CBSE EXAMINATION PAPER-2025

Human capital and physical capital are two essential forms of capital with distinct characteristics. Physical capital is tangible and can be bought or sold in the market, such as machinery or buildings. It exists independently of its owner and can be easily transferred. In contrast, human capital is intangible, encompassing the skills, knowledge, and health of individuals. This form of capital is developed through investments in education, training, and health care. Human capital is inseparable from its owner, as only the services produced by individuals can be traded, not the individuals themselves. Furthermore, enhancing human capital significantly boosts productivity and economic growth, highlighting its importance compared to physical capital.

Liquefied Petroleum Gas (LPG) and Gobar Gas are significant strategies for achieving sustainable development in rural areas. LPG is a cleaner alternative to traditional fuels like wood and kerosene, reducing air pollution and dependency on non-renewable resources. Its use fosters efficient cooking and heating practices. Gobar Gas, or biogas, is produced from organic waste, providing a renewable energy source while managing waste effectively. It not only offers a sustainable energy solution but also contributes to improved sanitation and enhanced agricultural productivity through the use of bio-slurry as fertilizer. Together, these technologies promote energy independence, reduce environmental degradation, and improve the quality of life for rural communities.

Micro-credit programmes in rural India, particularly through Self-Help Groups (SHGs), aim to empower marginalized sections, especially women, by providing them access to credit. Despite their potential, these programmes often fall short, as borrowings are frequently directed towards consumption rather than productive investments. This trend raises concerns about why borrowers prefer immediate needs over long-term growth. Additionally, while SHGs have enhanced some social capital, the challenge remains of integrating these groups into a broader rural development strategy, which includes better credit delivery mechanisms and support for agricultural diversification.

Sustainable development is a concept that aims to fulfill the needs of the current generation while ensuring that future generations can also meet their own needs. This includes ensuring basic necessities such as food, water, energy, and housing, particularly for the poorer segments of society. It emphasizes the balance between economic growth and environmental preservation, ensuring that natural resources are used judiciously. The UN defined it as a development approach that minimizes environmental degradation and social inequality.

(a) The One Child Policy in China, implemented to curb population growth, had significant consequences. Firstly, it resulted in an ageing population; as fewer children were born, the ratio of elderly people to young individuals increased, straining social services. Secondly, the policy led to gender imbalances, with a cultural preference for male children causing many families to favor sons over daughters. Additionally, single children faced social challenges, including increased pressure to succeed and care for aging parents. In 2015, the policy was relaxed to allow two children, and in 2021, further relaxed to three children, indicating recognition of these repercussions and a shift towards addressing demographic imbalances.

(b)The One Child Policy was implemented in China primarily to address the problem of rapidly rising population growth. With the country experiencing immense population pressure, the government aimed to control the skyrocketing fertility rates to ensure sustainable economic development and resource management. This measure was crucial for alleviating issues related to insufficient resources needed for an expanding population, which could lead to severe social and economic challenges. Ultimately, the policy was intended to balance population growth with economic stability.

(a) The statement is true. Agricultural diversification has emerged as a crucial solution for several problems faced by farmers in the Indian rural landscape. By shifting from traditional single-crop farming to a more varied cropping pattern, farmers can reduce their dependency on a single source of income, thereby minimizing risk. Diversification into livestock, fisheries, and non-agricultural activities also provides sustainable livelihood options. Furthermore, it enhances resilience against market fluctuations, climate change impact, and economic instability, addressing the growing distress in farming communities.

(b) The informalisation of the workforce in India has led to several challenges in youth employment generation. With a significant portion of job opportunities emerging in the informal sector, these roles tend to be characterized by casual employment, lack of job security, and minimal benefits. Many workers face disguised unemployment, particularly in rural areas. Moreover, the absence of regulations means that informal workers often do not receive fair wages or protections, making it difficult for them to escape poverty. The government has initiated various schemes to create employment, but the rise of the service sector has often sidelined formal employment growth, leading to increasing concerns among the youth regarding stable job opportunities and financial security.

The tax reforms initiated by the Indian government in the early 1990s were primarily driven by the need to address the financial crisis and economic inefficiencies. The declining foreign exchange reserves and rising inflation necessitated a paradigm shift in fiscal policies. These reforms aimed to simplify the tax structure, reduce tax rates, and broaden the tax base. However, despite these intentions, the tax reductions did not lead to an increase in government revenue due to heightened tax evasion and reduced custom duties following tariff cuts. Consequently, these reforms hindered public expenditure in essential sectors like health and education, affecting overall developmental objectives. Furthermore, tax incentives for foreign investors have limited domestic revenue generation, impacting welfare programs significantly. Thus, while aimed at generating growth, tax reforms have unveiled challenges in sustaining adequate public funding. Multilateral trade refers to trade among multiple countries, often facilitated by international agreements like those from the World Trade Organization (WTO). These agreements aim to reduce tariffs and non-tariff barriers, providing broader market access and enhancing global trade cooperation. For instance, nations benefit from a collective framework that promotes trade relations and economic growth by creating a stable trading environment. In contrast, bilateral trade occurs between two countries and is often governed by specific trade agreements that set conditions for trade, such as tariffs and quotas. This form of trade can be more focused and may allow countries to negotiate terms that reflect their unique economic interests. While bilateral trade can enhance relations between two nations, multilateral trade fosters a more extensive network of economic interdependencies that can lead to stronger global economies. Both forms of trade play crucial roles in a country's economic strategy, helping in diversifying markets and reducing dependence on a single trading partner.

