MPSC 2023 Prelims Paper-I · Question 56 of 100

Correct — option (3), 'Only d'. Balanced growth theory, as advanced by Ragnar Nurkse and by Rosenstein-Rodan in the form of the big push, is not a doctrine about proportion between any particular pair of sectors; it is a doctrine about the economy as a whole moving forward together, and statement d. is the only one of the four that says so. The reasoning behind the theory explains why nothing narrower will do. A poor country's difficulty, on Nurkse's account, is that its domestic market is too small to support any new industry: a manufacturer who builds a factory in isolation finds that the people around him cannot afford to buy what he makes, so the inducement to invest is weak however profitable the technology might be in a richer setting. The way out is for investment to be made simultaneously across a wide range of industries, because then the workers employed in each industry become the customers of all the others, and the demand that no single investor could have created for himself is created collectively. That argument works only in proportion to how many sectors are moving at once, and it does not reduce to a pairing. It also carries a second requirement, that the sectors advance in mutually consistent proportions, since an industry expanded far beyond the capacity of those supplying its inputs or buying its output creates a bottleneck rather than growth. Statement c., balance between agriculture and industry, does state a real requirement — an industrial expansion unsupported by a growing food supply runs into rising food prices and a squeeze on wages, which is a classic constraint in a developing economy — but it is a two-sector abbreviation of the doctrine, not the doctrine itself, and the question asks what the theory requires rather than what it includes. Statements a. and b. are narrower still, and statement b. is not even a genuine opposition, since capital goods are themselves industrial goods. Only statement d. states the requirement in the form the theory actually makes it, so option (3) is the answer. Note that this question prints no closing 'which of the statements' line; the four choices follow the statement list directly.

• (1)Only a — This option selects the balance between consumer goods and industrial goods. There is a real and important debate in that neighbourhood — the argument over whether a developing economy should build capital goods capacity first and accept a lag in consumer goods, which is the choice the Mahalanobis strategy of India's Second Plan made — but that is a debate about the composition of investment within an industrialisation strategy, not a statement of what balanced growth theory requires. Nurkse's argument is about the number of sectors moving together and about the demand each creates for the others, so reducing it to a two-way proportion between consumer and industrial goods loses the mechanism that makes the theory work. The pairing is also loosely drawn, since consumer goods are largely produced by industry and the two categories overlap rather than standing opposed.
• (2)Only c — This is the strongest of the wrong answers because the statement it selects is true as far as it goes. Balance between agriculture and industry is a genuine condition of development: an industrial workforce has to be fed, and industry needs agricultural raw materials and rural purchasing power, so an economy that industrialises while its agriculture stagnates meets rising food prices, pressure on wages and a balance of payments strain on food imports. India's own planning history contains the lesson, since the food crises of the mid-1960s followed a period in which industry had received the greater share of plan resources. But a two-sector condition is a special case of the general requirement rather than the requirement itself, and when a paper prints both the special case and the general statement, the general one is what a question about what the theory requires is asking for.
• (4)Only a and b — This option combines the two weakest statements in the list and adds their defects together. Statement a. reduces the doctrine to a proportion between consumer and industrial goods, which is a question about the composition of investment rather than about balanced growth. Statement b. is worse, because 'capital goods and industrial goods' is not a genuine dichotomy at all: capital goods — machinery, plant, equipment — are themselves a category of industrial goods, so the two terms overlap instead of dividing the field between them. The meaningful contrast a candidate is probably reaching for is between capital goods and consumer goods, which is the distinction that underlies the heavy industry debate; as printed, the statement pairs a category with the larger category that contains it, and a requirement of balance between a set and its own subset is not a coherent demand.

Balanced growth is one side of a long argument in development economics about how a poor country should invest. Nurkse's version begins from the vicious circle of poverty: because incomes are low the market is small, because the market is small there is no inducement to invest, and because there is no investment productivity and incomes stay low. His way out is a broad front of simultaneous investment, so that each new industry supplies customers for the others and the market grows from within. Rosenstein-Rodan reaches a similar conclusion by a different route, arguing that the external economies and indivisibilities in infrastructure, in the training of labour and in demand mean that only an investment programme above a certain size will succeed at all — the big push. Albert Hirschman took the opposite view, that a country short of capital and of administrative capacity cannot do everything at once and should not try; it should invest at points chosen for their linkages, letting the shortages created by a new plant pull investment backwards into its suppliers and forwards into the industries that use its output. The two doctrines are not simply rivals in the abstract: they suit different constraints, and Indian planning at various times has borne the marks of both.

