question clearly (no beating around or giving a long background) and bring out the main points.
c) In questions where diagrams are needed, draw the diagram on the left hand corner of the page and utilise the right hand corner to denote the various points (AD – Aggregate demand, AS – Aggregate supply etc).
Give a very brief explanation of your diagram highlighting the major phenomenon (the main objective is to explain some relationship between the variables and that should be the priority than explaining every point and line)You could end the answer with a one line conclusion.
PS – The key here is to attempt past question papers and see how well you are able to achieve a good answer.
Rakesh Sandy says: Is it necessary to buy all these books? Which books should I buy and which one should I prefer on internet? It will be really helpful if you can guide me through the books list I’d need to buy.
Amisha Yadav says: I want to know the relevance of EPW magazine for preparation especially for Economics optional. Is it good to subscribe for the magazine or the same articles can be found from app itself?
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Hello Amisha,
Since Economic Policy is part of Paper 2 syllabus, EPW will prove useful for the purpose, Just make sure that you read only the relevant articles.In some EPW articles, they use strong criticism against government policies, so just make sure that you don’t use the same language in your exams.
Mohd fahad says: Is it possible to cover the whole syllabus of economics optional after pre if someone done graduation in economics
Amit turan says: HL ahuja is vry lenghty and some chaptrs is not repevnt fr optional,,,,so whch chpts we need to skeep,,,bcz it creatng a big prblm fr non coachng students
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