ECONOMICS

Trend Analysis of last 5 years

COMPLETE ECONOMY
ECONOMY Vs ECONOMICS

Planning ?

KUCH FACTORS AYENGE USKE DIMAK ME

 ECONOMY Vs ECONOMICS

Goods,
services
distribution
production
consumption

An economy is a system of organizations Economics is the study of how people in a

and institutions that facilitate and play an system allocate scarce resources for the
important role in the production and purposes of production, distribution, and
distribution of goods and services in a consumption, both individually & collectively
society.
Deals with the economy as a whole. Deals with individual units within the economy.
National income Accounting
 WHO HAS EARNED MORE IN ONE FINANCIAL YEAR

MAYANK PRABHAT NAKSH

INCOME 15K/month > 20k/month > 3 lakh/month

 GDP (gross domestic product)

NATIONAL INCOME NDP (net domestic product)

National Income of any country means the complete GNP (gross national product)
value of the goods and services produced by any
country during its financial year.
NNP (net national product)
GDP is the final value of the
goods and services produced
within the geographic
boundaries of a country
during a specified period of
time, normally a year.
total monetary value of all final goods total monetary value of all services
Indian company producing goods in india.

Foreign company producing goods in india.

Only final goods/services monetary value counted(not

intermediate goods).
 Goods/services exchanged for money.

Sold in market(only consider

in GDP)

Still lying in godown

Used for self consumption

If you are selling goods in secondary market –

which had already been considered in GDP
when it was produced .
GDP At factor cost

profit

Enterpreneurship

interest

capital

Rent

land

wage
Cost of production
Labour
GDP at market price = factor cost + indirect taxes – subsidies

Price of 1 EV CAR = Rs.10 Lakh

GST on Ev Car = 5% = Rs.50000

Subsidy = 1. 5 Lakh = 9 Lakh

Nominal GDP Real GDP

Real GDP is an inflation-adjusted

Nominal (GDP) is the measure that reflects the value of
all goods and services produced by
value of all the final goods
an economy in a given year. It is
and services at current expressed in base-year prices and is
market prices. often referred to as constant-price,
inflation-corrected GDP
GDP deflator, is a price index that shows how, on average, prices for all
goods and services produced in an economy change over time. It is commonly
used to estimate the rate of inflation.
 GDP + Income of Indians
Abroad – Income of foreigners
in India

Net factor Income From Abroad (NFIAD) = Income of Indians Abroad – Income of foreigners in India
 + -
Income of Indians Abroad Income of foreigners in India
GDP
NDP(Net Domestic Product) = GDP- Depreciation

NDP: This is the GDP minus depreciation, which gives us

the net value of goods and services produced after
accounting for the wear and tear of capital goods.
NNP(Net National Product) = GNP-Depreciation

NNP is the value of all goods and services produced within a

country over a specific period, typically a year, minus
depreciation.
Money and banking
 Money: Functions of money

Contingent
Primary
functions
Functions
Secondary
functions

1.Basis of credit system, financial

markets(share, bond etc.)
1. Measure of value 1.Store of value 2.Employing factor of production
2.Medium of exchange 2. Transfer of value 3.Creation and redistribution of
3. Deferred payment national income via taxation.
Fiat money : it must fulfill two conditions simultaneously.
It MUST BE in the form of Physical Currency Coin / Physical Currency Notes / Virtual Coin /
Digital Coin / Crypto Coin which can measure value AND simultaneously

2. It MUST BE issued by the order of a King / Queen / Government / Central Bank.

Legal Tender:
1. It must be a FIAT MONEY. AND SIMULTENOUSLY
2. It must be legally valid for all debts & transactions throughout the
country. Other party can’t refuse to accept.
Coins in India are issued by the Government of India. All coins are
issued by the Government of India as per the Coinage Act upto 1000
denomination.

The Ministry of Finance issues the one rupee note, which bear the signature of
the Finance Secretary.

RBI Issues currency notes other than Rs. 1 note.