This paper places three questions from this block close together — balanced growth as a growth path, Nurkse and the vicious circle, and balanced growth as an investment doctrine — which is a useful reminder that the Commission mines a chapter rather than a topic. The particular technique this item tests is choosing between a general statement and its special cases. Three of the four printed statements name pairs of sectors and the fourth names all sectors, and since the pairs are all contained within the whole, the candidate has to decide whether the question wants the doctrine's full requirement or an instance of it. The stem's wording settles it: 'requires balance between' asks for what the theory demands, and the theory demands proportionate advance across the economy, which no pairing captures. A second point of technique is to check whether a printed pair is a genuine dichotomy at all. Statement b. pairs capital goods with industrial goods, which are not alternatives but a subset and its set, and spotting that kind of category error is often faster than recalling the doctrine.

• Balanced growth theory, associated with Ragnar Nurkse and with Rosenstein-Rodan's big push, requires simultaneous and mutually proportionate investment across all sectors of the economy rather than balance between any single pair of sectors.
• The mechanism is a demand one: workers employed by each new industry become the customers of the others, so a broad front of investment creates the market that no single investment could create for itself.
• Balance between agriculture and industry is a real requirement of development, since industrial expansion unsupported by growing food output raises food prices and squeezes wages, but it is a two-sector special case of the general doctrine.
• Albert Hirschman's unbalanced growth strategy is the opposing view, holding that a capital-scarce country should invest at strategic points and rely on backward and forward linkages to draw investment into the rest of the economy.
• Capital goods are a category of industrial goods rather than an alternative to them; the meaningful contrast in the industrialisation debate is between capital goods and consumer goods, which is the choice underlying the Mahalanobis strategy of India's Second Plan.

• Selecting a true special case, such as agriculture-industry balance, when the stem asks what the theory requires and a general statement is also printed
• Confusing balanced growth as an investment doctrine with the balanced growth path of growth theory, in which all magnitudes grow at the same rate
• Accepting a printed pair as a dichotomy without checking it, when capital goods are a subset of industrial goods rather than their opposite
• Attributing balanced growth to Hirschman, who argued for the opposite strategy of deliberately unbalanced investment

Development doctrines appear in MPSC papers as attribution questions, as statement-judgement items like this one, and as contrast questions asking which economist opposed a named doctrine. The Commission's favourite construction in this area is the one used here: print several statements that are each partly right and one that is fully right, and see whether the candidate can tell a component of a doctrine from the doctrine itself. Preparing the block as a set of oppositions — balanced against unbalanced growth, capital goods against consumer goods, agriculture against industry, growth against development — rather than as isolated definitions is what makes these items quick, since almost every question in the block is asking which side of an opposition a given statement falls on.

No directly related past PYQ was found.

• practice — not a real PYQ

  The strategy of unbalanced growth, which holds that a capital-scarce country should invest at selected points and rely on the linkages created to pull the rest of the economy forward, was advanced by which economist ?

  • (a)Ragnar Nurkse
  • (b)Rosenstein-Rodan
  • (c)Albert Hirschman
  • (d)Gunnar Myrdal

  Answer(c) Albert Hirschman — his argument is that a poor country lacks the capital and the administrative capacity for a broad investment front, so it should create deliberate imbalances whose backward and forward linkages induce further investment. Nurkse and Rosenstein-Rodan took the opposing view, that only simultaneous investment across many sectors can overcome the smallness of the market and the indivisibilities in infrastructure.

• practice — not a real PYQ

  According to the balanced growth doctrine, why can a single new industry established in isolation in a poor country be expected to fail ?

  • (a)Because the technology available to it will be obsolete
  • (b)Because the surrounding market is too poor to buy its output
  • (c)Because the government will nationalise it
  • (d)Because agricultural wages will rise too fast

  Answer(b) Because the surrounding market is too poor to buy its output — this is the demand argument at the heart of Nurkse's doctrine, and the remedy it implies is investment across many industries at once, so that the workers employed in each become the customers of the others and the market is enlarged from within. It is the same reasoning that makes the vicious circle of poverty self-sustaining on its demand side.