ECONOMICS OPTIONAL, UPSC CSE

GUIDANCE FOR ECONOMICS

OPTIONAL IN
UPSC MAINS
Why this optional?
Since last two-three years, UPSC seems to be awarding
economics well and it is no longer
considered to be a low-scoring optional. The subject is
technical in comparison to the other
mainstream optionals but is equally (or rather more?)
relevant in current times. All said and done,
the input output ratio of this optional is positively
correlated and it is unlikely that if you have
done the paper well that you will get low marks.
Who should go for this optional?
I would strongly recommend students who have studied
economics at graduation and/or postgraduation
level to consider it as an optional for this exam. The level
of questions is equivalent to
BA Economics (Honours) course. Management students
shall also not find it too difficult if they are
interested in the subject and have studied basic
Economics as part of their curriculum. Students
from engineering background can also consider
Economics as an optional but their learning curve
might not be steep.
While Economics students can complete UPSC Econ
syllabus in less than two 2 months, engineers
may require about 4-5 months to understand and
appreciate the subject. This time span varies
across individuals and is primarily dependent on your

interest and grasp of concepts. Economics is

a bit mathematical so if you have been out of touch of
mathematics since +2, this may not be thideal optional
for you.
Availability of material is a concern for this subject. While
I didnt attend any coaching, none is
considered to be good enough to guide you for this
optional. One should be prepared for selfstudy,
primarily through multiple books and Internet for this
optional.
Books to refer
Here I am listing material I referred to for this subject.
This is by no means the only source and one
needs to figure out what works for them and plan out
accordingly.
Paper 1
Topic 1: Advanced Micro Economics
Marshallian and Walrasian Approaches to Price
determination
Link - good to understand the concept,
mathematical details need not be
emphasised
Alternative Distribution Theories: Ricardo, Kaldor,
Kalecki
Advanced Economic Theory by Ahuja (only
about 30-40 pages of the heavy book)
Markets Structure: Monopolistic Competition, Duopoly,
Oligopoly
Pindyck and Rubenfield
Modern Welfare Criteria: Pareto Hicks & Scitovsky,
Arrows Impossibility Theorem, A.K. Sens Social Welfare
Function
Advanced Economic Theory by

Ahuja (again,very few pages of the book).

Understanding Sens Social Welfare
Function is a bit tricky but I referred to what
was taught at my PG course at DSE.
Topic 2: Advanced Macro Economics
Macroeconomics by Froyen is a wonderful source for this
section. However, one might find it a bit
wordy and hence confusing. To bridge this gap, one can
refer to Economics for UGC NET by
Ramesh Publications. This book is not good to built
concepts but has certain topics in a very
precise format and some of these have also been asked
by UPSC in the past.
Topic 3: Money Banking and Finance
Banking Froyen and the UGC NET book mentioned above
are good source for this
section. For theories on demand for money, I referred to
this link:
http://www.oswego.edu/~edunne/340chapter21.html
Public Finance Public Finance by Musgrave
Topic 4: International Economics
International Economics by Salvatore is a bible for this
section. Ideally, this should be read covertocover to build overall conceptual clarity but certain topics
not in the syllabus can be left at the
end. I had studied this subject as part of my graduation
from Paul Krugmans IE. Thats also a good
book but UPSC seems to hand pick topics directly from
Salvatore in the exam and its syllabus is
also organized as per the contents of this book. It is
preferable to stay with one book as the
approach of the two is a bit different.
Topic 5: Growth and Development

Theories of growth Development Economics by Debraj

Ray (for
Harrods model, Lewis model, human capital and
economic growth) and Thirlwall (Balanced and
Unbalanced growth, human capital and economic
growth and research and development and
economic growth)
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.
Thirlwall
Economic development and International Trade
and Investment, Role of Multinationals.
Salvatore/ Debraj Ray
Planning and Economic Development: changing
role of Markets and Planning, Private- Public
Partnership
Uma Kapila (this is a bit abstract topic as long as
you have studied it as part of General Studies, its
fine)
Welfare indicators and measures of growth
Human Development Indices. The basic needs
approach.
Internet plus Thirlwall
Development and Environmental Sustainability
Renewable and Non Renewable Resources,
Environmental Degradation, Intergenerational
equity development.
Thirlwall
I had also referred to the UGC NET book mentioned above
for this section since it was precise and
easy to revise just before the exam.

