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India's drive towards developed status

Examination style paper 2

This case study focuses on economic development in a fast growing developing nation, international trade and inequality. It can be completed as homework or classwork and should take around 105 minutes. It is based on a paper two examination question using the new syllabus. The maximum mark for this paper is 40.

Text A — India at a glance

India is one of the fastest growing economies of the world and is poised to continue on this path, with aspirations to reach high middle income status by 2047, the centenary of Indian independence. It is also committed to ensuring that its continued growth path is equipped to deal with the challenges of climate change, and in line with its goal of achieving net-zero emissions by 2070.

The growth of the past two decades has also led to India making remarkable progress in reducing extreme poverty. Between 2011 and 2019, the country is estimated to have halved the share of the population living in extreme poverty - below $2.15 per person per day, with the current minimum (daily) wage increased to Rs 1,035 ($12.26) in September 26, 2024. 

Text B - Economic data

2010201520202024
GDP per capita (PPP) $4,2165,4466,99710,175
Gini index0.3570.3470.3380.318

Certain challenges persist. Child malnutrition has remained high, with 35.5 percent of children under the age of 5 years being stunted, with the figure rising to 67 percent for children in the 6-59 months age group. Headline employment indicators have improved since 2020 but concerns remain about the quality of jobs created and the real growth in wages, as well as around the low participation of women in the laborforce.

India’s aspiration to achieve high income status by 2047 will need to be realized through a climate-resilient growth process that delivers broad-based gains to the bottom half of the population. Growth-oriented reforms will need to be accompanied by an expansion in good jobs that keeps pace with the number of labor market entrants. At the same time, gaps in economic participation will need to be addressed, including by bringing more women into the workforce.

The World Bank is partnering with the government in this effort by helping strengthen policies, institutions, and investments to create a better future for the country and its people through green, resilient, and inclusive development.

Economic Outlook

Despite challenging global conditions, India remains the world’s fastest growing major economy, growing at a rapid clip of 8.2 percent in FY23/24.

Growth was spurred by public investment in infrastructure and rising household investments in real estate. A buoyant manufacturing sector grew by 9.9 percent, while services remained resilient, compensating for the underperformance in agriculture.

Government initiatives have sought to boost the manufacturing sector by improving the business environment, enhancing logistics infrastructure, improving tax efficiency and rationalizing tax rates.

Since the pandemic, urban unemployment has improved gradually, especially for female workers, falling from 14.3 percent in FY21/22 to 9 percent in FY24/25. Unemployment among urban youth, however, remained elevated at 16.8 percent in FY24/25.

In 1994, as part of measures to make their economy more free market, India moved to a managed floating exchage rate, with the currency devaluing relative to the $ by 15% in 2020. Following the devaluation the deficit on the balance of trade in goods continued to widen. However, by April 2021 the trade balance had changed to a surplus as exports of manufactured goods rose strongly. The deficit on the current account has also been narrowed by rising net remittances.

Text C: Trade will play a critical role in creating jobs and boosting growth

To boost growth and create jobs, India will need to harness its global trade potential. In addition to IT, business services and pharma, where it excels, India can diversify its export basket into more labor-intensive sectors such as textiles, apparel, and footwear, as well as in electronics and green technology products.

A three pronged approach - reducing trade costs, lowering trade barriers and joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a free trade agreement involving 11 nations - can help India achieve its ambitious target of $1 trillion for merchandise exports by 2030.

Greater openness to trade will, in turn, enhance India’s technological capabilities, improve productivity, spur growth, and build long-term economic resilience.

Source: India Overview: Development news, research, data | World Bank

Questions:

a. (i) List two functions of the World Bank (IMF) (Text A, paragraph 2). [2]

DescriptorMark

Any one from:

  • Providing loans and financial assistance to war-devasted, underdeveloped, and poor countries for reconstruction and development.
  • Offering technical assistance.
  • Conducting research and analysis.
  • Supporting sustainable development.
  • Partnering with nations, organizations, and other institutions to sponsor development projects.
1

Any two from:

  • Providing loans and financial assistance to war-devasted, underdeveloped, and poor countries for reconstruction and development.
  • Offering technical assistance.
  • Conducting research and analysis.
  • Supporting sustainable development.
  • Partnering with nations, organizations, and other institutions to sponsor development projects.
2

(ii) Define the term extreme poverty indicated in bold in the text (Text A, paragraph 2).  [2]

DescriptorMark
The idea that it is a person or household that is poor or in poverty1
A condition characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information2

b. (i) Using information from Text B, calculate the % change in Indian GDP per capita between 2005 and 2024. [2]

The % change in GDP per capita is 114.24% increase

(ii) Sketch a minimum wage diagram to show the possible effect of the minimum wage increase on unemployment in India (Text A, paragraph 2). [3]

DescriptorMark
There is a correct diagram, but incorrect labelling.1

There is a correct diagram, but incomplete labelling.

For a diagram, with a minimum wage line, but the effect on unemployment is not shown OR the diagram is not correctly labelled. 