 NPCI (National Payments Corporation of India)
Established in 2008

1.Under the guidance of the Reserve Bank of India (RBI) and the Indian Banks'
Association (IBA)

2.Not-for-profit organization.

3. NPCI's primary objective is to promote digital payments and facilitate the

adoption of electronic funds transfer in India.

4. NPCI manages and operates several retail payment systems such as

• Unified Payments Interface (UPI),
• Immediate Payment Service (IMPS),
• National Electronic Funds Transfer (NEFT),
• Bharat Bill Payment System (BBPS).
Money supply : Money supply is the total amount of money
in circulation in an economy at a given time. It includes cash,
coins, and bank deposits that can be easily converted to cash.

Money supply plays a crucial role in Inflation Control,

Interest Rates, Financial Stability.

RBI measures the money supply through indicators :

M0,M1,M2,M3,M4
Money Supply Measures
Money Supply Measures refer to the tools used to measure the supply of money in an
economy. In India, the RBI has been using the following tools as money supply measures:
•M0 (or Reserve Money)
•M1 (or Narrow Money)
•M2
•M3 ( Broad Money)/Aggregate money supply)
•M4
Money multiplier

The money multiplier is the amount of money that banks generate with
their reserves.

RBI’s cash reserve ratio (CRR) control the credit creation by the
commercial banks.

Money multiplier = M3/M0

MCQ. Money Multiplier in an economy increases
with __? (UPSC-Prelims-2019)

A) Increase in the cash reserve ratio

B) Increase in the banking habit of the population
C) Increase in the statutory liquidity ratio
D) Increase in the population of the country
 Monetary policy
It is a macroeconomic policy used by the Central Bank to influence money supply and
interest rates.

Major Tools

Open market operations(OMO)

Repo Rate(RR)

Cash Reserve Ratio Marginal standing facility

Statutory Liquidity Ratio (MSF)
(CRR)
(SLR)
 RBI does not pay interest on this
Cash Reserve Ratio (CRR) deposits

It is the percentage of a bank's total deposits that it is required to keep in the

form of cash reserves with the central bank of the country.
Cash Reserve Ratio with Example

Deposits 100 Rs. CRR Rs.6

customers 94 Rs. Balance for distributing loan

CRR Varies from 4% to 6% of Total Bank Amount which will be in Crores*

Statutory Liquidity Ratio (SLR)
Jab Bank Apne Pas Kuch Paisa rakhta hai Emergency Ke Liye…. Inn liquid
Form (Gold, Govt Security, Cash etc)

(RBI Decide Karta Hai)

Liquid assets such as cash ,gold , G-Sec ,T -Bills

Held by bank itself)

Bank : Rs.100,
CRR = Rs.5

Bank Have = Rs.95

Repo Rate
When RBI Lend Short term loans to Banks, Keeping their (Collateral-Bond, Gold,)
Reverse Repo Rate
When Bank Give their Surplus Money to RBI, In Return they get interest.
RBI Give Collateral in return.

Interest
Standing deposit facility (SDF)
Reverse Repo Hi Hota hai, But No Collateral.

No Collateral

Interest
Marginal standing facility (MSF)
Banks can pledge security from their SLR quota and borrow
money from RBI.

Open market operations

RBI buys and sells Union & State Govts’ securities
to control money supply.
RBI buying= Money supply ⏫ increased/liquidity injected in the
market.
RBI selling = Money supply ⏬ decreased/liquidity absorbed from the
market
•The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve
Bank of India Act, 1934. (Govt of India Act 1935)
•The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to
Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated.

•Function : Regulate the Monetary Policy… Father of All Banks India…

Composition of RBI
central board of directors.

board is appointed by the Government of India.

Appointed/nominated for a period of four years.

