UPSC Economics Optional Syllabus 2025 – Detailed Paper I & II Topics

Economics Optional – Paper I

1. Microeconomic Theory

• Consumer Behavior and Demand
• Cardinal and ordinal utility analysis
• Indifference curve approach
• Income and substitution effects (Hicks and Slutsky)
• Revealed preference theory
• Consumer surplus
• Elasticity of demand – price, income, cross
• Theory of Production and Cost
• Production functions (short-run and long-run)
• Law of variable proportions
• Isoquants and returns to scale
• Cost curves – traditional and modern
• Theory of Firm and Market Structures
• Perfect competition – short-run and long-run equilibrium
• Monopoly – price discrimination, regulation
• Monopolistic competition – Chamberlin model
• Oligopoly – Cournot, Bertrand, Edgeworth models; kinked demand curve
• Pricing strategies and contestable markets

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• Factor Pricing
• Marginal productivity theory
• Theories of rent – Ricardian, modern
• Theories of wage – marginal productivity, modern
• Interest and profit – classical, Keynesian, Schumpeterian theories
• General Equilibrium and Welfare Economics
• Partial and general equilibrium
• Pareto optimality, social welfare function
• Compensation criteria – Kaldor-Hicks
• Arrow’s impossibility theorem, Rawlsian concept of justice

2. Macroeconomic Theory

• National Income Accounting
• Concepts – GDP, GNP, NDP, NNP
• Measurement – product, income, and expenditure approaches
• Green accounting and limitations of GDP as an indicator
• Classical and Keynesian Models
• Say’s Law, classical dichotomy, neutrality of money
• Keynesian revolution – effective demand, consumption function
• Investment multiplier and accelerator
• IS-LM model – equilibrium in goods and money markets
• Demand for and Supply of Money
• Quantity theory of money – Fisher and Cambridge versions
• Keynesian liquidity preference theory
• Monetarist approach – Friedman’s theory
• Inflation
• Causes and consequences – demand-pull and cost-push
• Phillips curve – short-run and long-run
• Stagflation and supply-side economics
• Business Cycles
• Theories – Schumpeter, Kaldor, Samuelson, Hicks
• Real business cycle theory
• Monetary and Fiscal Policies
• Objectives and instruments
• Effectiveness in IS-LM framework
• Crowding out, Ricardian equivalence
• Monetary policy transmission mechanisms
• Central bank independence

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3. International Economics

• Theories of International Trade
• Classical – absolute and comparative advantage (Ricardo)
• Heckscher-Ohlin model
• New trade theories – intra-industry trade, increasing returns
• Terms of Trade and Gains from Trade
• Concept of terms of trade – net barter, gross barter, income terms
• Static and dynamic gains from trade
• Trade Policy
• Tariffs and quotas – economic effects
• Non-tariff barriers
• Trade liberalization and protectionism
• Balance of Payments and Exchange Rates
• Components of BOP, disequilibrium, and adjustment mechanisms
• Exchange rate determination – fixed vs flexible regimes
• Purchasing Power Parity (PPP), Interest Rate Parity
• Devaluation and depreciation
• International Institutions
• IMF, World Bank, WTO – objectives and functions
• SDRs and international liquidity
• Current issues in global trade and finance

4. Growth and Development

• Concepts and Measurement
• Economic growth vs economic development
• Human development index (HDI), gender development index (GDI)
• Inequality and poverty indices – Lorenz curve, Gini coefficient
• Theories of Development
• Classical – Smith, Ricardo, Marx
• Neo-classical – Solow model
• Harrod-Domar model, endogenous growth models (Romer, Lucas)
• Development Strategies
• Balanced and unbalanced growth
• Big Push, Critical Minimum Effort thesis
• Dual economy models – Lewis, Fei-Ranis
• Planning and Development
• Planning techniques – Input-output analysis, project appraisal
• Role of state and market in development
• Sustainable development – green economy, inclusive growth
• Trade and Development
• Prebisch-Singer thesis
• Export-led growth
• Capital flows – FDI, portfolio investment, remittances
• Finance and Development
• Role of financial institutions in development
• Microfinance, financial inclusion
• Shadow banking and fintech in development