2
For a correctly labelled diagram, with a minimum wage line, and the effect on unemployment is shown.3

(c) Using the information contained in the table in Text A, use a Lorenz curve to explain the change in income inequality in India between 2010 and 2024. [4]

DescriptorMark
For a correctly labelled and accurately drawn lorenz curve showing a left (inwards) shift in the lorenz curve indicating an improvement in the income inequality in the nation OR An explanation that income inequality in India has reduced. Incorrectly labelled diagrams will only receive one mark.1-2
For a correctly labelled and accurately drawn lorenz curve showing a left (inwards) shift in the lorenz curve indicating an improvement in the income inequality in the nation AND An explanation that income inequality in India has reduced. Incorrectly labelled diagrams will only receive one mark.3-4

(d) Using an aggregate demand and aggregate supply diagram, explain the effect of the boost in public investment in infrastructure and rising household investments in real estate. (Text A, paragraph 3). [4]

DescriptorMark
For a correctly labelled and accurately drawn AD/AS curve showing a right (outwards) shift in both AD and LRAS OR An explanation that the boost in public investment in infrastructure and rising household investments in real estate will increase aggregarte demand in the economy through a rise in government spending, investment and private consumption, as well as a rise in the productive capacity of the nation.1-2
For a correctly labelled and accurately drawn AD/AS curve showing a right (outwards) shift in both AD and LRAS AND An explanation that the boost in public investment in infrastructure and rising household investments in real estate will increase aggregarte demand in the economy through a rise in government spending, investment and private consumption, as well as a rise in the productive capacity of the nation.3-4

(e) Using a J-curve diagram, explain the likely reason why the change in the exchange rate for the Rupiah initially caused the deficit on the balance of trade to widen and then eventually led to a surplus (Text B, paragraph 8). [4]

DescriptorMark
For a correct J curve diagram with appropriate labelling, with the curve declining and then rising OR an explanation that in the short run, the sum of PEDs for exports and imports was less than one / inelastic (or the Marshall-Lerner condition was not fulfilled) so the deficit widens [1] but in the long run the M-L condition is met so it leads to a surplus [1].1-2
For a correct J curve diagram with appropriate labelling, with the curve declining and then rising AND an explanation that in the short run, the sum of PEDs for exports and imports was less than one / inelastic (or the Marshall-Lerner condition was not fulfilled) so the deficit widens [1] but in the long run the M-L condition is met so it leads to a surplus [1].3-4

(f) Using a tariff diagram explain the impact of 'lowering trade barriers' on Indian consumers and domestic producers. (Text C, paragraph 2) [4]

DescriptorMark
For a correct tariff diagram with appropriate labelling, showing the effect of lowering tariffs (a fall in world price), resulting in lower prices for consumers and an increase in overall demand for products OR an explanation that consumers will enjoy lower prices and higher overall consumption due to an increase in imported goods and services into the country. 1-2
For a correct tariff diagram with appropriate labelling, showing the effect of lowering tariffs (a fall in world price), resulting in lower prices for consumers and an increase in overall demand for products AND an explanation that consumers will enjoy lower prices and higher overall consumption due to an increase in imported goods and services into the country.3-4

(g) Using information from the texts/data and your knowledge of economics, discuss the costs and benefits for India of participation in the free trade agreement with the 11 participating nations of the CPTPP. [15]

Answers may include:

  • A definition of a free trade agreement/area
  • A tariff diagram
  • An AD/AS diagram
  • A PPC diagram
  • A diagram showing comparative advantage for two different goods

Possible benefits of participation in an FTA:

  • India can diversify its export basket into more labor-intensive sectors such as textiles, apparel, and footwear, as well as in electronics and green technology products (TEXT C, paragraph 1)
  • India will need to mindful that they will need to ensure carefully manage their exchange rate so that it assists export markets rather than hinders (Text B, paragraph 6). 
  • Can help India achieve its ambitious target of $1 trillion for merchandise exports by 2030. (TEXT C, paragraph 2)

Possible costs of participation in an FTA:

  • Trade diversion 
  • Inequality between the manufacturing (urban areas) and the agricultural (rural areas) probably widening 
  • Some sectors cannot compete with (cheaper and/or high quality) imports leading to job losses

Marks

Level descriptor

0

The response is below the standards described below.

1-3

The response indicates little understanding of the demands of the question

The response uses little relevant theory

Little attempt is made to make use of the text/data.

4-6

The response indicates some understanding of the demands of the question

The response makes limited use of demand side / supply side policies. 

There is limited evaluation contained in the response

The response makes limited use of the text/data to support their arguments.

7-9

The response indicates an understanding of the demands of the question

Some relevant theory is used in the response

The response contains some evaluation

The response makes some use of the text/data.

10-12

The response indicates an understanding of the demands of the question

The response uses relevant theory appropriately

Evaluation is used appropriately

There is appropriate use of the text/data.

13-15

The response indicates an understanding of the demands of the question

The response makes effective use of relevant theory

Evaluation is used effectively

The response makes effective use of the text/data.

The exam and mark scheme can be accessed at:  Question paper  

 Markscheme

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