Official Directors Non-Official Directors

• Nominated by Government: ten Directors
from various fields and two government
Governor

+
officials
• Others: four Directors - one each from
Not more than four Deputy Governors four local boards
 Open and Closed economy

What is open economy ? What is closed economy ?

export
India canada There is no interaction outside world
import
Australia India
BOP is a systematic record of all economic transactions made between the
residents and non-residents of a country for a specific time period, usually a
year.
- Central Banks of each country prepare BOP records as per the format given in
IMF’s BPM-6 manual, all the figures are expressed in Dollar$.
- Since any country’s debit (outgoing money) is a credit (incoming money) for
another country →
World’s NET Balance of Payment is ZERO.
 RBI’s method of classifying BOP

Current account Capital account

Investment Debt/Loans Bank deposits

Visible goods invisible • FPI • ECB
(trade in goods)
• FDI

Transfer
services
• Remittance
Income
• Gift
• Interest
• Donation
• Profit
• Dividend
Trade of Goods: Tracks physical imports and exports, indicating the balance of trade.
Trade of Goods: Tracks physical imports and exports, indicating the balance of trade.
 What is balance of trade ?

Difference between imports and exports

Imports > exports

Trade deficit

Trade surplus
exports > Imports
Imports

Exports
Q2. With reference to Balance of Payments, which of the following constitutes/constitute the Current
Account? (2014)

1.Balance of trade
2.Foreign assets
3.Balance of invisibles
4.Special Drawing Rights
Select the correct answer using the code given below:
(a)1only (b)2and3
(c)1and3 (d) 1, 2 and 4
 Invisibles

Includes sectors like IT

 Remittance

Mera bhai USA rehta or mujhe Bta bhai kitne paise beju
har mhine paise bejta h
FDI(Foreign direct investment)

Investment made by a More than 10% share

foreign entity into an indian
company
For the remaining sectors, Foreign Investment is
permitted either through:
Prohibitted in : A. Automatic Route: i.e. Foreign entity doesn’t require
• Atomic energy Indian Govt’s approval.
• Railway operations B. Government Route: i.e. prior to investment, they’ve to
• Tobacco products , etc. get approval from the Govt of India’s respective
Administrative Ministry/ Department (+ Commerce
ministry)
 FPI(Foreign Portfolio investment)

Foreign entity If they get better returns in the other countries,

registered under SEBI They may quickly sell their indian securities and
run away.
Who buys upto 10% shares
Of an india company.

FPI = Upto 10%

FDI >10%
Securities and Exchange Board of India (SEBI)
The Securities and Exchange Board of India was constituted as a non-statutory body on April 12, 1988 through
a resolution of the Government of India.

The Headquarters of SEBI is located in Mumbai.

– It also has 4 regional offices, located in Ahmedabad, Kolkata, Chennai, and Delhi

Functions of SEBI
• regulator of the securities market in India

• watchdog of the Indian capital market

• protect the interests of investors in securities

• promote and regulate the securities market

 Inflation 2004 : RS.2

2024 : RS.10

Inflation is the rate of increase in prices

over a given period of time.
 Inflation

Demand-pull inflation Cost -pull inflation

Demand > supply Increase in cost

Here no change in demand
and supply side

Demand

Supply
 Inflation

Wholesale price index Consumer price index

Base year 2011-2012 Base year 2012
 Wholesale price index
WPI basket 697 commodities

Fuel and power Primary articles

Manufactured Products
22.62 %
It covers only goods, not services

13.51 % The Office of Economic Adviser (OEA) of the

Ministry of Commerce and Industry releases the
64.23%
Wholesale Price Index (WPI) in India
 Consumer price index

An index that measures the monthly change in prices paid by consumers

Who releases data of CPI What it covers

Goods and services

National Statistical Office (NSO)
Sectors of Indian Economy
Use natural resources to provide This sector includes manufacturing, This sector, also known as the
raw materials for other sectors. transportation, and other industries that service sector, provides intangible
contribute to the economy by creating goods and services that can drive
jobs and adding to the GDP. innovation and economic growth
Poverty and Unemployment
Poverty condition in which a person/community

lacks the financial resources

essentials for a minimum standard of living

Poverty means that the income level from employment is so low that
basic human needs can't be met.
 Types of Poverty