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Economics Optional – Paper II

1. Indian Economy in Pre-Independence Era

• Indian Economy Under Colonial Rule
• Structure and characteristics
• Impact of British policies on agriculture, industry, trade
• Deindustrialization debate
• Drain of wealth theory – Dadabhai Naoroji, R.C. Dutt
• Development of Infrastructure
• Railways and communication
• Irrigation and public works
• Education and health services under British rule

2. Indian Economy After Independence

• Planning in India
• Objectives and achievements of Five-Year Plans
• Planning Commission and NITI Aayog – structure and functions
• Failures and limitations of planning
• Agriculture
• Land reforms – abolition of zamindari, tenancy reforms
• Green Revolution – impacts and limitations
• Agricultural subsidies and MSP
• WTO and Indian agriculture
• Industry
• Industrial policy resolutions – 1948, 1956, 1991
• Role of PSUs and privatization
• MSMEs – challenges and policies
• Services Sector
• Growth and contribution to GDP and employment
• IT and telecom revolution
• Financial and real estate services
• Infrastructure Development
• Physical and social infrastructure
• Public-private partnerships (PPP)
• Smart cities and urban infrastructure

3. Economic Reforms Since 1991

• Liberalization, Privatization, Globalization (LPG)
• Background and objectives of 1991 reforms
• Impact on agriculture, industry, and services
• Second-generation reforms
• Fiscal Reforms
• Tax reforms – GST, FRBM Act
• Expenditure rationalization
• Monetary and Financial Sector Reforms
• Role of RBI, monetary policy framework
• Financial inclusion and banking reforms – NPA, IBC, recapitalization
• External Sector Reforms
• Exchange rate management – convertibility of rupee
• FDI and foreign exchange reserves
• Current account deficit and capital account management
• Social Sector and Welfare Schemes
• Education and health indicators
• Poverty alleviation and employment schemes – MNREGA, PMAY
• Direct benefit transfers and JAM trinity

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4. Indian Public Finance

• Taxation and Expenditure
• Trends in revenue and expenditure
• Tax reforms and fiscal federalism
• Direct and indirect taxes – GST framework
• Budgeting Process
• Types of budget – revenue, capital, zero-based
• Role of Finance Commission and Fiscal Council
• Deficits and Debt
• Fiscal deficit, primary deficit, revenue deficit
• Public debt management – internal and external
• Contingent liabilities and off-budget borrowing

5. Indian Money and Banking

• Structure of Indian Financial System
• Commercial banks, cooperative banks, NBFCs
• Role and regulation by RBI
• Monetary Policy
• Instruments – CRR, SLR, repo, reverse repo
• Inflation targeting – MPC framework
• Financial market development – call money, treasury bills
• Banking Sector Issues
• Non-performing assets (NPAs)
• Consolidation of banks, digital banking
• Financial inclusion – PM Jan Dhan Yojana, fintech innovations

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6. External Sector and International Institutions

• India’s Balance of Payments
• Trade balance and current account
• Capital account convertibility
• Trends in exports, imports, remittances
• Trade Policy and Exchange Rate
• WTO and India’s trade relations
• Export promotion measures – SEZs, export subsidies
• Exchange rate regimes – managed float, intervention policy
• Foreign Capital
• FDI and FII – trends and policies
• Bilateral investment treaties
• External commercial borrowings

7. Growth, Development, and Employment

• Trends in Economic Growth
• Sectoral composition – agriculture, industry, services
• Inclusive and sustainable development
• Poverty and Inequality
• Measurement and trends – NSSO, NFHS data
• Policy responses – food security, direct transfers
• Unemployment
• Types and measurement of unemployment in India
• Informal sector and labor reforms
• Demographic dividend and skill development

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