I agree that the import substitution policy can be a double-edged sword. While it aims to bolster domestic industries by reducing import dependence, its implementation may lead to inefficiencies. The initial success of this policy raised the industrial sector's contribution to GDP, fostering domestic production. However, the inefficiencies in public sector enterprises resulted in losses that drained national resources. Moreover, protectionist measures, such as high tariffs and quotas, can stifle competition, slowing technological advancements and innovation. This creates a reliance on domestic production without improvements in quality or cost. As a result, while the policy can promote industrial growth, it can also hinder economic progress if not managed wisely. A balanced approach is essential to leverage its benefits while mitigating downsides. In 1991, under economic reforms, the Government of India adopted both stabilizing measures and structural measures to address the financial crisis. Stabilizing measures are primarily short-term strategies aimed at correcting immediate weaknesses in the balance of payments and controlling inflation. These included policies like devaluation of the rupee, reducing fiscal deficits, and enhancing foreign exchange reserves. On the other hand, structural measures are long-term reforms designed to enhance the overall efficiency and competitiveness of the Indian economy. They involve removing rigidities in various sectors, liberalizing trade, and encouraging foreign investment. While stabilizing measures target quick fixes to restore economic stability, structural measures focus on achieving sustainable growth by transforming the economic framework. Together, they represent a comprehensive approach to revamping India's economy during a critical period.

To calculate the Gross Domestic Product at Market Price (GDPMP) for the imaginary economy consisting of firms X, Y, and Z, we analyze the transactions. GDP is the sum of all final expenditures on goods and services. The final consumption expenditure is the most relevant. Firm Z sold goods worth ₹57,000 to households, which contributes directly to GDP. We should not double-count sales made between firms, as those represent intermediate transactions. Thus, GDPMP is ₹57,000. The construction of two new Express Highways is likely to have a significant impact on the Gross Domestic Product (GDP) and overall welfare of the economy. Firstly, the GDP will directly increase due to the investment in infrastructure. This investment, classified as an 'I' in the GDP formula, adds to the total economic activity. The construction phase will create numerous jobs, thereby reducing unemployment and increasing household incomes, which in turn will increase consumption, a major component of GDP. Furthermore, once completed, the highways will facilitate faster and more efficient transportation of goods and services. This will enhance trade, reduce costs for businesses, and improve competitiveness. Additionally, improved connectivity can lead to regional development, boosting economic activities in previously isolated areas. As the highways enhance mobility, they contribute to welfare by reducing travel time and costs for individuals, leading to a better quality of life. Access to markets, healthcare, and education will also improve, promoting socio-economic development. In summary, the construction of the express highways is expected to result in a substantial increase in GDP while simultaneously fostering greater economic welfare for the population.

Credit creation is a fundamental function of banks, allowing them to lend more than their actual deposits. To illustrate this concept, let’s consider a numerical example involving a bank's balance sheet. Suppose Mr. Mathew approaches a bank for a loan of Rs 500. The bank, following the reserve requirement set by the RBI, maintains a reserve ratio of 20%. Therefore, it must keep Rs 100 (20% of Rs 500) as reserves. The remaining Rs 400 can be lent out. When Mr. Mathew receives this loan and deposits it back into the bank, the total deposits increase to Rs 600 (Rs 100 reserves + Rs 500 deposit). The bank can then lend 80% of Rs 600, which is Rs 480. This cycle continues, leading to an exponential increase in the money supply through successive rounds of lending, illustrating the money multiplier effect. The maximum credit creation also depends on the reserve ratio, which dictates how much banks can lend out versus keeping in reserve. Consequently, credit creation is both a leveraged financial tool and a regulated banking function. The function of money indicated in the text is the 'unit of account.' This function allows various items to be measured and compared against a common standard, making it easier to keep financial records and evaluate prices. Aside from being a unit of account, money serves as a medium of exchange, facilitating the buying and selling of goods and services without the complications of barter. Additionally, it acts as a store of value, enabling individuals to save and preserve purchasing power for future use. These functions reinforce the critical role money plays in a modern economy.