Evaluate whether an emerging economy can develop by expanding its service sector instead of manufacturing.
4.3.3 · 4.1.2
India supports it- Services ~55% of output; IT industry revenue ~$280 bn a year, mostly exports.
- Services surplus covers most of the goods deficit.
- 7%+ growth without a big factory sector.
India warns against it- Skilled services employ few people; 43% still farm.
- Low-skilled workers have no ladder into productive jobs.
- AI may automate routine IT and call-centre work.
ChainEducated English-speaking graduates → comparative advantage in IT services → services exports ↑ → (X−M) and incomes ↑ in cities → but few jobs for low-skilled workers, so inequality widens.
JudgmentServices can deliver growth, but development needs mass employment. It depends on whether services jobs can absorb low-skilled workers. India shows a services route raises GDP faster than it raises living standards for the majority.
Assess whether a young and growing population will raise a country's long-run growth.
2.3 · 4.3.2
Yes- Median age ~29; working-age share rising until the 2040s.
- Lower dependency ratio → more saving and investment.
- Large domestic market attracts firms.
Not automatically- Female participation only 40%.
- Youth unemployment 9.9%; a quarter of youth are NEET.
- Stunting and weak schooling cut productivity.
ChainMore people of working age → labour supply ↑ → LRAS shifts right → potential growth ↑, but only if workers have skills and there is capital and demand to employ them.
JudgmentA dividend is only an opportunity. East Asia cashed in through education and factory jobs. India's result depends on human capital and job creation, especially for women.
Evaluate the effectiveness of interest rates in controlling inflation in an emerging economy.
2.6 · 4.4.3
Effective- Inflation targeting since 2016 anchored expectations.
- CPI fell to 0.25% (Oct 2025), allowing rate cuts to 5.25%.
- An independent committee (MPC) adds credibility.
Limited- Food is a big share of the CPI basket; monsoon shocks drive prices.
- Oil shock pushed CPI to 4.8% (Aug 2026) regardless of rates.
- Large informal sector weakens the transmission mechanism.
ChainRepo rate ↑ → bank lending rates ↑ → borrowing and spending ↓ → AD ↓ → demand-pull inflation ↓; but cost-push from food and oil is unaffected.
JudgmentRates work on demand-pull inflation and on expectations. For supply shocks the RBI is right to "look through" the first effect and act only if it spreads to wages and core prices.
Assess the impact of tariffs imposed by a major trading partner on an emerging economy.
4.1.6
Big impact- US tariff rose to 50% in Aug 2025.
- Labour-intensive sectors (textiles, gems, shrimp) lost orders.
- Uncertainty delayed investment in export capacity.
Smaller than feared- Exports are only ~20% of GDP; growth driven by domestic demand.
- Many services and pharma were not hit.
- Tariff cut to 18% in Feb 2026; trade diverted to other markets.
ChainUS tariff ↑ → price of Indian goods in US ↑ → US buyers switch to Vietnam or Bangladesh → Indian export orders ↓ → job losses in labour-intensive clusters.
JudgmentThe macro effect was small, but the effect on specific low-wage regions was large. Impact depends on openness, the share of exports going to the tariff country and how easily buyers switch.
Evaluate the use of subsidies to firms as a supply-side policy to develop manufacturing.
2.6 · 4.3.3
Works- PLI drew Apple's suppliers; phone exports grew rapidly.
- Builds clusters, skills and supplier networks.
- Helps India gain from "China plus one".
Doubts- Much of the value added is still imported components.
- Opportunity cost: money could fund schools or roads.
- Government failure: firms lobby, subsidies hard to remove.
ChainSubsidy per unit of output → lower costs for firms producing in India → FDI and capacity ↑ → exports and factory jobs ↑ → LRAS ↑.
JudgmentSubsidies attract assembly quickly. Lasting success depends on fixing the underlying costs (power, land, logistics, skills), otherwise firms leave when the subsidy ends.
Discuss the problems a large informal sector creates for economic development.
4.3.2 · 4.5.2
Problems- ~90% of workers informal: no pensions or sick pay.
- Narrow tax base; low tax revenue.
- Small firms cannot borrow or grow; low productivity.
But- Acts as a safety net when formal jobs are scarce.
- GST and UPI are slowly formalising firms.
- Demonetisation (2016) shows forced formalisation can harm the poor.
ChainFirms stay informal to avoid tax and regulation → stay small, no access to bank credit → little investment in capital → low productivity and wages → slow development.
JudgmentInformality is a symptom of low productivity as much as a cause. Making formal work cheaper and easier works better than punishing informality.
To what extent does economic growth reduce absolute poverty?
4.2.1 · 2.1.1
A lot- Extreme poverty 27.1% → 5.3% (2011-12 to 2022-23).
- ~270 m people lifted above $3 a day.
- Growth funded free food grain and digital transfers.
Limits- ~24% still under $4.20 a day.
- Gains concentrated in richer southern and western states.
- Top 10% take ~58% of income.
ChainReal GDP ↑ → more jobs and higher wages, plus more tax revenue → transfers to the poor → consumption of the poorest ↑ → absolute poverty ↓.
JudgmentGrowth is necessary for cutting absolute poverty; redistribution and jobs decide how fast. India shows big falls in extreme poverty with little change in relative gaps.
Assess the importance of remittances for a developing or emerging economy.
2.1.4 · 4.3.3
Important- World's largest recipient: ~$150 bn (2025).
- Help finance the goods deficit; keep the CAD small.
- Raise household consumption and fund education in states like Kerala.
Limits- Small relative to GDP (~3–4%) compared with Bangladesh or Nepal.
- Depend on Gulf oil economies and US jobs.
- Brain drain: skilled workers leave.
ChainWorkers abroad send money home → inflow on secondary income → current account deficit ↓ and rupee supported → household spending and investment in human capital ↑.
JudgmentFor India remittances act as a stabiliser. They are too small to drive growth. They matter more for smaller, poorer economies where they exceed 5–10% of GDP.
Evaluate the case for higher government spending on infrastructure in an emerging economy.
2.2.4 · 4.5.1
For- Capex budget ₹12.2 trn (2026-27): roads, rail, ports.
- Cuts logistics costs, helps manufacturing compete.
- Multiplier effect on demand while building LRAS.
Against- Government debt ~80% of GDP; high interest bill.
- Projects delayed by land acquisition.
- May crowd out health and education spending.
ChainPublic capital spending ↑ → AD ↑ via multiplier in the short run → lower transport and energy costs → private investment crowded in → LRAS ↑.
JudgmentStrong where the infrastructure gap is large, as in India. The return depends on project selection and on funding it without driving up borrowing costs.
Discuss whether an emerging economy should lower its tariffs and join more free trade agreements.
4.1.5 · 4.1.6
Should- High tariffs raise input costs and keep India out of supply chains.
- UK (2025) and EU (2026) deals open big markets for textiles and services.
- Competition raises efficiency.
Caution- Left RCEP in 2019, fearing a flood of Chinese imports.
- Protects farmers, who are nearly half the workforce.
- Infant industries may need time.
ChainLower tariffs on inputs → cheaper components → lower production costs → exports more competitive → firms join global value chains → jobs and productivity ↑.
JudgmentSelective liberalisation with rich partners (UK, EU) brings gains with fewer risks than opening fully to China. Agriculture is the sector where caution is easiest to justify.