In 2013 Mains, Paper 1 wasnt as straight forward as

previous years. A number of questions were
model-based and seemed non-doable while writing the
exam. While I think this was more of an
exception than indicating any trend for questions in
future, it will still be a good idea to focus a bit
more on mathematical side of the concepts. In any case,
it is fine to leave 10-20 marks worth of
questions if they seem to be entirely un-doable.
Paper 2
This paper has some semblance with General Studies but
requires greater in-depth study. The
syllabus has two components:
Indian Economy in Pre-independence Era Since I had
studied this topic at UG level, I referred
to my notes and various readings in the course.
Indian Economy after Independence The Pre
Liberalization story is dealt well in Uma Kapila
and one can refer to Internet for more references.
Remnant topics can be covered from Dutt and
Sundaram it is not a great book but is useful for topics
that are not covered elsewhere. For
Post Liberation Era, one can refer to the following
sources: (1) Latest Economic Survey; (2)
Uma Kapila; (3) Speeches by RBI Governor/ Dy. Governors
on relevant topics (available on
rbi.org.in); and (4) Newspaper articles One should
regularly follow a business/ economics
newspaper (I prefer Business Standard). Editorials of Mint
newspaper should also be followed.
Another brilliant source is of course The Economist
magazine whose articles are regularly
published in The Indian Express. EPW also has excellent
articles on macro-economic trends

do search for them on their website (no need to take

regular subscription, just get the ones that
are relevant).
One should rely extensively on Internet to understand
and prepare notes on topics in this section.
Making notes is a must since the topics are vast and
sources multiple. I had also referred to Neeraj
Singhs notes (Rank 11, CSE 2011) for certain sections. I
shall upload my notes soon for
everybodys reference these might be a bit dated for
this years exam but hopefully should be
useful. I would encourage readers to check Gaurav
Aggarwals blog for guidance in this paper as he
scored a majestic 162/250.
Certain dos for the exam:
1. Solve past years, including relevant questions from IES
exam.
2. Study from books rather than coaching notes,
especially for Paper 1.
3. Make notes so that it is easier to study before the
exam within a day I did this only for Paper 2
as I was confident and clear on topics in Paper 1.
4. Revise multiple times to ensure that the concepts are
entrenched in your memory.
5. Practice diagrams and have conceptual clarity.
6. Have one source for one topic so that revision at the
end is organized. It is also good to flag in
the syllabus the source for each topic as every topic has
multiple sources for its sub-topic.
7. Before writing down the answers, spend 5min in
planning which questions you would want to
answer. Given the answers are to be written in a booklet,
attempting the ones you know well

first shall be a good strategy.

8. Join google group for econ preparation a good forum
to discuss doubts/ strategy etc.
(econsiasprep@googlegroups.com)
Guidance on writing answers
For Paper 1, focus should be on correctly outlaying the
answer in a precise manner without any
concern about word limit that is, there is no need to
unnecessarily stretch an answer to fit in the
word limit. I preferred writing in a mix of points and
paragraphs with entire emphasis on conveying
to the examiner that I knew the answer. Wherever
possible, use diagrams these should be
properly labelled and axis correctly named. Answering a
question also becomes easier with
diagrams. Problem-solving questions can earn high marks
so make sure that you have all the steps
correct and final answer fits in the model. I was not used
to solving market-related problems for
UPSC and had spent a good 10min in correcting my silly
mistakes! Thus, be prepared for all types
of questions and do not loose your patience while
attempting them in the exam.
For Paper 2, my answers were organised in the form of
introduction, main body in points and
conclusion. Again, I was not too concerned about the
word limit as such but the quality of the
answer was my key concern. The answer should have a
central theme and direction and should not
look abstract it should answer the question asked in the
exam and not what you have prepared
during your preparation. Also try connecting Paper 1
concepts wherever possible. Being broadminded
and incorporating what you have studied as part of

General Studies shall also be helpful.

ECONOMICS
PAPER I
1. Advanced Micro Economics:
(a) Marshallian and Walrasiam Approaches to Price determination.
(b) Alternative Distribution Theories: Ricardo, Kaldor, Kaleeki
(c) Markets Structure: Monopolistic Competition, Duopoly,
Oligopoly.
(d) Modern Welfare Criteria: Pareto Hicks & Scitovsky, Arrows
Impossibility Theorem, A.K. Sens Social Welfare Function.
2. Advanced 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.
3. Money - Banking and Finance:
(a) 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 growth
rate of money.
(b) 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.
4. International Economics:
(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.
5. Growth and Development:
(a) (i) Theories of growth: Harrods model,
(ii) Lewis model of development with surplus labour
(iii) Balanced and Unbalanced growth,
(iv) Human Capital and Economic Growth.
(v) Research and Development and Economic Growth
(b) 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.
(c) Economic development and International Trade and
Investment, Role of Multinationals.
(d) Planning and Economic Development: changing role of
Markets and Planning, Private-Public Partnership
(e) Welfare indicators and measures of growth Human
Development Indices. The basic needs approach.
(f) Development and Environmental Sustainability
Renewable and Non Renewable Resources,Environmental
Degradation, Intergenerational equity development.
PAPER II
1. 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.
2. Indian Economy after Independence:
A 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.
B 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, Disinvestments, Role of foreign
direct investment and multinationals.
(iii)New Economic Policy and Trade: Intellectual property rights:
Implications of TRIPS, TRIMS, GATS 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.