Absolute Poverty Relative Poverty

It is defined from the social

A condition where household
perspective that is living
income is below a necessary level
standard compared to the
to maintain basic living standards
economic standards of
(food, shelter, housing). This
population living in
condition makes it possible to
surroundings. Hence it is a
compare between different
measure of income inequality.
countries and also over time.
 Increase in population

Causes of
Price Rise
Social Factors Poverty

Unemployment Low Agricultural Productivity

 Poverty Estimation in India

Send data

The National Institution for Transforming India (NITI Aayog) uses data from the National Sample Survey
Office (NSSO) to estimate poverty in India
•Alagh Committee (1979) determined a poverty line based on a minimum daily
requirement of 2400 and 2100 calories for an adult in Rural and Urban area
respectively.

•Subsequently different committees; Lakdawala Committee (1993), Tendulkar

Committee (2009), Rangarajan committee (2012) did the poverty estimation.

•As per the Rangarajan committee report (2014), the poverty line is estimated as
Monthly Per Capita Expenditure of Rs. 1407 in urban areas and Rs. 972 in rural
areas.
 Unemployment
Unemployment is a condition where someone is able and willing to work
but is unable to find a paid job.
 Established in 1950

To conduct periodic surveys on employment and unemployment.

 Frictional Unemployment

The result of workers searching for new employment or transitioning from their old jobs to new ones

Old job New job

 Disguised unemployment
It is an unemployment in which more people are working
in a job than actually needed.

Work for 2 people done by whole family

 Cyclical unemployment

Cyclical unemployment occurs when there is not enough

aggregate demand in the economy to provide jobs for
everyone who wants to work.
 Structural Unemployment

Structural unemployment is a form of involuntary unemployment caused by

a mismatch between the skills that workers in the economy can offer, and
the skills demanded of workers by employers
 Seasonal unemployment

Seasonal unemployment occurs when people are unemployed at

particular times of the year when demand for labour is lower than usual.
Have you heard about budget , taxation ………

FISCAL POLICY

Policy which guide the government in deciding

From where will it get that money

How much money it should spend (taxes , borrowings , income ,selling assets or
Printing money)
Where it should spend

Government discuss these questions with lot of people we called : Budget

 Budget

Union Budget of India also referred to as the Annual Financial Statement

Article 112 of the Constitution of India

It is all about spending and earning.

Government presents it on the first day of February.

Presented by Finance Minister

 Budget : annual financial statement

Revenue budget Capital budget

Receipts Expenditure
Receipts Expenditure
KUCH PIASA JATA H
(BUDGET K ANDR Infrastructure
KUCH PAISA AATA H) • Interest repayment Loans to UT/states
• Salaries Investment
(liability) (assets)
• Grants Repaying principles
TAX NON TAX Loan, Disinvestmet
• subsidies borrowings,
debt
DIRECT TAX INDIRECT TAX
Like income tax, Like GST
Corporation tax, Excise Duty
Capital Gain tax Customs duty
 Have you heard about……….

Proportional tax: (ex. 10% for everyone )

x% direct tax on everyone (rich, poor)

each taxpayers same proportion of income will go into taxes.

Regressive tax : (like GST) Ex. Buying mobile phone

Progressive tax : (ex. income tax )

Tax slab depending on income

Important curves in economics
 Laffer curve

Relationship between tax rates and tax revenue

Inverted-U shape

Tax revenue change when tax rate is either

increased or decreased
Laffer curve
PHILLIPS CURVE

Show inverse relationship between

unemployment rate and inflation

High inflation – low unemployment

PHILLIPS CURVE
You can learn it
through UPI

unemployment inflation

PHILLIPS CURVE
LORENZ CURVE AND GINI COEFFICIENT

It is a graphical representation of income

inequality.
Farther the curve from baseline higher will be
inequality.

GINI coefficient express the extent of

inequality in a single figure . It can range from
0(0%) to 1 (or 100%)
 LORENZ CURVE AND GINI COEFFICIENT

A graph that shows the distribution of income or wealth within a population.

 KUZNETS CURVE

Shows relationship between growth

and inequality.

Inverted U-shape