ECONOMY

CONTENTS
1. ECONOMY AND ECONOMICS
2. NATIONAL INCOME
3. ECONOMIC PLANNING IN INDIA
4. POVERTY
5. MAJOR PROGRAMMES
6. AGRICULTURE
7. INDUSTRY
8. BANKING
9. FINANCIAL MARKETS
10. INFLATION
11. INSURANCE SECTOR
12. INDIAN FISCAL POLICY/BUDGET
13. FORIGN TRADE
14. INTERNATIONAL ECONOMIC ORGANISATION
15. MISCELLANEOUS
16. GLOSSARY
 1. ECONOMY AND ECONOMICS
ECONOMICS monthly production index,which is also considered
as a lead indicator of monthly industrial
Economics is a social science concerned with the performance.
production,distribution,and consumption of goods
and services.it studies how ➢ Tertiary Sector/Service Sector : In this sector
individuals,firms,government and other different services are produced such as
organiaztions within our society make choices and business, transport, telecommunication,
how these choices determine a society’s use of its banking, insurance, real estate, community and
resources. personnel services.
Economics can generally be broken down into two
types; Quaternary Activities:These are specialized tertiary
activities in the ‘Knowledge Sector’which demand a
Macroeconomics,which concentrate on the
separate classification.it is the intellectual aspect of
behaviour of the economy as a whole.it examine
the economy,such as personnel work in office
overall economies on a regional,national,or
buildings,hospitals and doctor’s
international scale.
office,theaters,accounting,etc.
Microeconomics is the study of economics at an Quinary Activities:the quinary sector is the part of
individual,group,or company level.
the economy where the top-level decisions are
ECONOMY made.this includes government officials,special and
highlybpaid skills of senior business
It is the state of a country or region in terms of the executives,research scientists, etc.
production and consumption of goods and services
and the supply of money.it is economics at play in a Organised Sector:In this sector,employment terms
certain region.this region is best defined today as are fixed and regular,and the employees get assured
country,a nation-the Indian economy,the American work and social security.
economy etc. Unorganised Sector:An unorganised worker is a
home based worker or a self-employed worker or a
Broad Sectors of Economy wage worker who is not covered by any of the acts
➢ Primary Sector : This sector includes all those pertaining to welfare schemes as mentioned in
economic activities where there is the direct use Unorganised workers Social Security Act,2008.The
of natural resources as agriculture, sector is marked by low incomes,unstable and
forestry,fishing,metals,fuels,minerals,dairy etc. irregular employment,and lack of protection either
so,it is also called agriculture and allied sector. from legislation or trade unions.
➢ Secondary Sector : This sector is called as The Public Sector:In this sector government owns
manufacturing sector which uses the output of most of the assets and it is the part of the economy
the primary sector as its raw materials. such as concerned with providing various governmental
services.The purpose of the public sector is not just
electricity, automobiles, textiles, construction,
to earn profits.Governments raise money through
etc.since this sector is associated with different taxes and other ways to meet expenses on the
kind of industries,it ia also called industrial services rendered by it.
sector.
The Private Sector:In the private sector,ownership
of assets and delivery of services is in the hand of
CORE INDUSRIES:
private individuals or companies.Activities in the
Eight core industries are electricity,steel,refinery private sector are guided by the motive to earn
products,cruid oil,coal,cement,natural gas and profits.
furtilizers.the index of eight core industries is a
 Classification/Nature of Economy Countries whose economy as a high level of
economic development are called developed
Classification of economics on the basis of role of economy. According to world bank, those
state/govt. : economies where the per capita gross national
1) Capitalistic Economy income is 12,236 dollars or more are called
➢ Also known as Private Enterprise system or developed economies or high income
Free Enterprise system or Market Economy. economies. For example – UK, Switzerland.
This type of economic system is favored by 2) Developing economy :
Adam Smith (Scottish Economist) through his It includes those economies where, efforts are
book "Wealth of Nations (1776)". made to achieve high level of economic growth.
➢ In this system, a large part of the economic For example – Brazil, India.
activities are decided by private enterprises 3) Underdeveloped economy :
system. Economies in which economic development or
➢ It emphasized on the standard of living of the people are very low
1. Need of competition in the Market and are called underdeveloped economies.
2. Environment of Laissez faire (non - According to world bank, economies that have a
interference by the government). per capita gross national income of 1,005 dollars
or less are called Underdeveloped economies.
2) State Economy
For example – Somalia, Niger.
➢ Also known as Centralized Economy, Centrally
Planned Economy, Non-Market Economy,
Command Economy. Classification of economics on the basis of
➢ Advocated by Karl Marx (German Philosopher). interrelationship with the rest of the world :
In this system, a large part of the economic (i) Open Economy : It refers to a market-
system where decision related to production, economy, which is generally free from trade
supply and prices were all suggested and barriers and where a country will conduct
decided by the state only, that is, controlled by trade with outside regions.
centralized power, often, a federal (ii) Closed Economy : An economy in which no
government. activity is conducted with outside economies.
3) Mixed Economy A closed economy is self-sufficient, meaning
➢ A mixed economic system (Dual Economy) is a that no imports are brought in and no exports
combination of both market and command are sent out.
economy.
Classification of economics on the basis of role of
➢ In this type of economic system, the market is
different sectors :
more or less free of government ownership
1. Agrarian Economy :
except for a few key areas.
➢ Advocated by John Maynard Keynes (British) in If the contribution of the primary sector i.e.
agriculture and allied sectors in the GDP of
his famous work, 'The General Theory of
economics is 50% or more than and in about the
Employment, Interest and Money (1936)." same proportion people depend on agriculture
➢ Indian economy is a mixed economy. and allied sector for livelihood then, it is called
Agrarian Economy. India was the Agrarian
Classification of economics on the basis of different Economy at the time of independence.
stage of development :
2. Industrial economy :
1) Developed economy :
 If the share of the secondary sector i.e. ➢ Lack of Capital and Industrialization: High
industrial sector in the GDP of an economy is consumption and low level of national income
50% or more and in the same proportion, there results in low savings and lower level of capital
is dependence for the livelihood of the people
formation. However, both are on increasing
then that economy can be called Industrial
economy. For example – China. trend. Besides capital formation, India also
lacks in modern and advance technology
3. Service economy :
required the industrialisation.
If the share of tertiary sector i.e.,service sector ➢ Lack of marketing infrastructure: In the
in the GDP of an economy is 50% or more and in
absence of proper infrastructure in transport
the same proportion, there is dependence for
the livelihood of the people then that economy and marketing, the benefits of high
can be called Service economy. For example – production don't reach the right persons,
UK, America. which might enable them with more
investment in the particular sector.
CHARACTERISTICS OF INDIAN ECONOMY
➢ Vicious Circle of Poverty: Since economic
➢ Agrarian Economy: Agrarian economy is a type
reform India has observed high economic
of economy that relies primarily on
growth and rise in per capita income but
agricultural industry. Even after seven
disparity has strengthened in this span of time
decades of independence,41.49% of the work
wherein poor has become poorer leading to
force of India is still agriculturist.The share of
discontent among large chunk of population.
agriculture in GDP is 19.9% in 2020-2021
This vicious cycle of poverty is proving to be
➢ Mixed Economy: It is an economy where both
unbreakable.
public and private sector co-exist. Indian
➢ India is Still a Traditional Society: The
Economy is a unique blend of public and
prevalence of customs, superstitions and
private sector, i.e. a mixed economy. After
stigma has hindered the growth at individual
liberalisation, Indian Economy is going ahead
at one hand and nation on the other hand.
as a capitalist economy.
Huge unproductive expenditure on customary
➢ Over-Population: India has very large
practices has lowered the savings which could
population and increasing at rapid rate, with a
have helped in capital formation.
decadal growth of 17.64% in 2001-2011
➢ Level of Unemployment: A person is
period. India reached the mark of 1.21 billion
considered employed if he/she works for 273
population.
days of a year for eight hours every day. In
➢ Low Per Capita Income and Huge Disparity in
India, the level of unemployment is very High.
Income Distribution:
It is mainly structural in nature as the
➢ Unbalanced Economic Development: India is
productive capacity- is inadequate to create
still striving to achieve balanced economic
sufficient number of jobs. There is an acute
growth. The unbalanced nature is visible from
problem of disguised unemployment in the
the fact that primary, secondary and tertiary
rural areas.
sector contributes disproportionately to the
workforce involved.
 Present Status of Indian Economy
The economy of India is characterized as a middle income developing market economy. It is the world’s 6 th
largest economy by nominal GDP and 3rd largest by Purchasing power parity.
According to IMF, on a per capita income basis, India ranked 145th by GDP (nominal) and 122nd by GDP (PPP).
From independence in 1947 until 1991 successive governments promoted protectionist economic policies
with extensive state intervention and state economic regulation, which is characterized as dirigisme, in form
of the license raj. The end of the cold war and an acute balance of payment in 1991 led to the adoption of
broad economic liberalization in India.
Since the start of the 21st century, annual GDP growth has been 6% -7%, and from 2013-18 India was the
world’s fastest growing major economy , surpassing China.
India’s current GDP (nominal) is approx. $ 3 Trillion(2021 Est.) .
Recently, India’s foreign reserve has crossed $ 600 Billion, which is 4th highest in the world.

Purchasing power Parity(PPP)

Purchasing Power Parity (PPP) is a measurement of prices in different countries that uses the price of specific
good to compare the absolute purchasing power of the country’s currencies.
 2. NATIONAL INCOME
1931-32. This was not very much satisfactory.
➢ J.M. Keynes, defined National Income as
The first official attempt was made by Prof. P.C.
“National Income is the money value of all
Mahalnobis in 1948-49 where he submitted his
goods and services produced in a country
report in 1954. Per Capita Income is calculated
during a year".
by Atlas method in India.
➢ National Income (NI) is the total value of all the
➢ Today National Income is calculated and
final goods and services produced by its
published by the Central Statistical Office
nationals during a financial year. In India, the
(CSO). The national income is calculated
financial year is from 1st April to 31st March.
➢ According to National Income Committee annually.
➢ National income = C+I+G+(X-M), where C =
(1949), "A national income estimate measures
total consumption expenditure , I= total
the volume of commodities and service turned
out during a given period counted without investment expenditure, G= total govt.
expenditure, X=export, M= import.
duplication".
➢ It can be measured by gross national product
➢ In 1868, the first attempt was made by
Dadabhai Naoroji in his book "Poverty and Un- (GNP), gross domestic product (GDP), gross
national income (GNI), net national product
British Rule in India". He estimated the per
(NNP), net national income (NNI) and per
capita annual income to be Rs. 20. The first
scientific method was made by V.K.R.V. Rao in capita income (PCI).

• National Income is the measurement of flow of goods and services in an economic system.
• National wealth is the measurement of the present assets available at a given time.
• When the National income is measured at the base year price, it is called national income at
constant price. When the national income is measured-at the current year price, it is called national.
Income at current year prices.
• When Net National Product (NNP) is calculated at Factor Cost (FC), it is called National Income. This
measure is calculated by deducting indirect taxes and adding subsidies in NNP at Market Price (MP).
• NNPFC = NNPMP – Indirect Taxes + Subsidies + Government surplus = National Income.
• NI = NNP + Subsidies – Indirect Taxes
• National Income (NI) = C + G+ I +(X – M) + (R – P) – Depreciation – Indirect Tax + Subsidies.
Where, C = Total Consumption Expenditure; I = Total Investment Expenditure; G = Total Government
Expenditure; X = Export; M = Import; (R-P) = Net Factor Income from abroad.

Methods of Measuring National one year. This represents Gross Domestic

Income Product (GDP). Net income earned in foreign
boundaries by nationals is added and
Simon Kuznets, a 1971 Nobel Prize winner, gave the
depreciation is subtracted from GDP. GDP =
following methods for measuring national income.
Gross value added + Indirect taxes — Subsidy.
1) Production Method : The National Income is
2) Income Method : The National Income is
complied by calculating the gross value of final
calculated by compiling income of factors of
goods and services produced in a country in
production viz., labour, land, capital and
 entrepreneur. National Income = Total wages the increase in quantity of goods and service's
+ Total rent + Total 'interest + Total profit by adjusting for any increase in prices.
3) Consumption Method or Expenditure
Market Price refers to the actual transacted
Method : National income can also be price and it includes indirect taxes such as
calculated by adding up the expenditure Excise Duty,VAT,Service Tax,Customs Duty
incurred for goods and services. The etc but it excludes government subsidies.
consumption expenditure of consumers (C),
consumption expenditure of investors or
entrepreneur which is called investment (I), The factors cost means the total cost of all
and consumption of government (G) is added. factors of production consumed or used in
GDP=C+I+G producting goods or services. It includes
Government Grants and Subsidies but it
exludes Indirect Taxes.
NATIONAL INCOME AGGREGATES
Gross National Product (GNP)
Gross Domestic Product (GDP) ➢ GNP refers to the money value of total output of
• It is the market value of all final goods and production of final goods and services produced
services produced within the domestic territory by the national residents of a country during a
of a country during a specified time period, year.
usually one year. ➢ GNP = GDP + Net factor Income from abroad.
Net National Product (NNP)
• Here, domestic territory = political frontiers of
➢ It is obtained by subtracting depreciation value
the country including its territorial waters, ships,
aircarfts, fishing vessels operated by the normal (i.e. , capital stock consumption) from GNP.
residents of the country; and its embassies, ➢ NNP = GNP — Depreciation
consulates located abroad. Personal Income (PI)
(a) GDP at Market Price (GDPMP) ➢ Personal Income is the sum of all the income
• It refers to the total value of all the goods received by the entire people of the country in
and services at market price produced one year.
during a year within the geographical ➢ Personal Income = National income + [(Transfer
boundaries of the country. payments) — (Undistributed profits of
(b) GDP at Factor Cost (GDPFC) corporate + Payments for social security
• GDP can be calculated at factor cost. This provisions).
measurement more accurately reveals the ➢ Personal Income = National income + Net
income paid to factors of production. transfer payment.
• GDPFC = GDPMP — Indirect Taxes + Subsidies Disposable Personal Income (DPI)
(c) Nominal GDP and Real GDP ➢ Disposable Personal Income means the income
• Nominal GDP is evaluated at current that is available to individuals that can be
market prices. Therefore, nominal GDP will disposed (spent) at their will.
include all of the changes in market prices ➢ Disposable Personal Income = Personal Income
that have occurred during the current year — Direct Taxes
due to the inflation or deflation. Estimates of National Income in India
➢ In 1868, the first attempt was made by
• Real GDP is generally measured by using base
Dadabhai Naoroji in his book "Poverty and Un-
year prices of goods and services. It reflects
 British Rule in India". He estimated the per ➢ Since 1955, the national income estimates are
capita annual income to be Rs. 20. being prepared by Central Statistical
➢ The first scientific attempt to measure Organisation The (CSO) uses different
national income in India was made by methods like the Product Method for various
Professor V.K.R.V. Rao in 1931-32. He divided sectors in the process of estimating the
the Indian economy into 13 sectors.But was National Income.
not very satisfactory. ➢ The Government of India ordered setting up
➢ The Government of India appointed National of National Statistical Commission on 1 June,
Income Committee in 1949. The committee 2005 on the recommendation of C.
was chaired by Prof. P.C. Mahalanobis and had Rangarajan Commission. The National
Prof D.R. Gadgil and Dr. V.K. R.V. Rao as Statistical Commission (NSC) of India is an
members. The first report of the committee autonomous body which was formed in July
was presented in 1951.it was first official 2006 to reduce the problems faced by
attempt by GOI. statistical agencies.

CSO and NSSO

Central Statistical Organisation (CSO) was set-up in 1951, constituted to publish and calculate
national income.it is now renamed as central statistical office(CSO).it is a government agency under
the ministry of statistics and programme implementation.CSO is responsible for co-ordination of
statistical activities in the country,and evolving and maintaining statistical standards.

National Sample Survey Organisation (NSSO) was set-up in 1950, for conducting large scale sample
survey to meet the data needs of the country for the estimation of national income and other
aggregates.

MEASUREMENT OF GROWTH AND DEVELOPMENT

Human Development Report
➢ Human Development Report (HDR) is brought assessing the development of a country,not
up by the United Nations Development economic growth alone.
Programme (UNDP) at every calendar year, ➢ Some important indices of HDR :
whereas the World Development Report 1. Human Development Index (HDI)
(WDR) is provided by the World Bank at every introduced in HDR 1990.
financial year. 2. Multidimensional poverty index
➢ HDR is based on the Human Development indroduced in HDR 2010.
Index (HDI). The HDR was started by Pakistani 3. Gender inequality index introduced in HDR
economist Mahbub-ul-Haque and Indian 2010.
economist Amartya Sen. The first HDR was 4. Gender development index introduced in
published in 1990. HDR 2014.
➢ HDR emphasizes that people and their 5. Iequality adjusted HDI introduced in HDR
capabilities should be the ultimate criteria for 2010.
Human Development Index World Happiness Report
➢ HDI is prepared on the basis of three ➢ It is released by Unites Nation Sustainable
indicators : Solutions Network.
1. Life expectancy of birth (Longevity).
➢ Citizens are asked to give score between 0-
2. Education index:mean year of schooling 10 on how happy they are for the following
and expected years of schooling. parameters : income, freedom, healthy life
3. Standard of Living (Per Capita gross expectancy, social support by friends and
national Income in PPP). relative, generosity and corruption.
Gender Development Index(GDI)
➢ The HDI is the geometric mean of these three
indicators. ➢ It is released by UNDP.

Meaning of HDI Value ➢ It is simply the (female HDI) divided by (male

On the basis: of HDI valuation, countries are HDI) for a given country.
Classified ➢ Its value could even be greater than 1, if
into three categories with valuation scale running female (life expectancy, education, income)
between 0 and 1. is more than male.
1. High - 0.8 and above
Gender Inequality Index (GII)
2. Medium - 0.5 to 0.8
➢ The Gender Inequality Index (Gil) is an index for
3. Low - less than 0.5
measurement of gender disparity that was
Inequality Adjusted HDI
introduced in the 2010 Human Development
➢ It is released by UNDP. Since HDI is a Report 20th anniversary edition by the United
geometric mean, it hides internal inequality of
Nations Development Programme (UNDP).
country. So, using this formulae, UNDP will
adjust the HDI score with imequality among According to the UNDP, this index is a composite
rich and poor in three dimensions. measure which captures the loss of
achievement within a country due to gender. It
uses three dimensions : (i) reproductive health;
Gross National Happiness Index(GNHI)
➢ The term Gross National Happiness was coined (ii) empowerment and (iii) labour market
in 1972, by Bhutan's King Jigme Singye participation.
Wangchuck. GNH was designed in an attempt to
Global Gender Gap Report
define an indicator that measures quality of life
➢ It is released by World Economic Forum.
or social progress in more holistic and
psychological terms rather than the economic ➢ The indicators are : economic opportunity,
educational attainment, health and survival,
indicator of GDP.
political empowerment for female.
➢ It is an indicator to measure sustainable
development, environmental
conservation,culture and good governance.

The new index was introduced as an experimental measure to remedy the short comings of Previous
indicators, the Gender Empowerment Measure (GEM), both of which were introduced in the 1995 Human
Development Report.
 MULTIDIMENSIONAL POVERTY INDEX (MPI) covering over 100 developing countries. It
➢ MPI was developed in 2010 by the Oxford Poverty complements traditional income-based poverty
and Human Development Initiative (OPHI) and the measures by capturing the severe deprivations
United Nations Development Programme (UNDP) that each person faces at the same time with
and uses different factors to determine poverty respect to education, health and living standards.
beyond income-based lists. It replaced the The MPI assesses poverty at the individual level.
previous Human Poverty Index. The global MPI is ➢ The index uses the same three dimensions as the
released annually by OPHI and the results are Human Development Index: health, education and
published on its website. standard of living. These are measured using ten
➢ The global Multi dimensional Poverty Index (MPI) indicators.
is an international measure of acute poverty

Dimension Indicators
Health : Child Mortality; Nutrition
Education : Years of schooling; School attendance
Living Standards : Cooking fuel; Toilet; Water; Electricity; Floor; Assets.
 3. ECONOMIC PLANNING IN INDIA
➢ Economic planning is the process in which the opportunities for the less privileged
limited natural resources are used skillfully so as sections of the society.
to achieve the desired goals. The concept of 3. The Gandhian Strategy
economic planning in India is derived from ➢ This plan was brought out by Acharya S.N.
Russia (the then USSR). Aggarwal in 1944. The model advocates
➢ `Planning' in India derives its objectives and the attainment of maximum self-
social premises from the Directive Principles of sufficiency in village communities.
state policy enshrined in the constitution. ➢ The basic objective of the Gandhian Plan is
➢ The basic aim of economic planning is to bring to raise the material as well as the cultural
rapid economic growth through development of level of the Indian masses so as to provide
agriculture, industry, power, transport and a basic standard of life.
growth and communications and all other 4. LPG Model/Rao —
sectors of the economy. Manmohan Model

Models/Strategies of Economic ➢ Liberalisation, Privatisation and

Globalisation (LPG) model of planning
Development
was introduced by the then Finance
1. Harrod — Domar Models Minister Dr. Manmohan Singh under
➢ This Model emphasised the role of capital Narsimha Rao Government.
accumulation's dual character. It means on ➢ This model emphasises a bigger role for
the one hand increases the national the private sector by reducing the role of
income (demand side role) and on the the state significantly.
other hand; increases the production ➢ It aims at a strategy of exported growth.
capacity (Supply side role). 5. PURA Model
➢ The First Five Year Plan was based on this ➢ PURA stands for Providing Urban
model. Amenities in Rural Areas and was the
2. Nehru Mahalanobis Model brainchild of APJ Abdul Kalam. The
➢ This strategy of development adopted at objective of this model is to propel
the time of formulation of the second five economics development without
year plan and has continued right up to the population transfers.
eighties. ➢ The Union Cabinet on January 20, 2004
➢ Here, the state controlled the accorded in principle approval for the
commanding heights of the economy executive of PURA within the gross
through the public sector. budgetary support for bridging the rural
➢ The goal of this model was growth with urban divide and achieving balanced
social justice. It aimed at enlargement of socio – economic development.
 History of Planning in India
• The planned economic development began in 1951 with inception of the First Five Year Plan. In the year
1934, the proposal of economic planning came for the first time in the book of M. Vishveshwaraiya titled '
The Planned Economy of India'.
• As per congress plan, in 1938, National Planning Commission was set up under the chairmanship of
Jawaharlal Nehru by the Indian National Congress.But not implemented due to world war 2.
• In 1944, Bombay Plan was presented by 8 leading industrialists of Bombay.
• In 1944, Gandhian Plan was given by S-N Aggarwal focusing on rural and agricultural economy.
• In 1945, People’s Plan was given by M.N. Roy.he advocated distribution of resources by the state only,and
mechanization of Agriculture production.
• In 1950, Saryodaya Plan was given by Jai Prakash Narayan based on vinoba’s philosophy.
• After independence, in 1947, the committee on economic planning was constituted under the
chairmanship of Jawahar Lal Nehru. Thereafter, on the recommendation of this committee, Planning
Commission was constituted in March, 1950 and the format of First Five Year Plan was prepared in 1951.
• On 1st January, 2015, the newly formed, National Institution for Transforming India (NITI) Aayog, has
replaced the Planning Commission.

Types of Planning
Planning Features

Imperative Planning Under this type of planning,economic decisions are made through a central planning
authority instead of a market system.allocation of resources,the mix of resources and
the distribution of output among the people are determined centrally in accordance
with the pre-determined plan and targets.in fact,the administrative controland
regulation from the authority flows in all directions.imperative planning procedure is
rigid and strict.e.g.USSR

Indicative Planning It was started in France by monnet plan.it is found in mixed economies.in this type of
planning;government prepares an outline of plan after consulting with public and
private sector.they are given funds,incentives,subsdies,tax break to maximize
production,income and employment.government does not force the private sector,
but only just indicates the area of cooperation and targets to be achieved. It was
adopted in our country since the 8th Five-Year Plan, as practised in many developed
countries.

Perspective Planning It's' a type of planning for a long period of time, usually 15-20 Planning years. As a
highly specialise task, it is operationalised through the Five Year and Annual Plans In
such form of planning, the planners formulate a Perspective Plan that broadly defines
the directions desired to be taken by the economy.

Rolling Plan Under the scheme of rolling Plans, there are three different steps First a plan for the
current year which includes the annual budget; Second, a plan for a fixed number of
year three, four or five. It is revised every year as Per the requirements of the
economy; Third, a perspective plan for 10, 15 or 20 years.
Core Plan As per this concept, the Planning Commission asks the States to submit their
projected revenue estimates. On the basis of these estimates, Planning in keeping
the Plan target, to realistic limits and prevents diversion of funds from the priority
items to the non-plan account. The incept of ‘Core Plan’ has emerged recently.

INSTITUTION FOR PLANNING

1. NITI (National Institution for Transforming ➢ NITI Aayog became functional from 1 January,
2015.
India) Aayog :
Members
➢ NITI Aayog is a policy think-tank of The NITI Aayog comprises of the followings:
government that replaces Planning
▪ Prime Minister of India as the Chairman.
Commission and aims to involve states in
▪ Governing Councils comprising the Chief
economic policy-making in India.it is neither
Ministers of all the States and UT’S and
constitutional nor statutory body.
Lieutenant Governors of Union Territories. PM
➢ It will be providing strategic and technical
is also part of this governing counsil.
advice to the central and the state
governments.

Planning Commission:
The Planning Commission was the central body for taking plans in India. The Planning Commission was
constituted 15 March 1950.
It was constituted by the Union Cabinet on the proposal of a member of Union parliament in the form of an
advisory and a specialised institution. Pandit Jawaharlal Nehru was the first Chairman of the Planning
Commission.
Structure :
• Prime Minister is the ex-officio chairman of this commission. There is no fix term or tenure of the deputy
chairman and members of the Planning Commission. The deputy chairman of the Planning Commission
enjoys the status of a cabinet rank minister.

▪ Regional Councils will be formed to address ▪ Experts, specialists and practitioners with
specific issues and Contingencies relevant domain knowledge as special
(irrigation,naxal-problem,infrastructure) invitees nominated by the Prime Minister.
impacting more than one state or a region. ▪ Full-time organisational framework (in
The Regional Councils will be convened by addition to Prime Minister as the
the Prime Minister and will comprise of the Chairperson) comprising of :
Chief Minister of States and LT.Gov. that fall (i) Vice-Chairperson : To be appointed by
in the region.counsil is chaired by PM or a the Prime Minister:enjoy the status of
person nominated by him. cabinet rank minister.
(ii) Members : Full time,enjoy the status of
central state minister.
 (iii) Part-time : Maximum of two from goals NITI Aayog developed SDG India Index
leading universities, research to moitor our progress in 17 SDG goals.
organisations and other relevant 4. Atal Innovation Mission : NITI runs this
institutions. Part time members will be mission the grant of upto Rs. 10 crore to
on a rotational basis. setup Atal Incubation centers. This mission
(iv) Ex Officio members: Maximum of four also started Mentor India programme, there
in experts from industry provide mentorship
members of the Union Council of
to students in Atal Incubator Lab.
Ministers to be nominated by the Prime
Minister. 2. National Development Council (NDC) :
(v) Chief Executive Officer: To be ➢ National Development Council (NDC) is an
appointed by the Prime Minister for a extra constitutional body. National
fixed tenure, in the rank of Secretary to Development Council was constituted on 6
the Government of India. August, 1952.
(vi) Secretariat as deemed necessary. ➢ Its aim is to make a co-operative environment
for economic planning between the states and
Some notable initiative taken by NITI Aayog :
the Planning Commission.
1. Aspirational District Programme (2018) : The ➢ The Prime Minister is the ex-officio chairman
purpose of this programme is to rapidly and the secretary of the Planning Commission
transform 115 backward district on different
is the ex-officio secretary of this council.
performance indicators related to health,
nutrition, education, agriculture, skill ➢ Chief Ministers of all the states and the
development, infrastructure, financial members of Planning Commission are the
inclusion etc. members of National Development Council.
2. Poshan Abhiyaan : Ministry of woman and ➢ Functions : (i)To evaluate the management of
child development is implementing this plans from time to time; (ii)To analyse the
programme to make India malnutrition free policies affecting development; (iii)To give
by 2022 with focis on pregnant woman, suggestions to achieve the aim fixed in the
mother and children. plans; (iv) To give a final shape to the plan.
3. Sustainable development Index : For
implementation of sustainable development
 FIVE YEAR PLANS

Five Year Plan Period Target growth Achievement (In % model

rate of GDP age)
(in % age)
First Plan 1951-56 2.1 3.6 Harrod-Domar Model
Second Plan 1956-61 4.5 4.21 Prof. P.C.
Mahalanobis.
Third Plan 1961-66 5.6 2.72 Sukhmoy Chakrabory
and Prof. Saddy
Fourth Plan 1969-74 5.7 2.05 Ashok Rudra and Alon
S. Manney.
Fifth Plan 1974-79 4.4 4.83 Investment Model of
Planning
Commission
Sixth Plan 1980-85 5.2 5.54 Based on Investment
Yojana, and
Infrastrural
changing growth
model
Seventh Plan 1985-90 5.0 6.02 Prepared by Pranab
Mukherjee
Eight Plan 1992-97 5.6 6.68 John W. Miller Model
Ninth Plan 1997-02 8.0 5.5 Planning Commission
Tenth Plan 2002-07 8.0 7.7 Panning Commission
Eleventh Plan 2007-12 9.0 8.0 Prof.C Rangarajan
Twelfth Plan 2012-17 9.5 - Planning Commission

First Five Year Plan (1951-1956) Third Five Year Plan (1961-1966)
➢ Based on the 'Harrod-Domar Model'. Aim- ➢ To make the economy independent and to
.Was to start process of balanced reach self active take off position called Gadgil
development of economy. Yojana . Agriculture and industry both were on
➢ Agriculture was on top priority. The first Plan its priority.
emphasised, as its immediate objectives the ➢ Reason of failure of this plan was Indo-China
rehabilitation of refugees, rapid agricultural war, Indo-Pakistan war and unprecedented
development and control of inflation. drought.
➢ Increase of 18% in national income and 11% in Fourth Five Year Plan (1969-1974)
➢ Objectives 'growth with stability' and
per capita income.
`progressive achievement of self reliance'.
Second Five Year Plan (1956-1961)
➢ Based on the P.C. Mahalanobis model. Aimed ➢ `Growth with justice' and `Garibi Hatao'
at rapid industrialisation with development of (Removal of poverty) were the main objectives
basic and heavy industries. ➢ It was failed due to Bangladeshi refugee
➢ Important large industries like. Steel Plant at problem and drought.
Durgapur, Bhilai and Rourkela were
established.
Fifth Five Year Plan (1974-1979) ➢ Objectives: poverty eradication and attainment
➢ Prepared under C. Subramaniam in 1972, but of self-reliance.originally it was a ten year long
final draft of the Plan was prepared and term perspective plan.
launched by D.P. Dhar. ➢ It was terminated in 1978 as Morarji desai
became PM.

Plan Holiday (from 1966 to 1969)

Miserable failure of the Third 'Plan forced to declare plan holiday.
Three annual plans-were drawn in this intervening period.
Equal priority was given to agriculture, its allied sectors and the industry sector.

infrastructure. Pradhan Mantri Rozgar Yojana

Sixth Five Year Plan (1980-1985)
:PMRY) was started in the year 1993.
➢ Basic objective removal of poverty.
Ninth Five Year Plan (1997-2002)
➢ Integrated rural develop programme,national
rural employment progrmme implemented ➢ Launched in the fiftieth (50th) year of India's
during this period. Independence.
➢ Achieving economic and technological self- ➢ Focus : Growth with Social Justice and Equity.
reliance, generating employment and ➢ Identified 7 basic minimum services like
improving the quality of life. health,education,nutrition,roads etc and
Seventh Five Year Plan (1985-1990) gave more finance to these sector.
➢ First time private sector was given priority. Tenth Five Year Plan (2002-2007)
➢ Objectives include establishment of self- ➢ Proposed to eradicate poverty and
sufficient economy, creation of more unemployment and to double the per capita
opportunities. Employment generating income in next 10 years. Tenth Plan was
programmes like Jawahar Rozgar Yojana were expected to follow a regional approach.
started. ➢ India's foreign exchange reserves reached a
Rolling Plan (1978-1980) level of US $185 billion in February 2007.
Eleventh Five Year Plan (2007-2012)
The new pattern started by Janata Government,
which meant that every year performance of ➢ The 11th plan visualised, Faster and more
the plan would be assessed and a new plan inclusive growth as its objective.
based on such assessment be made for the ➢ Rate of growth of GDP was 8.0%. Under
subsequent year. achiever was the agriculture, rate of growth of
which remained low at 3.3% over the plan
Eighth Five Year Plan (1992-1997) period, as compared to the 4% target rate of
➢ P.V. Narashimha Rao Government initiated
growth.
the process of fiscal reforms,LPG reforms,new
➢ Balance of trade deficit has reached US $ 644
economic policy.
billion in this plan period.
➢ Priority was given to Development of Human
Twelfth Five Year Plan (2012-17)
Resources i.e. employment,education and
➢ Vision of Faster, Sustainable and More
public health, Strengthen the basic
Inclusive Growth.
➢ Economic Growth : To achieve Real GDP Growth Rate of 4.0 per cent; Manufacturing
Growth Rate of 8.0 per cent; Agriculture Growth Rate of 10.0 per cent.
Annual Plan
The Eighth Five year plan (1990-95) could not take off due to the changing political situation at the centre.
The new government which assumed power at the centre in June 1991, decided that the eight Five year plan
would commence on 1 April, 1992 and that 1990-92 and should have separate annual plans.
The basic thrust of these annual plans was on maximization of employment and social transformation.

➢ Education : Mean Years of Schooling to end of the 12th Five Year Plan; Major subsidies
increase to seven years by the end of 12th Five and welfare related beneficiary payments to be
Year Plan; Enhance access to higher education shifted to a direct cash transfer by the end of
by creating two million additional seats for the 12th plan, using the Aadhar platform with
each age cohort aligned to the skill needs for linked bank accounts.
the economy.
➢ Health : Reduce IMR to 25 and MMR to 1 per INDIA VISION —2020
1,000 live births, and Child Sex Ratio (0-6 Year)
➢ Planning Commission released India Vision-
to 950 by the end to the 12th Five Year Plan;
2020 on January 23, 2003. It was prepared by
Reduce under-nutrition among children aged
Mr. Shyam Prasad Gupta, a member of the
0-3 years to half of the NFHS-3 levels by the end
Planning Commission.
of 12th Five Year. Plan.
➢ Its salient features are :
➢ Infrastructure : Increase investment in
• The expected annual growth rate by 2020 to
Infrastructure as a percentage of GDP to 9 per
be 9%.
cent by the end of 12th Five Year Plan;' Connect
• Elimination of unemployment, illiteracy and
all villages with all-weather roads by the end of
poverty by 2020.
12th Five Year Plan; Upgrade national and state
• To double per capita income by 2020.
highways to the minimum two-lane standard
• Hundred per cent registration of children
by the end of Twelfth Five Year Plan; Complete
(age group 6-14 years) in schools.
Eastern and Western Dedicated Freight
• 1.35 billion population of the country to
Corridors by the end of 12th Five Year Plan;
have better living standard by 2020.
Increase rural teledensity to 70 per cent by the
• With 2% annual employment generation
end of 12th Five Year Plan; Ensure 50 per cent
rate, 20 crores new employment
of rural population has access to piped drinking
opportunities to be created by 2020;
water supply, and 50 per cent gram
Present employment share in agriculture to
Panichayats achieve Nirmal Gram Status by the
come down from 56% to 40% by 2020;
end of the 12th Five Year Plan.
Unorganised sector to create more
➢ Environment and Sustainability Increase green
additional employment opportunities.
cover by 1 million hectare every year during the
12th Five Year Plan; Add 30,000 MW of • Urban population percentage to increase
renewable energy capacity in the 12th plan. from existing 25.5% to 40%.
➢ Service Delivery : Provide access to banking
service to 90 per cent Indian households by the
 4. POVERTY & UNEMPLOYMENT
➢ Poverty can be defined as a social or in other words, they are relatively
phenomenon in which a section of the deprived.
society is unable to fulfil even its basic • Poverty Line Calculation: Poverty estimation
necessities of life. Poverty reflects the in India is now carried out by NITI Aayog’s
existence of inequalities in a society. The task force through the calculation of poverty
third world countries exhibit the existence of line based on the data captured by the
mass poverty. National Sample Survey Office under the
➢ Poverty estimates based on a large sample Ministry of Statistics and Programme
survey of household consumption Implementation (MOSPI).
expenditure carried out by the National ➢ Causes of Poverty Rapid growth of population;
Sample Survey Organisation (NSSO) after an Regional disparities; Excessive population
interval of approximately five years. pressure on agriculture; Low level of economic
➢ In pre-independent India, Dadabhai Naoroji development; Low productivity in agriculture
was the first to discuss the concept of a and industry; Political factors and state policy;
poverty line. He used the menu for a prisoner Large scale unemployment and
and used appropriate prevailing prices to underemployment; Widespread inequality in
arrive at what may be called 'jail cost of living' the distribution of Income and Assets; etc.
.
➢ There are two types of standards to measure
ESTIMATION OF POVERTY IN INDIA
poverty, that is,
(i) the absolute poverty and (ii) the Pre Independence Poverty Estimation :
relative poverty. • Dadabhai Naoroji through his book, “Poverty
and Unbritish Rule in India” made the earliest
A. The Absolute Poverty : According to United
estimation of poverty line (₹16 to ₹35 per capita
Nations World Summit for Economic
per year). The poverty line proposed by him was
Development, absolute poverty is a
based on the cost of a subsistence or minimum
condition characterized by severe
basic diet (rice or flour, dal, mutton, vegetables,
deprivation of basic human needs, including
ghee, vegetable oil, and salt).
food, safe drinking water, sanitation
facilities, health, shelter, education and • National Planning Committee’s (1938) poverty
information. It depends not only on income line (ranging from ₹15 to ₹20 per capita per
but also on access to social services. month) was also based on a minimum standard
B. The Relative Poverty : It is present when a of living perspective in which nutritional
household income is lower than the median requirements were implicit.
income in a particular country and is used • In 1938, the National Planning Committee was
mainly by the developed countries. Those set up by Subhash Chandra Bose under the
who fall into the category of relative poverty chairmanship of Jawaharlal Nehru for the
are not necessarily deprived of all basic purpose of drawing up an economic plan with
needs, but may not experience the same the fundamental aim to ensure an adequate
standard of living as the majority of society standard of living for the masses.
• The Bombay Plan (1944) proponents had
 suggested a poverty line of ₹75 per capita per Tendulkar Committee on Poverty
year. ➢ A committee named 'The Expert Group to
The Bombay Plan was a set of a proposal of a Review the Methodology for Estimation of
small group of influential business leaders in Poverty' headed by Suresh D. Tendulkar was
Bombay for the development of the post- formed by Planning Commission in 2009. This
independence economy of India. committee adopted a new method. It moved
from calorie based poverty estimation to
Post Independence Poverty Estimation :
nutrition, health and other expenditures like
• Planning Commission Expert Group (1962), clothing, footwear based estimation. It calls the
working group constituted by the Planning basket of goods selected to determine poverty
Commission formulated the separate poverty as Poverty Line Basket (PLB).
lines for rural and urban areas (₹20 and ₹25 per ➢ The poverty line fixed for rural India is Rs.
capita per year respectively). 446.68 and urban India is Rs. 578.80.
• VM Dandekar and N Rath (1971), made the first
systematic assessment of poverty in India, Rangarajan Committee on Poverty
based on National Sample Survey (NSS) data. ➢ Government formed an Expert Technical Group
Unlike previous scholars who had considered to revisit the methodology for estimation of
subsistence living or basic minimum needs the poverty and identification of the poor
criteria as the measure of poverty line, VM under the chairmanship of Rangarajan.
Dandekar and N Rath were of the view that ➢ It adopted the method of calorie based
poverty line must be derived from the methodology as in the past. In addition it
expenditure that was adequate to provide 2250 accounted for nutrition, fat and other essential
calories per day in both rural and urban areas. non-food items to arrive at poverty line. It fixed
Expenditure based Poverty line estimation, Rs. 972 per capita per month as poverty line for
generated a debate on minimum calorie rural area and Rs. 1407 for urban areas.
consumption norms.
• Alagh Committee (1979): Task force constituted UNEMPLOYMENT
by the Planning Commission under the ➢ It is a situation in which individuals are ready
chairmanship of YK Alagh, constructed a poverty and willing to work at the prevailing rate of
line for rural and urban areas on the basis of wages but the individuals could not get work.
nutritional requirements and related Unemployment in India is mainly structural in
consumption expenditure. Poverty estimates nature because the productive capacity is
for subsequent years were to be calculated by inadequate to create sufficient number of job.
adjusting the price level for inflation. There is an acute problem of disguised
• Lakdawala Committee (1993): Task Force unemployment in the rural areas.
chaired by DT Lakdawala, based on the Number of unemployed = Labour force — work
assumption that the basket of goods and force.
services used to calculate Consumer Price Index- National Sample Survey Organization (NSSO)
Industrial Workers (CPI-IW) and Consumer Price defines employment and unemployment on the
Index- Agricultural Labourers (CPI-AL) reflect the following activity
consumption patterns of the poor. statuses of an individual:
• Working (engaged in an economic activity)
 i.e. 'Employed'. 4. Disguised Unemployment : It occurs when a
• Seeking or available for work i.e. person is engaged in a work but his
'Unemployed'. contribution of his marginal productivity is
• Neither seeking nor available for work. zero. Removing that person from work will not
affect total production. This is mainly found in
The first two constitutes labour force and
unemployment rate is the percent of the labour agriculture sector of developing economies.
force that is without 5. Educated Unemployment : Those
educated/trained and skilled fails to obtain a
work.
suitable job come under this category. This is
Unemployment rate = (Unemployed Workers / Total
mainly found in urban areas.
labour force) × 100
6. Open Unemployment : It refers to those who
Estimation of Unemployment have no work to do even though they are able
➢ B. Bhagwati Committee: On unemployment and willing to do work. Unskilled labour
estimates (1973) set-up by the Planning unemployment is included in this category.
Commission gave three estimates of 7. Under Employment : It refers to the
unemployment. underutilisation of manpower available both
These are as follow : in terms of time and skill for instance a post
▪ Usual Principal Status (UPS) Unemployed .graduate of engineering working as a clerk or
Persons : Who remained unemployed for a an office assistant in an office. . .
major part of the year. This is also called open 8. Voluntary Unemployment : It occurs when
unemployment. jobs are available but the persons are not
▪ Current Weekly Status (CWS) Unemployed interested in being employed due to wage
Persons : Who did not find even an hour of work rate, economy position, laziness etc.
during the survey week. 9. Seasonal Unemployment : It occurs when
▪ Current Daily Status (CDS) Unemployed Persons demand for labour changes with seasons and
: Who did not find work on a day or some days workers get employment only in the peak
during the survey week. This is the season like harvesting and sowing seasons in
comprehensive measure of unemployment, agriculture.
including chronic as well as underemployment. 10. Technical Unemployment : It caused due to
Types of Unemployment change in technology, when workers either
1. Cyclical Unemployment : It is also known as being replaced by machines or having their
demand deficiency unemployment. It refers jobs made easier and require fewer workers
to a situation where people are thrown out to accomplish the game task.
from job due to a recession or depression in 11. Compulsory Unemployment : It means the
an economy. labour power which is ready to work on the
2. Structural Unemployment : It is the current rate but does not get the work.
unemployment caused by structural changes Related Terms
in the economy, such as technological change, 1. Lorenz Curve : It is the curve that maps the
rapidly growing population, etc. relationship between the percentage of income
3. Frictional Unemployment : It is the situation or wealth earned and percentage of people
when people change from one job to another earned. It shows inequality.
and remain unemployed during that interval.
2. Gini Coefficient : It is the ratio between area developing economy initially the inequality will
above the Lorenz Curve and area below the increase and in growth the inequality will come
Lorenz Curve. It measures the inequality using down.
Lorenz Curve. 4. Engel's law : Ernst Engel said that with the
3. Kuznets Curve : Given by economist Simon increase in income the proportion of
Kuznets; The Kuznet curve says that in a expenditure spent on food falls down.
 5. MAJOR PROGRAMMES
Child Welfare Programme
Name of the Programme Year Objective/Aim

Reproduction and Child Health 1951 To provide Primary Health Care Service to the
women and special focus on family planning and
immunization

Integrated Child Development 1975 Enhancing the health nutrition and learning
Services (ICDS) opportunities for young children (0-6 years)

Rajiv Gandhi National Creche 2006 Development of Children, childhood protection,

Scheme for the Children of complete immunization awareness generation
Working Mothers among parents.

Scheme for Welfare of Working 2008 Provides for non-formal education, vocational
children in Need of Care and training etc., to working children.
Protection

Integrated Child Protection Scheme 2009 Providing a safe and secure environment for
(ICPS) comprehensive development of children

Bal Bandhu Scheme 2011 It is implemented by NCPCR with front form PM’s
National Relief Fund. Provides for protection of
Children in areas of civil unrest.

Education Oriented Programme

Name of the Programme Year Objective/Aim

Mid-day Meal Scheme 1995 Improving of the nutritional status of child classes
I-VII in government, local body and government
aided schools.

Sarva Shiksha Abhiyan (SSA) 2001 All children (6-14) complete 5 year of primary
schooling

National Programme for Education 2003 Provides for Model School in every cluster with
of Girls at Elementary Level more instance community mobilization and
(NPEGEL) supervision of girls enrollment in schools.

Kasturba Gandhi Balika Vidyalayas 2004 To set up residential school at upper primary level
(KGBVs), merged with SSA (April, for girls belonging to SC/ST/OBC/Minority
2007) communities.

Inclusive Education for the Disabled 2009 provides 100% central assistance for inclusive
as Secondary State(IEDSS) education of disabled children studying in class IX-
 XII in government, local body and government
aided schools.

Rashtriya ,adhyamik Shiksha 2009 Aims at raising the enrollment rate at secondary
Abhiyan (RMSA) or Scheme for stage from 52.26% in 2005-06 to 75% in next 5 years
Universalisation of Access for by providing a secondary school within a
Secondary Education (SUCCESS) reasonable distance of 5 km of any habitation :
ensure universal access by 2017 and universal
retention by 2020.

Saakshar Bharat 2009 National Literacy Mission has been renamed as

‘Saakshar Bharat’. The aim is to cover all adults, is
the age group of 15 and above, with its primary
focus on women.

Health Printed Progmammes

Name of the Progamme Year Objective/Aim

National Rural Health 2005 To provide effective health care to

rural population and universal
access to health care with
emphasis on women.

Janani Suraksha Yojana 2006 Promotion for institutional

deliveries in states and regions
and targets lowering of MMR. It
is conditional cash transfer
programme.

Pradhan Mantri Swashtya Suraksha 2010 To correct regional imbalance in

Yojana (PMSSY) tertiary healthcare and
augmenting facilities for quality
medical education in the
country: and setting up AIIMS
like institution.

Employment, Poverty and Urban Development Progamme

Name of The Programme Year Objective/Aim

Training Rural Youth for self 1979 Programme for training rural youth for self-
Employment (TRYSEM) employment.

National Rural Employment 1980 Providing profitable employment opportunities

Programme (NREP) to the rural poor.
Rural Landless Employment 1983 Providing employment to landless famers and
Guarantee Programme labourer
(RLEGP)

Jawahar Rozgar Yojana (JRY) 1989 Providing employment to rural unemployed

Nehru Rozgar Yojana 1989 Providing employment to urban unemployed

Scheme of Urban Wage 1989 Providing wage employment after arranging the
Employment (SUWE) basic facilities for poor people in the urban
areas, where population is less than 1 lakh.

Employment Assurance Scheme 1993 providing employment at least 100 days in a

(EAS) year in village.

Swarna Jyanati Shahari Rozgar 1997 To provide gainful of rural poverty and
Yojana (SJSRY), it has been unemployment and promoting self
revamped with effect from employment through establishing micro
April, 2009 enterprises in rural areas.

Swarna Jayanti Gran Swarozgar 1999 For elimination rural poverty and
Yojana (SSGSY) unemployment and promoting self
employment and promoting self
employment through establishing micro
enterprises in rural areas.

Pradhan Mantri Gramodaya Yojana 2000 Focus on village level development in 5 critical
(PMGY) areas. i.e. primary health, primary
education, ousing, rural roads and drinking
water and nutrition.

Annapurna Scheme 2000 Serve the poorest of the poor in rural and urban
areas; to ensure food security for all, create
a hunger free India.

MMGNREGS (Mahatma Gandhi 2006 It aims at enhancing livelihood security of

National Rural Employment households in rural of the country by
Guarantee Scheme) providing at least 100 days on guaranteed
Renamed as MGNREGS from 2nd wage employment in a financial year to
October, 2009. SGRY and Food every household.
for Work Programme merged
into it.

Prime Minister’s Empoyment 2008 To generate employment opportunities in rural

Generation Programme as well as urban areas through setting up of
(PMEGP) self employment ventures/projects/micro
enterprises.
Nirmal Bharat Programme 2012 To eradicate practice of open defecation by
2020

Direct Benefit Transfer 2013 Anti-Poverty Programme, aimed to transfer

subsidies directly to the people living below
poverty line.

Rural/Urban Development Programmes

Name of the Programme Year Objective/Aim

Community Development 1952 Overall development or rural areas with people’s

Progranime (CDP) participation

Drought Prone Areas Programme 1973 To minimise the adverse effects of drought on
(DPAP) production of crops and livestock and
productivity of land, water and human resources

Twenty Point Programme 1975 Poverty eradication and raising the standard of living

Desert Development Programme 1977 To mitigate the adverse effects of desertification

(DDP)

National Fund for Rural Development 1984 To grant 100% tax rebate to donors and also to
(NFRD) provide financial assistance for rural
development projects.

Integrated Wasteland Development 1989 For the development of wasteland and degraded
Programme (IWDP) lands

Member of Parliament Local -Area 1993 To provide Rs.2 crore o each MP to undertake
Development Programme development activities in their constituency. The
(MPLAD) amount has been raised to Rs. 5 crore from 2001.

District Rural Development agency 1993 To provide financial assistance for rural development
(DRDA)

Indira Aawas Yojana (IAY) 1999 To help in construction of new dwelling units as well
as as conversion of unserviceable kutcha houses
into pucca/semi-pucca by members of SC/STs
rural poor below the poverty line by extending
grant in aid.

Pradhan mantra Gram Sadak Yojana 2000 To link all village with all weather connectivity road
(PMGSY)

VALMIKI Ambedkar Aawas Yojana 2001 Facilitates in construction and upgardetion of

(VABAY) dwelling units for slum dwellers
Nirmal Gram Puruskar (NGP) 2003 it is an incentives scheme to encourage PRIs to take
up sanitation promotion

Jawaharlal Nehru Urban Renewal 2005 To assist cities an town in taking up housing and
Mission (JNNURM) infrastructural facilities for the urban poor.

Bharat Nirman Programme(BNP 2005 Development of rural infrastructure including

) components : irrigation, water supply, housing,
road, telephone and electricity.

National Rural Drinking Water 2009 Achieving habitation level coverage towards
Programme (NRDWP) household level drinking water coverage.

Rajiv Aawas Yojana (RAY) 2010 It aims at slum-free Indian in next 5 years.

Women Empowerment Programme

Name of the Programme Year Objective/Aims

Development of Women and 1982 To improve the socio-economics

Chidren in Rural Areas status of the poor women in the
rural areas.

Rasthriya Mahila Kosh 1993 It extends micro-finance services to

bring about the socio economic
uplifting of poor women

Swadhar 1995 To support women to become

independence

Support to Training and Employment 2003 To increase self-reliance and

Programme for Women (STEP) autonomy of women by
enhancing their productivity and
enabling them to take up income
generation activities.

Ujjwala 2007 A comprehensive scheme for

prevention of trafficking with
five specific components
prevention, rescue,
rehabilitation, reintegration and
repatriation of victims.

Dhan Laxmi 2008 Conditional cash transfer scheme for

the girl child to encourage
families to educate girl children
and to prevent child marriage.
 Rajiv Gandhi Scheme for 2010 It aims at empowering adolescent
Employment of Adolescent Girls girls of 11 to 18 years by
(RGSEAG) – Sabla improving their nutritional and
health status, upgradation of
home skill and vocational skills.

Indira Gandhi Matritva Sahyog 2010 To improve the health and nutrition
Yojana (IGMSY) status of pregnant, lacting
women and infants

National Mission for Empowerment 2010 To achieve empowerment of women

of Women socially, economically and
educationally by securing
convergence of schemes.

NEW SOCIAL WELFARE SCHEME ➢ Deen Dayal Upadhyaya Antyodaya Yojana for
Urban and Rural Poor: To alleviate urban and
➢ Atal Mission for Rejuvenation and Urban
rural poverty through enhancement of
Transportation (AMRUT) (M/o housing &
livelihood opportunities through skill
urban affairs): To rejuvenate 500 cities over 5
development and other means.
years.It was launched on 25 june 2015.
➢ Deen Dayal Upadhyaya Grameen Kaushalya
➢ Apprentice Protsahan Yojana To support
Yojana(M/o Rural development) : To train 10
manufacturing units and other establishments
lakh rural youths for jobs in three years, that is,
by reimbursing 50% of the stipend paid to
by 2017. Deen DayalUpadhyaya Satyamev
apprentices during first two years of their
Jayate Karyakram : To create an environment
training.
conducive for industrial development under
➢ Atal Pension Yojana (M/o Finance) :To provide
Make in India to make it easy for businesses in
for a monthly pension of Rs. 1000 to Rs. 5000
India.
from the age of 60 years for all bank account
➢ Digital India Programme (M/o Electronics &
holders in the unorganised sector who does not
Information Technology): The objective of this
pay any income tax and whose age is between
scheme is to transform India into a digitally
18 to 40 years. The monthly pension will depend
empowered society and knowledge economy.
on the contribution made, i.e. , from Rs. 42 to
The 3 key vision area of this programme is 1.
Rs. 210 per month beginning at 18 years.
Digital infrastructure as a utility to every citizen
➢ Beti Bachao, Beti Padhao Yojana(M/o Woman
2. Governance and services on demand. 3.
& Child Development): To generate awareness
Digital empowerment of citizens. It was
and improve the efficiency of delivery of welfare
launched on july 2015.
services meant for women with an initial corpus
➢ HRIDAY Scheme (National Heritage City
of Rs. 100 crore. It was launched on Jan,2015.
Development and Augmentation Yojana)(M/o
➢ Deendayal Upadhyaya Gram Jyoti Yojana(M/o
Housing & urban affairs) : For conserving and
Power) : Power supply to the rural areas and for
preserving the heritage characters of 12 cities.
strengthening sub-transmission and distribution
These are: Amritsar, Varanasi, Gaya, Puri, Ajmer,
system. Its long-term aim is to provide 24 x 7
Mathura, Dwarka, Badami, Velankanni,
uninterrupted power supply to all homes.
 Kanchipuram, .Warangal (Telangana) and actions of the ministry are geared to bring about
Amaravati (Andhra Pradesh). greater transparency and speed in the system.
➢ Housing for All by 2022(M/o Housing, Urban ➢ Pradhan Mantri Jan Dhan Yojana (M/o
affairs & M/o Rural development): Finance): To ensure access of financial products
Government has proposed to set-up a Mission and services at an affordable cost. In this
on Low Cost Affordable Housing to be anchored scheme one basic saving bank a/c is opened for
in the National Housing Bank with a view to unbanked person and there is no requirement
increase the flow of credit for affordable to maintain any minimum balance in PMJDY
housing to the urban poor/EWS/LIG segment. It accounts and RUPAY debit card is also provided.
was launched on june 2015. It was launched on Aug 2014.
➢ Swachh Bharat Mission : The Union Cabinet ➢ Pradhan Mantri MUDRA Yojana (Micro Units
gave its approval for restructuring of the Nirmal Development and Refinance Agency) (M/o
Bharat Abhiyan (NBA) into Swachh Bharat Home Affairs) : This scheme aims at funding the
Mission (Gramin). The goal now is to achieve unfunded small enterprises who provide
Swachh Bharat by 2019, as a fitting tribute to the employment and contribute to nation-building.
150th Birth Anniversary of Mahatma Gandhi, by It was launched on April 2015.
improving the levels of cleanliness in rural areas ➢ Pradhan Mantri Jeevan Jyoti Bima Yojana(M/o
and making Gram Panchayats Open Defecation Finance) : This scheme is a renewable one year
Free (ODF). It was launched on 2nd oct 2014. life insurance cover. for Rs. 2 lakhs for a
➢ Soil Health Card Scheme for Every Farmer(M/o premium of Rs. 330 for all bank account holders
Agriculture): The government has initiated this whose age is between 18 to 50 years.
scheme concerning the deterioration of the soil ➢ Pradhan Mantri LPG Subsidy PAHAL Yojana
health which leads to sub-optimal utilisation of (DBTL) (M/o Petroleum & Natural gas): :The
farming resources. The government will initiate full form of PAHAL Yojana is Pratyaksh
to provide every farmer a soil health card in a Hanstantrit Labh Scheme and concerns the LPG
mission mode. A sum of Rs. 100 crore is allotted. customers. It makes every consumer eligible for
➢ Shyama Prasad Mukherji Rurban Mission (M/o a subsidy. The subsidy that a consumer gets
Rural development): To deliver integrated under the scheme would be directly transferred
project based infrastructure in the rural areas. to the customer's bank account.
The scheme will also include development of ➢ Pradhan Mantri Ujjwala Yojana (M/o
economic activities and skill development. It is Petroleum & Natural gas): It is an ambitious
based on the example of Gujarat that has social welfare scheme of Narendra Modi
demonstrated successfully the Rurban Government launched on 1st May, 2016 from
development model of urbanisation in the rural Ballia in Uttar Pradesh. Under the PM Ujjwala
areas, through which people living in the rural Yojana, the government aims to provide LPG
areas can get efficient civic infrastructure and connections to BPL households in the country.
associate services. The scheme is aimed at replacing the unclean
➢ Shramev Jayate Programme (Work alone cooking fuels mostly used in the rural India with
triumphs) (M/o Labour): The scheme calls for the clean and more efficient LPG (Liquified
Minimum Government and Maximum Petroleum Gas). It was launched on may 2016.
Governance where the emphasis is that all ➢ Pradhan Mantri Suraksha Bima Yojana(M/o
Finance) : It is a renewable accidental death-
 cum-disability general insurance cover of Rs. 2 ➢ Sukanya Samriddhi Account (M/o Woman &
lakhs for a premium of Rs. 12 per annum- for all Child Development) : Under the scheme, an
bank account holders whose age is between 18 interest of 9.2% (FY 2015-16) is provided on
to 70 years. deposited amount which is tax free. The account
➢ Sansad Aadarsh Gram Yojana (M/o Statics and under this scheme a saving account can be
Programme implementation) : All the Members opened by the parent or legal guardian of a girl
of Parliament are to adopt a village in their child of less than 10 years of age with a
constituencies as a model village by 2016 and minimum deposit of Rs. 1,000 in any post office
two more villages by 2019 using their or authorised branches of commercial bank.
development funds which should altogether ➢ Van Bandhu Kalyan Yojana (M/o Tribal Affairs)
covering over 2,500 villages of the 6 lakh villages : For the welfare of the tribal people is being
country-wide. The idea of this scheme is to launched with an initial allocation of Rs. 100
develop villages every year in areas such as crore.
health, jsanitation, greenery and cordiality. In ➢ Pradhan Mantri Kisan Samman Nidhi (PM-
charge of the scheme: Ministry of Rural KISAN) (M/o Agriculture and Farmer Welfare):
Development. The objective of this scheme is to provide
➢ Shram Suvidha Portal(M/o Labour): Under the income support to all landholding eligible
scheme, the government would allot Labour farmers family (irrespective of the landholdings
Identification Number (LIN) to nearly 6 lakh in the country). It is a central sector scheme in
firms and allow them to file online compliance which income support of Rs. 6,000 per year is
for 16 out of 44 labour laws byl simplifying the provided to all landholding eligible farmers
process through introduction of just a single families across the country in three equal
online form. installments of Rs. 2,000 every four
➢ Skill India Initiative (M/o Skill development & months(from DBT). It was launched on Feb
Entrepreneurship): To train over 40 crore 2019.
people in different skills by 2022. The initiatives ➢ National Agriculture Market (E-NAM) (M/o
include National Skill Development Mission, Agriculture and Farmer Welfare): E-NAM is a
National Policy for Skill Development and pan India electronic trading porting which seeks
Entrepreneurship 2015, Pradhan Mantri Kaushal to network the existing APMC’s and other
Vikas Yojana (PM-KVY) Scheme and the Skill market yards to create a unified national market
Loan scheme. The scheme will recognise and for agricultural commodities. The objective of
provide skill to 24 lakh youth who lack formal this schme to promote genuine price discovery
certification, such as workers in vast increases farmers optional for sell and access to
unorganised sector. It was launched on July the market. Small farmers Agribusiness
2015. Consortium (SFAC) has been selected as a lead
➢ Smart Cities Mission (M/o Urban development) agency to implement it.
: To set-up 100 smart cities across India on the ➢ Pradhan Mantri Krishi Sinchayee Yojana (M/o
basis of demand from the residents and Agriculture and Farmer Welfare) : Objective of
municipalities, with provisions for technology, this scheme is to achieve convergence of
energy efficiency, efficient transport, walk-to- investments in irrigation at the field level
work, and cycling. It was launched on June 2015. (preparation of district level and, if required, sub
district level water use plans) and to enhance
 the physical access of water on the farm and governance , e-health, e-education, e-banking,
expand cultivated area under assured irrigation agricultural and other services to rural India.
(Har khet ko pani) and also enhance the ➢ National Food Security Act,2013 (M/o
adoption of precision irrigation at other water Consumer Affairs , Food and Public
saving technologies (More crop per drop). Distribution) : It provides a legal right to people
➢ Pradhan Mantri Fasal Bima Yojana (M/o belonging to eligible household to receive food
grains at subsidized price under the targeted
Agriculture and Farmer Welfare) : It is a brand
public distribution system.
new crop insurance scheme inaugurated on
➢ Strengthening teaching, learning and results
13th January, 2016. This crop insurance scheme
for state project(STARS) : It is a world bank
will be administered under the Ministry of aided project. It envisions improving the overall
Agriculture and Farmers' Welfare, Government monitoring and measurement activities in the
of India. The objective of this scheme is to Indian schools education system through
providing financial support to farmers suffering intervention.
crop damage arising out of unforeseen events. It ➢ Pradhan mantri Vay Vandana yojana(M/o
also encourage farmers to adopt innovative and Finance) :
modern agriculture practices. It was launched ▪ Implementing agency – LIC
on Feb 2016.
▪ To provide social security during old age(60
➢ Udey Desh ka Aam Nagrik(UDAN) (M/o Civil years) and protect elderly persons against a
Aviation) : future fall in their interest income due to
uncertain market conditions.
Implementing agency – Airport Authority of India
➢ Stand up India scheme(M/o Finance) : To
To facilitate regional air connectivity by making it facilitate loans from scheduled commercial bank
affordable by supporting airline operation through of value between Rs. 10 lakh and Rs. 1 crore to
concession by central and state governments and atleast one scheduled caste or scheduled tribe
airport operators. To provide connectivity to un- and one woman borrower per bank branch for
served and under- served regions through revival of setting up a green field enterprise in agri-allied
adjusting air strips and airports. It was launched on activities, manufacturing services and trading
April 2017. centers.
➢ Startup India (M/o Commerce & Industry) : The ➢ Ayushman Bharat (M/o Health & Family
objective of this scheme to build a strong Welfare) : This scheme has been launched to
ecosystem for nurturing innovation and startup achieve the vision of universal health coverage
in the country. It was launched on Jan 2016. to meet sustainable development goals. In this
➢ `Make in India' Global Initiative (M/o scheme, the household included are based on
Commerce & Industry): To boost India's socio-economic caste census 2011 ( Rs.5 lakh
Manufacturing sector. It invites global per family per year irrespective of their family
manufacturers to come to India and, produce in size). It was launched on sep 2018.
India and sell it to the world, with an aim to ➢ Mission Indradhanush (M/o Health & Family
strike a balance between imports and exports Welfare): To ensure full immunization with all
and create jobs and to promote India as an available vaccines under universal
important investment destination. It was immunization programme for children upto 2
launched sep 2014. years of age and pregnant woman.
➢ Bharat Net Project (M/o Communication) : The ➢ Namami Gange Mission(M/o Jal Shakti): To
objective is to provide broadband access to all clean and protect the Ganga river in a
villages by 2022. It will facilitate delivery of e- comprehensive manner. Watershed
 management of ganga river basin and ➢ Sugamya Bharat Abhiyaan-Accessible India
reducing runoff and pollution. Campaign(M/o Social Justice &
➢ Jawaharlal Nehru National Solar Mission Empowerment): For creating universal
(M/o New & Renewable Energy) : To create accessibility for persons with disability (PwD).
100 Giga Watt solar power capacity by 2022 This campaign has been divided into 3
and to promote the development and use of verticles : 1. Built environment accessibility 2.
solar energy for power generation and other Transport system accessibility 3. Information
uses. and communication ecosystem accessibility

➢ Bharatmala Pariyojana(M/o Road Transport ➢ PRAGATI (Pro Active Governance And Timely
& Highways) : Umbrella programme for the Implementation) (PMO): The objective is to
highway sector that focuses on optimizing address common man’s grievances and
efficiency of freight an passanger movement simultaneously monitoring and reviewing
across the country by Britging critical important programmes and projects of the
infrastructure gaps. govt. of India as well as projects flagged by
state governments.
 6. AGRICULTURE
▪ Agriculture is a primary economic activity that milk production in India has been increasing
includes growing crops, fruits, vegetables, steadily.
flowers and rearing of livestock. ▪ Uttar Pradesh, Rajasthan, M.P.,Gujarat, Andhra
▪ Agriculture is the mainstay of the Indian Pradesh, Punjab are the major milk producing
economy.The share of Agriculture and the allied states.
sectors In Gross Value Addition(GVA) of the Types Of Farming:
country at current prices is 17.8% for the year
2019-2020. More than half of the population is • Primitive Subsistence Farming: This type of
dependent on agriculture for their livelihood. farming is still practised in few pockets of India.
▪ 60% of the sown area is dependent on rainfall.It Primitive subsistence agriculture is practised on
provides raw material to large number of small patches of land with the help of primitive
industries.In 2019-2020,India’s agricultural and tools like hoe, dao and digging sticks, and
allied exports amounted to approximately family/community labour. This type of farming
Rs.252 thousand crores. The top agriculture and depends upon monsoon, natural fertility of the
related products exported from India were soil and suitability of other environmental
marine products, basmati rice, buffalo meat, conditions to the crops grown,
spices, non-basmati rice, cotton raw, oil meals ,
• Intensive Subsistence Farming: This type of
sugar, castor oil and tea.
farming is practised in areas of high population
▪ While India occupies a leading position in the
pressure on land. It is labour intensive farming,
global trade of these products, its total agri-
where high doses of biochemical inputs and
export basket accounts for a little over 2.5%of
irrigation are used for obtaining higher
world agri-trade.
production.
▪ The major export destinations for farm produce
were the USA, Saudi Arabia, Iran, Nepal and • Commercial Farming: The main characteristic of
Bangladesh. this type of farming is the use of higher doses of
▪ As of 2019 India was the second largest tea modern inputs, e.g. high yielding variety (HYV)
producer in the world, the main tea growing seeds, chemical fertilisers, insecticides and
regions are : in the north east including Assam pesticides in order to obtain higher productivity.
and in north Bengal (Darjeeling district and The degree of commercialisation of agriculture
Doors region). India is one of the world’s largest varies from one region to another. For example,
consumer of tea with about 3/4th of country’s rice is a commercial crop in Haryana and Punjab,
total produce consumed locally. but in Odisha, it is a subsistence crop.
▪ India is the 6th largest producer and 5th largest Cropping Pattern in india:
exporter of coffee in the world. The country
accounts for 3.14% (2019-20) of the global ▪ Rabi crops —These are sown in winter from
coffee production. October to December and harvested in summer
▪ India ranks first in milk production, accounting from April to June. Some of the important rabi
for more than 20 percent of world production. crops are wheat, barley, peas, gram and
The Father of 'Operation Flood' was Dr.
mustard. Though, these crops are grown in large
Verghese Kurien. It was started by National
Dairy Development Board in 1970. parts of India, states from the north and north
▪ 1970-1996: Operation Flood in 3 phases, to western parts such as Punjab, Haryana,
setup dairy farmers’ cooperatives and to Himachal Pradesh, Jammu and Kashmir,
increase milk production in India. Afterwards, Uttarakhand and Uttar Pradesh are important
 for the production of wheat and other rabi watermelon, muskmelon, cucumber, vegetables
crops. and fodder crops. Sugarcane takes almost a year
▪ Kharif crops —Kharif crops are grown with the to grow.
onset of monsoon in different parts of the
country and these are harvested in September- Green Revolution
October. Important crops grown during this • The term 'Green Revolution' was coined by Dr
season are paddy, maize, jowar, bajra, tur William Gade. It was a part of new agricultural
(arhar), moong, urad, cotton, jute, groundnut strategy, which included, the Intensive
and soyabean. Some of the most important rice- Agriculture District Programme (IADP) and the
growing regions are Assam, West Bengal, High Yielding Varieties Programme (HYVP).
coastal regions of Odisha, Andhra Pradesh, • It was launched in the year 1966 and was the
Telangana, Tamil Nadu, Kerala and brainchild of Norman Borlaug, though in India,
Maharashtra, particularly the (Konkan coast) it was made successful by Dr MS Swaminathan.
along with Uttar Pradesh and Bihar. Recently, • The Green Revolution demanded high yielding
paddy has also become an important crop of seed, increasing irrigation, pesticides, fertilizer
Punjab and Haryana. etc. The achievement of Green Revolution were
▪ Zaid crops — In between the rabi and the kharif rise in cereal production especially wheat and
seasons, there is a short season during the rice.
summer months known as the Zaid season.
Some of the crops produced during ‘zaid’ are
Major Agricultural Revolutions
Revolutions Production

'Black Revolution Petroleum Production

Blue Revolution Fish Production

Brown Revolution Leather/Non-conventional/Cocoa Production

Golden Revolution Honey/Apple Production

Golden Fibre Revolution Jute Production

Green Revolution Foodgrain Production

Grey Revolution Fertilizer Revolution

Pink Revolution Onion production/ Pliarmaceutical/Prawn Production

Rainbow Revolution Holistic Development of Agriculture Sector

Red Revolution Meat and Tomato Production

Round Revolution Potato Revolution

Silver Fibre Revolution Cotton Revolution

 Silver Revolution Egg Production

White Revolution Milk Production

Yellow Revolution Oil Seeds Production

Tricolor Revolution
The reference to a Tricolour Revolution was made by Prime Minister Narendra Modi. This phrase has three
components:
(i) Saffron Energy Revolution for promotion and better utilization of solar energy.
(ii) White Revolution to ensure cattle welfare and further the goals of White Revolution and
(iii) Blue Revolution for fisherman’s welfare, cleansing rivers and sea and conserving water.

Second Green Revolution

• The Second Green Revolution was given by then • The Second Green Revolution seeks to build up
Prime Minister Manmohan Singh at the 93rd on the achievements of first Green Revolution
Science Conference in 2006. The Second Green and bridge the regional and crop imbalance,
Revolution seeks to cover dryland farming and which were not addressed by First Green
concentrate on the small and marginal farmers. Revolution.
It seeks to raise the foodgrain production to 400
million tonnes by 2020.

Evergreen Revolution

Concept given' by agricultural scientist Dr. Swaminathan. The concept emphasizes on Organic agriculture
with the help of integrated pest management, integrated nutrient supply and integrated natural resource
management.
Agricultural Price Policy (APP)
• The government formulated price policy for international market price situation, inter crop
agricultural produce to secure remunerative price parity, demand and supply situation etc.
prices for farmers to encourage them to invest
more in agricultural production. Keeping in
mind, the government announces Minimum APMC - Agricultural Produce Market
Support Prices (MSP) for major agricultural Committees
products every year. Government provides food
grains to the BPL families through the public • In the Post-independent India, despite the
distribution system. These prices are fixed after abolition of zamindari, the farmers were not
consulting the Commission for Agricultural Costs ‘liberated’ from exploitation. Because, money
and Prices (CACP). lender would forcibly take away the farmers’
• The Commission of Agricultural Costs and Prices harvest without paying sufficient money. So,
(CACP) while recommending prices takes into state governments enacted APMC laws that
account important factors, such as cost of “first sale of agriculture produce can occur only
production, change in input price, trend in at the market yards / Mandis of Agricultural
market price, effect on cost of living, Produce Market Committees (APMC)”.
 NAFED Minimum Support Price (MSP)
• National Agricultural Co-operative Marketing • Minimum Support Price (MSP) is that price, at
Federation of India Limited is the Apex Co- which government is ready to purchase the crop
operative Organisation at the national level. It from the farmers directly, if crop price falls
deals in procurement, distribution, export and below the MSP.
import of selected agricultural commodities.
Crops Covered by MSP:
14 kharif crops Paddy, Jowar, Bajra, Maize, Ragi, Arhar, Moong,
Urad, Groundnut-In-Shell, Soyabean, Sunflower,
Sesamum , Nigerseed And Cotton.
6 rabi crops Wheat, Barley, Gram, Masur(Lentil),
Rapeseed/Mustard,Safflower.
3 commercial /cash crops Jute, Copra (coconut) and Sugarcane.

FCI Buffer Stock 1964-65: Agriculture Credit

Food Corporation of India (FCI, HQ-Delhi), a

• There are two sources of credit available to
statutory corporation, setup under Consumer
farmers, viz institutional and private.
Affairs Ministry has the following functions
Institutional Credit covers cooperative societies
1) Procurement of foodgrains from farmers at and banks, commercial banks, Regional Rural
Minimum Support Prices Bank and NABARD.Non-Institutional/Private
2) Distribution of foodgrains to consumers through sources of credit are moneylenders, traders and
Public Distribution System commission agents, relatives and landlords.

3) Maintenance of buffer stock for food related • Lead Bank Scheme (LBS) based on area
schemes and to meet emergency situations like approach was launched in 1969 on the
unexpected crop failure, natural disasters, recommendation of Dr Gadgil Committee and
festivals, etc. Narasimham Committee. Under the LBS, all the
NCDC 14 nationalised banks and a few private sector
banks were allotted specific districts and were
• National Co-operative Development Corporation asked to play the 'lead role' in coordinating
was set-up in 1963, under an Act of Parliament. credit deployment.
• The object of NCDC is planning and promoting Kisan credit card(KCC)
programmes for the production, processing, • The Kisan Credit Card (KCC) scheme
storage and marketing of agricultural produce and was introduced in 1998 for providing
notified commodities through: co-operative adequate and timely credit support from the
societies. banking system under a single window with
flexible and simplified procedure to the
farmers for their cultivation and other needs
like purchase of agriculture inputs such as
seeds, fertilizers, pesticides etc. and draw cash
for their production needs.
• KCC covers post-harvest expenses, produce
marketing loan, consumption requirements of
farmer household, working capital for
 maintenance of farm assets and activities processed. Lack of adequate processable
allied to agriculture, investment credit varieties continues to pose a significant
requirement for agriculture and allied challenge to this sector.
activities. Govt. initiative related to food Processing
Interest subvention scheme • The Ministry of Food Processing Industries
• It aims to provide short-term crop loans up (MoFPI) is implementing PMKSY (Pradhan
to ₹3 lakh to farmers at an interest rate Mantri Kisan SAMPADA Yojana).
of 7 per cent per annum. • The objective of PMKSY is to supplement
agriculture, modernize processing and decrease
• Lending institutions – PSBs and private sector agri-waste. It is an umbrella scheme
commercial banks offer interest subvention of incorporating ongoing schemes
2 per cent by the government.The policy came
into force with effect from 2006-07.It is • Under PMKSY the following schemes are to be
implemented by NABARD and RBI. implemented.
1. Mega Food Parks
Agriculture Insurance Company of India
2. Integrated Cold Chain
Limited (AICIL)
3. Value Addition and Preservation
• AIC was incorporated under the Companies Act, Infrastructure.
1956 on 20th December, 2002 as a specialised 4. Creation/Expansion of Food
insurer with the capital participation from GIC, Processing/Preservation Capacities.
four public sector General Insurance Companies
and NABARD. 5. Infrastructure for Agro Processing Clusters.
• The other specialised insurer is Export Credit 6. Scheme for Creation of Backward and
Guarantee Corporation (ECGC). It was Forward Linkages.
established in 1957. 7. Food Safety & Quality Assurance
Food Processing Industry: Infrastructure.
• Food Processing includes process under which 8. Human Resources and Institutions.
any raw product of agriculture, dairy, animal
Public Distribution System
husbandry, meat, poultry or fishing is
transformed through a process (involving
• The Public distribution system (PDS) is an Indian
employees, power, machines or money) in such
food Security System established under the
a way that its original physical properties
Ministry of Consumer Affairs, Food, and Public
undergo a change and the transformed product
Distribution. PDS evolved as a system of
has commercial value and is suitable for human
management of scarcity through distribution of
and animal consumption. It also includes the
food grains at affordable prices.
process of value addition to produce products
through methods such as preservation, addition
of food additives, drying etc. with a view to
preserve food substances in an effective
manner, enhance their shelf life and quality.
• India is the world's second largest producer of
fruits & vegetables after China but hardly 2% of
the produce is processed. In spite of a large
production base, the level of processing is low
(less than 10%). Approximately 2% of fruits and
vegetables, 8% marine, 35% milk, 6% poultry are
 National Food Security Act (NFSA), 2013 : Krishonnati Yojana

• Notified on: 10 September, 2013. In 2017, government made this umbrella scheme by
combining previous 11 Schemes viz.
• Objective: To provide for food and nutritional • Mission for Integrated Development of
security in the human life cycle approach, by Horticulture (MIDH): Bee keeping also
ensuring access to adequate quantities of promoted in it. One of MIDH sub-mission is
quality food at affordable prices to people to live ‘Coordinated Programme on Horticulture
a life with dignity. Assessment and Management using ‘geo-
informatics’ (Project CHAMAN) to use space
• Coverage: 75% of the rural population and upto
technology and remote sensing data to assess
50% of the urban population for receiving
the horticulture production & diseases in India.
subsidized foodgrains under Targeted Public
Distribution System (TPDS). Overall, NFSA caters • National Food Security Mission (NFSM) to
to 67% of the total population. increase production of rice, wheat, pulses,
millets (coarse cereals) and commercial crops
• Eligibility: Priority Households to be covered & restore soil fertility.Govt create two sub-
under TPDS, according to guidelines by the State missions: 1.NFSM on Makka and Jau. 2. NFSM
government. Households covered under on Nutri-Cereals e.g. Jowar, Bajra, Ragi and
existing Antyodaya Anna Yojana. little millets like Kutki, Kodo, Sawa, Kangni and
Cheena.
Provisions:
• 5 Kgs of foodgrains per person per month at Rs. NFSM has another sub-mission: National
3/2/1 per Kg for rice/wheat/coarse grains. The Mission on Oilseeds and Oil Palm to augment
existing AAY household will continue to receive the availability of vegetable oils and to reduce
35 Kgs of foodgrains per household per month. the import of edible oils.
• Meal and maternity benefit of not less than Rs. • National Mission for Sustainable Agriculture
6,000 to pregnant women and lactating mothers (NMSA) to encourage organic manures, bio
during pregnancy and six months after the child fertilizers, cropping practices for soil and
birth. moisture conservation measures; Rainfed Area
• Meals for children upto 14 years of age. Food Development (RAD) programme.
security allowance to beneficiaries in case of
Subscheme: National Bamboo Mission (NBM)
non-supply of entitled foodgrains or meals.
to augment the income of farmers. Further,
• Setting up of grievance redressal mechanisms at
Indian Forest Act, 1927 was amended to
the district and state level.
exclude bamboo from the definition of ‘trees’.
Zero Budget Natural Farming:
This will encourage bamboo grown outside
forest area without interference from Forest
• Zero Budget means without using any loan, and
Department.
without spending any money on purchase of
inputs (seeds, fertilizers, pesticides). • Sub-mission on Agriculture Extension (SAME):
farmers training & skill development with more
• 'Natural farming' means farming without
use of electronic / print media, mobile apps
chemicals. By using biofertilizers, earthworms,
and ICT tools, etc.
cow dung etc.
• National e-Governance Plan on Agriculture
• It saves farmers from debt-traps; and protects
(NeGP-A): to enhance reach of extension
the environment, soil and biodiversity.
services- about cropping methods, market
• Practice of ZBNF first started in Karnataka by prices etc. to the farmers.
Subhash Palekar.
• Sub-Mission on Seeds and Planting Material and to shield our agricultural biosecurity from
(SMSP): to promote new technologies in seed alien species.
production, processing, storage, certification • Integrated Scheme on Agriculture Census,
and quality etc. Economics and Statistics (ISACES): For data
• Sub-Mission on Agricultural Mechanisation collection which can be used for R&D and
(SMAM): To increase the availability of farm policy making.
machines to small and marginal farmers. e.g. • Integrated Scheme on Agricultural Cooperation
‘Custom Hiring Centres’ where they can rent (ISAC): Give financial assistance for farmers'
the machines without spending money on cooperatives for agricultural marketing,
individual ownership. encourage R&D for processing, storage etc.
small-sized machineries for small landholdings,
hill-areas etc. • Integrated Scheme on Agricultural Marketing
(ISAM): To develop online and offline
• Sub Mission on Plant Protection and Plan agricultural marketing infrastructure
Quarantine (SMPPQ): To minimize the damage
by insect pests, diseases, weeds, rodents, etc.
 7. INDUSTRY
• Economists have found that poor nations can to remain under private sector however, the
progress only if they have a good industrial central government, in consultation with the
sector. Industry provides employment which is state government, had general control over
more stable than the employment in them.
agriculture. It promotes modernisation and • Other Industries (Private and Cooperative
overall prosperity. Sector): All other industries which were not
India’s Industrial Policy included in the above mentioned three
categories were left open for the private sector.
• Meaning - Government action to influence the Industrial Policy Resolution, 1956
ownership & structure of the industry and its
performance. It takes the form of pay ing It was regarded as the “Economic Constitution of
subsidies or providing finance in other ways, or India” or “The Bible of State Capitalism”.
of regulation. It includes procedures, principles
(i.e., the philosophy of a given economy), IPR, 1956 classified industries into three categories:
policies, rules and regulations, in centives and • Schedule A consisting of 17 industries was
punishments, the tariff policy, the labour policy, the exclusive responsibility of the State. Out
government’s attitude towards foreign capital, of these 17 industries, four industries,
etc. namely arms and ammunition, atomic
energy, railways and air transport had
Industrial Policies in India since
Central Government monopolies; new units
independence in the remaining industries were developed
Industrial Policy Resolution of 1948 by the State Governments.
• Schedule B, consisting of 12 industries, was
• It made clear that India is going to have a Mixed
open to both the private and public sectors;
Economic Model. It classified industries into
however, such industries were progressively
four broad areas:
State-owned.
• Strategic Industries (Public Sector):It included
three industries in which Central Government • Schedule C- All the other industries not
had monopoly. These included Arms and included in these two Schedules constituted
ammunition, Atomic energy and Rail transport. the third category which was left open to
• Basic/Key Industries (Public-cum-Private the pri vate sector. However, the State
Sector): 6 industries viz. coal, iron & steel, reserved the right to undertake any type of
aircraft manufacturing, ship-building, industrial production.
manufacture of telephone, telegraph & wireless • Industrial Licenses:In order to open new
apparatus, and mineral oil were designated as industry or to expand production, obtaining
“Key Industries” or “Basic Industries”. These a license from the government was a
industries were to be set-up by the Central prerequisite. Opening new industries in
Government. However, the existing private economically backward areas was
sector enterprises were allowed to continue incentivised through easy licensing and
• Important Industries (Controlled Private subsidization of critical inputs like electricity
Sector):It included 18 industries including heavy and water. This was done to counter
chemicals, sugar, cotton textile & woollen regional disparities that existed in the
industry, cement, paper, salt, machine tools, country.
fertiliser, rubber, air and sea transport, motor,
tractor, electricity etc. These industries continue
 Industrial Policy Statement, 1977 • Three main objectives of new economic policy
were (i) Liberalization, (ii) Privatization and (iii)
• The main thrust of this policy was the effective Globalization (LPG).
promotion of cottage and small industries • The main reason to start new economic policy
widely dispersed in rural areas and small towns, was gulf war and problem of balance of
• In this policy the small sector was classified into payment in India.
three groups—cottage and household sector, • Measures implemented under the industrial
tiny sector and small scale industries.
reform policy 1991 are : (i) Delicensing of
• The 1977 Industrial Policy prescribed different Industries. (ii) Norms were relaxed for
areas for large scale industrial sector- Basic disinvestment. (iii) The areas reserved for public
industries,Capital goods industries, High sector were opened to private sector. Main
technology industries and Other industries sectors of new economic reform policy 1991
outside the list of reserved items for the small were fiscal policy monetary policy, value fixation
Industrial Policy Statement, 1980 policy, foreign policy etc.
• It sought to promote the concept of economic • The four main steps were taken under the fiscal
federation, to raise the efficiency of the public policy 1991: (i)To control public expenditure
sector and to reverse the trend of industrial strictly; (ii) To expand tax net; (iii) To observe
production of the past three years and discipline in management of funds; (iv) To curtail
reaffirmed its faith in the Monopolies and grants (subsidy).Under the monetary policy,
Restrictive Trade Practices (MRTP) Act and the steps were taken to control inflation.
Foreign Exchange Regulation Act (FERA). • Under the trade policy 1991, steps were taken
• Commitment for export production and to abolish the excessive protection given to
liberalisation of licensing. many industries for the promotion of
• Addressed the industrial sickness by devising of international integration of economy.
an early warning system. • The measures implemented to bring efficiency
• Advocated a coordinated development of small, and market discipline under the public sector
medium and large industries. policy 1991 are : (i) Number of reserved
industries decreased; (ii) The work of
NEW ECONOMIC POLICY rehabilitation of sick industries handed over to
board of industrial financial reconstruction; (iii)
• New economic policy is related to economic
Voluntary retirement schemes started to cut
reforms. Its aim is to bring about reforms in
down the size of work force.
production pattern, to obtain new technology
etc.
Privatization: to increase participation of private sector in the public sector companies by capital investment
or by management or both or to hand over a public sector unit to a private company is called privatization.
Liberalization is the process which government, control is relaxed or abolished.
Globalization : the process of amalgamation of an called Globalization. It is signified-by lower duties on import
and export. By doing so, that sector will aIso get private capital and foreign technology.
Disinvestment : To reduce the government share in the public sector is called disinvestment.
 Industries Policy1991
• Focus on deregulation delicensing and debureaucratisation of industrial licensing system; liberalisation
of foreign trade and institute several measures to facilitate foreign direct investment inflows. Only four
sectors were reserved for public sector.
• They are arms and ammunition atomic energy railway transport and defence equipments.

DISINVESTMENT
➢ Disinvestment means sale or liquidation of decisions, large interference in decision
assets by the government, usually Central and making process etc.
state public sector enterprises, projects, or • Hence, a decision was taken in 1991 to
other fixed assets. The government undertakes follow the path of Disinvestment. The
disinvestment to reduce the fiscal burden on change process in India began in the year
the exchequer, or to raise money for meeting 1991-92, when 31 selected PSUs were
specific needs, such as to bridge the revenue disinvested.
shortfall from other regular sources. • In August 1996, the Disinvestment
➢ Strategic disinvestment is the transfer of the Commission, chaired by G V Ramakrishna
ownership and control of a public sector entity was set up to advise, supervise, monitor
to some other entity (mostly to a private sector and publicize gradual disinvestment of
entity). Unlike the simple disinvestment, Indian PSUs. However, the Disinvestment
strategic sale implies a kind of privatization. Commission ceased to exist in May 2004.
➢ The disinvestment commission defines • The Department of Disinvestment was set
strategic sale as the sale of a substantial up as a separate department in December,
portion of the Government shareholding of a 1999 and was later renamed as Ministry of
central public sector enterprises (CPSE) of upto Disinvestment in September, 2001. From
50%, or such higher percentage as the 27th May, 2004, the Department of
competent authority may determine, along Disinvestment was brought under the
with transfer of management control. Ministry of Finance.
• The Department of Disinvestment has
DISINVESTMENTS- A HISTORICAL PERSPECTIVE
been renamed as Department of
• For the first four decades after Investment and Public Asset Management
Independence, India pursued a path of (DIPAM) from 14 April, 2016 .
development in which the public sector • It has been made the nodal department
was expected to be the engine of growth. for the strategic stake sale in the Public
However, the public sector overgrew itself Sector Undertakings (PSUs).
and its shortcomings started manifesting • National Investment Fund (NIF) was
in low capacity utilisation and low constituted in November, 2005, into which
efficiency due to over manning, low work the proceeds from disinvestment of
ethics, over capitalisation due to Central Public Sector Enterprises were to
substantial time and cost overruns, be deposited.
inability to innovate, take quick and timely
PUBLIC SECTOR Enterporises IN ▪ Having a composite score of 60 or above out
INDIA of 100 marks.
▪ Having Schedule ‘A’ and Miniratna Category
• The government owned corporations are
– A status.
termed as Public Sector Undertakings (PSUs) in
▪ Having at least three Excellent of very Good
India. In a PSU, majority (51% or more) of the
Memorandum of Understanding (MoU)
paid-up share capital is held by Central
ratings during the last five years.
government or by any State Government or
➢ The Navratnas status empowers a company to
partly by the Central government and partly by
invest upto Rs. 1000 crore or 15% of their net
one or more State Government.
worth overseas without government approval.
Maharatna Status
Miniratnas
➢ Presently, there are 10 Central Public Sector
➢ The companies called `Miniratnas', are in two
Enterprises (CPSEs) which have been granted
Categories. The eligibility conditions and criteria
Maharatna status.
are :
➢ The CPSEs meeting the following eligibility
▪ Category I : Miniratna CPSEs should have
Criteria are considered for Maharatna status :
made profit in the last three years
Having Navratna status; Listed on Indian Stock
continuously, the pre-tax profit should have
Exchange with minimum prescribed public
been Rs. 30 crore or more in at least one of
shareholding under SEBI regulations; An
the three years and should have a positive
average annual turnover of more than Rs. 15000
net worth. At present, there are 62
crore during the last 3 years; An average annual
Miniratna I.
net profit after tax of more than Rs. 5000 crore
▪ Category II : Miniratna CPSEs should have
during the last 3 years; Should have significant
made profit for the last three years
global presence/international operations.
continuously and should have a positive net
worth. Category II miniratnas have
Navratnas autonomy to incurring the capital
➢ Presently, there are 14 Navratnas. The Central expenditure without government approval
Public Sector Enterprises (CPSEs) fulfilling the up to Rs. 300 crore or up to 50% of their net
following criteria are eligible to be considered worth whichever is lower. At Present, there
for grant of Navratna status. are 12 Miniratna II.
 As of January 2020, there are 10 Maharatnas and 14 Navratna Companies in India.
List of Maharatna Companies in India

1. Bharat Heavy Electricals Limited

2. Bharat Petroleum Corporation Limited
3. Coal India Limited
4. GAIL (India) Limited
5. Hindustan Petroleum Corporation Limited
6. Indian Oil Corporation Limited
7. NTPC Limited
8. Oil & Natural Gas Corporation Limited
9. Power Grid Corporation of India Limited
10. Steel Authority of India Limited
List of Navratna Companies in India

1.Bharat Electronics Limited

2. Container Corporation of India Limited
3. Engineers India Limited
4. Hindustan Aeronautics Limited
5. Mahanagar Telephone Nigam Limited
6. National Aluminium Company Limited
7. NBCC (India) Limited
8. NMDC Limited
9. NLC India Limited
10. Oil India Limited
11. Power Finance Corporation Limited
12. Rashtriya Ispat Nigam Limited
13. Rural Electrification Corporation Limited
14. Shipping Corporation of India Limited
 PSU under Various Ministers
• Prime Minister of India : Department of Space; Antrix Corporation Limited Electronics Corporation of India
Limited Indian Rare Earths Limited; Nuclear Power Corporation of India Limited.
• Ministry of Defence : Bharat Dynamics Limited Bharat Electronics Limited; Garden Reach Shipbuilders and
Engineers Limited; Goa Shipyard Limited; Hindustan Aeronautics Limited Mazagaon Dock Limited; Mishra
Dhatu Nigam.
• Ministry of Railway : BHARAT Wagon & Engg. Co. Limited,; Container Corporation; (IRCTC) Ircon
International Limited; Konkan RAILWAY Corporation Limited; RAIL Vikas Nigam Limited; Railtel Corporation
India Limited RAITES Limited.

Small-Scale Industries 2nd October, 2006 the government enacted

the Micro, Small and Medium Enterprises
• The New Policy Initiatives in 1999-2000 Development Act.
defined small-scale industry as a unit • Abid Hussain Committee was constituted to
engaged in manufacturing, repairing, look into the problems of small-scale
processing and preservation of goods industries.
having investment in plant and machinery at Micro Small and Medium Enterprise(MSME) :
an original cost not exceeding Rs. 100 lakh.
• The Ministry of Micro, Small and Medium • MSME’s have always played a vital role in the
Enterprises in the nodal Ministry for India economy. It contribute 1/3rd to the GDP of
formulation of policies, programmes and the country and provide employment and
schemes, their implementation and related provides nearly 1 million jobs therefore, with
co-ordination, for the promotion and the current emphasis on Atmanirbhar Bharat
development of small scale industries in Abhiyaan. These MSME’s have become even
India. more significant to the India’s economy.
• Small scale industries was given in the

Enterprises
Enterprises in
Investment Limit Rendering Investment Limit
Manufacturing
services

Investment < Rs. 1 Crore Micro Investment < Rs. 1 Crore

Micro Enterprise
and turnover < Rs. 5 crore Enterprises and turnover < Rs. 5 crore

Investment < Rs. 10 Crore Small Investment < Rs. 10 Crore

Small Enterprise
and turnover < Rs. 50 crore Enterprises and turnover < Rs. 50 crore

Investment < Rs. 20 Crore

Medium Investment < Rs. 20 Crore
Medium Enterprise and turnover < Rs. 100 Enterprises and turnover < Rs. 100 crore
crore
Industrial Policy Resolution of 1977. From

LARGE SCALE INDUSTRIES

Iron and Steel Industry
• India is the largest producer of sponge iron • First steel industry at Kulti, West Bengal Iron
2002. India is the fourth largest producer of Works Company was established in 1870. First
crude steel in the world after China, Japan and large scale steel plant. TISCO at Jamshedpur
the USA in 2010. (1907) was followed by IISCO at Burnpur (1919)
• Steel Authority of India Limited (SAIL) was were established.
established in 1974 for the development of the • The first public owned steel plant was Rourkela
steel industry Integrated Steel Plant set-up in 1954 with the
help of German.

Iron and Steel Plants in India

Location Assistance

Rourkela (Odisha) Germany

Bhilai (Chhattisgarh) Russia

Durgapur (West Bengal) Britain

Bokaro (Jharkhand) Russia

Vishakhapatnam (Andhra Pradesh) Russia

Cotton and Synthetic Textile Industry Gems and Jewellery

➢ It is the largest industry in India accounting for ➢ According to the data released by the World
about 20% of industrial output, provides Gold Council (WGC), India is the largest
employment to 20 million persons and consumer of gold. It is an important emerging
contributes 33% to total export earnings. sector in the Indian economy.
➢ The first Indian modernised cotton cloth mill ➢ India (especially, Surat and Mumbai) ranks
was established in 1818 at fort Gloster near among the 'big four' diamond cutting centres of
Kolkata, but this was unsuccessful. The second the world, the other three being, Belgium
mill was established in 1854 at Bombay by KGN (Antwerp), the USA (New York) and Israel
Daber. (Ramat Gan).

Jute Industry Paper Industry

➢ India is the largest producer and second largest ➢ India is the 15th largest paper industry in the
exporter of jute in the world. It was started in world. It provides employment to nearly 1.5
1855 at Rishra. million people and contributes Rs. 25 billion to
➢ Government has enacted Jute Packing Materials the government's kitty. The first paper mill in
Act, 1997 to broaden the usage of jute. To India was set-up at Sreerampur, West Bengal,
promote Jute Industry, Technology Mission was in 1862.
on launched 2nd June, 2006. ➢ On the basis of raw material, paper industry
divided into three parts : (i) Wood based
 industry; (ii) Waste paper based industry and Fertilizer Industry
(iii) Agro based industry.
➢ India is the third largest producer of fertilizer
Silk Industry after China and USA. The first fertilizer industry
was set-up in 1906, in Ranipet near Chennai.
➢ India is the second largest (after China) silk ➢ India meets 85% of its urea requirement
manufacturer contributing to 18% of the total
through indigenous production, but is largely
raw silk production. The majority of silk is import dependent for meeting the demand for
produced mainly in Bhoodan Pochampally (also Phosphorus (90%) and potassium fertilizer
known as silk city), Kanchipuram, (20%)
Dharamvaram and Mysore.
Automobile Industry
Sugar Industry
➢ India is the second largest manufacturer of
➢ India is the largest producer of sugar in the motorcycle and fifth largest manufacturer of
world with a 22% share. It is the second largest commercial vehicles in the world. India was the
agro-based industry in the country. fourth largest exporter of passenger cars after
➢ BB Mahajan Committee was set-up to study Japan, South Korea and Thailand.
the sugar industry. The Sugar Development
Fund was set-up in 1982, under the Sugar Cess National Manufacturing Policy
Act. (NMP), 2011
➢ Dual price mechanism: Under this, the
➢ Increase manufacturing growth to 12-14% over
government fixes the ratio of and free sale
the medium term; Enable manufacturing to
sugar quota in the ratio 28 : 72.
contribute at least 25% of GDP by 2022; Create
Cement Industry 100 million additional jobs in the
manufacturing sector by 2022.
➢ India is the second largest producer of cement
➢ Provides for National Investment and
in the world. The foundation of stable Indian
Manufacturing Zone (NIMZ) on lands, which are
cement industry was laid in 1914, when the
degraded and uncultivable.
Indian Cement Company Limited manufactured
cement at Porbandar in Gujarat. National Policy on Electronics
Petrochemical Industry (NPE), 2019
➢ Petrochemical industry mainly comprises • National Policy on Electronics 2019 (NPE
2019), proposed by the Ministry of
synthetic fibres, polymers, elastomers,
Electronics and Information Technology
detergents and performance plastics. The main (MeitY). The Policy envisions positioning
source of feedstock and fuel to this industry are India as a global hub for Electronics Sy
natural gas and naptha. )- • stem Design and Manufacturing - (ESDM)
➢ The real thrust to this industry came with the
• Creation of ecosystem for globally
establishment of Indian Petrochemical
competitive ESDM sector by promoting
Corporation Limited at Baroda. Kapur domestic manufacturing and export in the
Committee was set-up to identify and support entire electronics system value-chain.
the growth of basic petrochemical at their end.
• Providing incentives and support for • