UPSC / IAS Preparation: Economics Optional

Has Optional Weight Gone Down in CSE 2013?

Even though on paper, UPSC has reduced the weightage of optional to half and doubled GS, by its marking pattern the effective weightage of optional has become more than GS! This is because in GS people have been awarded very low marks. So even if someone has done exceptionally well in GS, it is likely that his/her difference from others will still be less. On the other hand people have been awarded higher marks in optional, so that if someone has done exceptionally well in optional, he/she will score a lot of marks more than others. UPSC is a relative exam, only difference of marks matters. So importance of optional in CSE 2013 is more than GS for sure!

This year I have scored 296 / 500 in Economics (last year I scored 280 / 600). It won’t be unfair to say it was economics that made me an IAS this year.

Choosing an Optional

People often have many criteria to choose the optional.. some of them are…
– ‘Scoring’ optional: People think some optionals are more scoring than others.. Don’t know what to say on this. Every year UPSC changes the optionals it favors / punishes, so u never know whether the ‘scoring’ optional u took may end up in the ‘butchering’ list of UPSC next year..

– Overlap with GS: “Pubad le lo, GS ki bhi taiyyari ho jaayegi”… Nothing could be more dangerous than this attitude.. coz if we don’t like pubad, and still take it, then we anyways won’t be able to study it well enough and not only will we screw the pubad portion of GS but also additional 500 marks optional. We only amplify our weakness by this attitude.

I believe an optional must be chosen out of our strength. When I took economics, many people advised me against it saying economics is technical, not scoring etc. etc. But I knew economics was my strength… doesn’t matter if no one has scored 400/600 in economics so far, I know I would score it (as per the older marking scheme). When UPSC is giving us 500 marks to play by our strength, why should we pick anything else? These are our marks and let us score the maximum out of it. And ofcourse, such a strength can only develop when we have deep interest and luv for the subject.

Optional preparation requires a great deal of in depth study as well as wide coverage. One has to write like a historian to take history optional, one has to write like an economist to score well in economics. This is only possible when the subject is our strength.

I have no Economics degree. Should I take Economics as Optional?

That depends on your reason. If you want to take Economics optional only because the topper this year had it (and so it has become ‘scoring’), pls don’t.

If, on the other hand, you want to take it because u have been exposed to it briefly and found it very interesting and could understand it, then you can explore more. Even if you have no prior exposure, but think you will like it once exposed, you can explore more.

The only way to decide whether to take it or not is to study it for a week or two. Take any topic from the syllabus, say macro. Read the books i am mentioning below (or any other standard textbooks). If you are understanding what you are reading and can read it for long hours and still feel good, economics is your subject. Don’t worry if you can’t attempt previous years’ questions at this stage. That will come later. Only your understanding and keen interest should suffice at this stage.

So How to Prepare Economics Optional?

Stages of Preparation

There are multiple stages of preparation in a subject like Economics.

– Stage 1: In this stage, we just focus on understanding what we are reading. While reading, we must understand the concept fully. We will forget the thing 2 days after we have read it, don’t worry. We will not even understand half the questions which have been asked in previous years, don’t worry. We don’t even have a clue of how to write answers in the exam, don’t worry. Just ensure you understand what you are reading and finish the syllabus.

– Stage 2: This begins after the syllabus has been finished once. In the second time, we again focus on understanding what we are reading. This time we would find, it takes less time to understand all the stuff and most of it seems familiar once we read. Our retention would increase at this stage. Read, re-read, revise the syllabus 2-3 times, ensure that we can recall without any aid what was said in a given topic / theorem and can reproduce it on paper. At the end of this stage, we would still not be able to even understand half the questions in the paper.

– Stage 3: Many questions in the eco question paper are not direct i.e. they ll not ask write abt XX theorem. These questions are indirect and we won’t even know which theorem / model to apply! The aim of this stage is to identify which model to apply. This can only come if we sit down with previous years’ question papers and think and think and discuss with others on what model to apply for a particular question. by now we have internalised all the stuff, we can not only reproduce the entire model / theorem on paper but also understand when and where to apply them. We will be able to answer most (90-95%) of the questions in previous years’ question papers now.

Method of Studying

– In economics, diagrams are of utmost importance. UPSC economics is completely non mathematical and totally diagramatical. So while reading any model / theorem, we should simultaneously practise its diagram on paper / computer.

– Assumptions are very important while writing answers. We should clearly state all the assumptions in our answers and so we should systematically remember all the assumptions in any theorem / model.

– Stats: In eco 2, stats are very important. If we supplement our answers with stats, nothing like it. Not all stats need to be remembered, only important ones. I am mentioning the important stats to be remembered in the book list section.

Book List / Sources for Syllabus

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, Arrow’s Impossibility Theorem, A.K. Sen’s Social Welfare Function.

These topics have to be studied from HL Ahuja “Advanced Microeconomics”. Find the relevant chapters to study from this thick book. In addition, questions are asked on “Rent, quasi rent” and “Product Exhaustion Problem”, so study the relevant chapters also. HL Ahuja is UPSC exam standard book for micro. Sen’s swf and proof of Arrow can be studied from my notes. I took Sen’s swf from one of his book and proof of Arrow from one of Sen’s paper. Proof of Arrow given in HL Ahuja and taught by most coachings is wrong, it is simply a proof of Concordet’s paradox, not Arrow. Just imagine, had the proof of Arrow been so elementary, would he have got the Nobel prize for it?

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.

These topics should be first studied from HL Ahuja’s “Macroeconomics” book. This book is below UPSC exam standard, but reading this is essential to understand higher concepts. The UPSC level book is Brian Snowdon and Howard R Vane “Modern Macroeconomics” (given to me by Amit Sahu). Only first 5 chapters need to be studied from this book.

3. Money – Banking and Finance:

(a) Demand for 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.

This can be studied from HL Ahuja’s Macroeconomics and Snowdon’s Modern Macroeconomics (Ch 2, 3). Also, although UPSC doesn’t mention post keynesian Baumol’s and Inventory theory of money demand in syllabus, it asks questions on these. So read them from HL Ahuja. There are some topics for which material may be scarce, read them from my notes.

(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.

I studied from Musgrave and Musgrave, selected chapters. People also mention HL Bhatia a lot. I was satisfied with my preparation until I saw the public finance questions this year. I couldn’t even understand the questions. I don’t know where else to study public finance from.

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 Implicationns 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.

There is only one book on International Economics and it is by Dominick Salvatore. Diagrams are the key in IntEco.

5. Growth and Development:

(a) Theories of growth:

(i) Harrod’s model,
(ii) Lewis model of development with surplus labour
(iii) Balanced and Unbalanced growth,

These topics are covered well in A P Thirwall’s book. Todaro may also be referred for some topics.

(iv) Human Capital and Economic Growth.
(v) Research and Development and Economic Growth

These are dicey topics and cover many models. I studied them from a paper by John Bluedorn “The human capital augmented solow model” and a book “Introduction to Economic Growth” by Charles I. Jones (given to me by Amit Sahu).

(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.

Myrdal and Kuznets can be studied from AP Thirwall. Not all aspects of Myrdal are covered in Thirwall, I had one pdf I found after googling on Myrdal which covered aspects like how less developed economies have backwash effects strong and how developed democracies have stronger spread effects, I don’t seem to have the pdf now.

(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.

These are general topics and haven’t found a single source for them so far. Very little preparation.

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.

These I studied mainly from my hitory optional preparation for cse 2012. You can see some in my notes.

2. Indian Economy after Independence:

A The Pre Liberalization Era:

(i) Contribution of Vakil, Gadgil and V.K.R.V. Rao.

Till date I have not found a single decent source to prepare this. I have never been able to prepare this. If someone has a good source, pls let me know, I ll update here.

(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.

Uma Kapilla is a very good source for these topics. One should also focus on economic stats. Can also see my notes. Stats on efficacy of land reforms need to be remembered (see my notes), stats on economic growth rate, growth rates of agriculture, industry, manufacturing, capital goods, services, per capita income need to be remembered for 3 periods – 1950s to 1965, 1965 to 1980, 1980 to 1990.

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.

No single source. EPW helps. One also has to study a lot of research papers by eminent economists working in India. I studied a lot of them n put the gist in my notes. So can see my notes. Stats on poverty, unemployment (recent ones as well as from 1993-94) need to be remembered. See notes.

Answer Writing in Economics

Neeraj Singh (AIR 11, CSE 2011) told us the following things about answer writing. I am sorry I am reproducing his email without his permission but I hope he won’t mind. I don’t think I can put it in better words than him…

For paper 1

1. Make maximum use of graphs – I think ‘a picture is worth thousand words’ is much more than just an adage. Graphs are extremely helpful in writing precise answers in Econ. When you look at a question in paper 1 the first question you should be asking yourself is – What graph(s) would best answer this question? Try to think of ways in which you can answer the question through graphs. The benefit of using graphs is that once you make a graph, the writing part becomes very easy as it is only an explanation of the graph. It might not be possible to put graphs in every question but do give your best shot at explaining things through graphs.

2. Precision matters – We would agree that Econ is quite technical a subject with it own vocabulary. Being an economist you cannot hence afford to use words loosely. For example, if we are using the term ‘depreciation’ we must mean ‘depreciation’ and not ‘devaluation’. The answer that you write should reflect your absolute clarity over technical economic terms. Where it is possible to use a technical word go ahead and use it instead of explaining it in layman’s terms provided that you know that it is the precise technical term to be used in that place. I am sure all of us on the group are already good at this but just felt like pointing it out explicitly.

Precision is equally important in graphs as well. One simply cannot afford to draw graphs that look rough in the exam. If you are drawing isoprofit curves, for example, for firm A marked on X axis you have to ensure that the higher isoprofit curves are such that the maxima is always to the left of the lower one and the reaction curve passes through all these maxima. If you happen to draw the curves in such a way that the reaction curve does not pass through all maximas then you are drawing an imprecise graph. I believe one’s basic understanding of microeconomics is tested in the precision of these graphs. If the graphs are not precise it leaves a bad impression about your basic understanding. Agreed that it is near impossible to draw graphs as good as the computer generated ones but at least we can practice enough to ensure that we do not violate any principle of mircoeconomics while drawing our graphs. I personally had devoted a lot of time and effort before the exam in getting my graphs right. It so happened that on the day of my Econ paper I had forgotten to take an eraser with me (it isn’t a nice feeling when you get to know that in the exam hall) but I had all my graphs so well etched in my mind that I didn’t need to use an eraser in my paper.

3. Cut the chase and get to the point – Your first sentence of the answer should itself reflect that you have a command over the topic. Even if you know the topic and you don’t get down to the job right from the first sentence it gives an impression that you are trying to fool your way around. So at least for Econ paper 1 get straight down to the core of the answer. You need not explain what’s the background or history – the examiner isn’t really looking for that.

4. Avoid math – Yes, for UPSC at least. The less equations you put the better. If at any place there is a way to show something through a graph and the same thing through a mathematical proof, go for the graph.

5. Be logical – Economics is as close to decuctive logic as any social science can get. Most answers in paper 1 are based on deductive logic. Make sure you get the premises right and place arguments in such a way that the conclusion flows.

6. Choose questions wisely – At times there may be some questions from the similar topics. Like for HO there maybe two questions of 20 marks, one in question 3 and one in question 5. As far as possible attempt either question 3 or 5, not both. But if you have no other choice attempt them anyways but be strategic there. Suppose question 3 is about criticisms of HOS model and question 5 is about Leontief Paradox then you have to make sure that you don’t get carried away writing a lot about Leontief Paradox in question 3 because anyways you have to answer that in detail in question 5. You cannot write similar things in two answers and expect the examiner to give you marks for both.

7. Cut the et cetera – This is a small point but I say this because I see people all too often using the indeterminate ‘et cetera’ (yours truly being guilty himself). In Econ, you have to show your precise knowledge and understanding of the topic asked. Using ‘et cetera’ simply gives an impression that you are trying to cover for things you do not know. So if there are multiple things and you want to mention only few of them state upfront that the ones you are stating are in your opinion to more relevant ones for this particular answer.

For paper 2

1. Have a narrative – In my opinion, this is the most important thing in both Econ paper 2 and Pub Ad answer writing. Paper 2 is where you have the luxury to present your own opinions. Your opinions, should hence look like they are firmly grounded in facts. For that you need to build a narrative into your answer. By narrative I mean it should be a piece standing all by itself. It shouldn’t be on crutches. If shouldn’t read like an excerpt from a chapter. It shouldn’t read like a part incomplete without the whole. It should read like a whole in itself. A precise, clinical dissection of the issue in hand and inferences drawn from the dissection aided by facts – that is what a good answer is according to me.

2. Use data wherever possible – It is good to use data if you remember. If you don’t, do not attempt the questions that require you to. I, for one, am bad at remembering data. So I let the data heavy questions in paper 2 pass.

3. Use examples liberally – Use them to support your arguments. Use innovative examples, not the routine ones. Keep your ears and eyes open for such examples when you are reading newspaper. Look around you, see what is happening in your state or district. You could quote examples from your state which will make your answer different.

4. Never take a radical stand on any issue unless you have strong data and facts behind you.

5. Use a style that befits the question – You will have to decide then and there whether the question best lends itself to a paragraph format, point format or tabular format. Do not go with preconceived notions about one style being better than the other.

Finally, practice writing answers a lot and set absolutely high standards for yourself. When you have written a piece you cannot let yourself be content if your don’t think it is your absolute best. Re-write, re-write – that’s the only key.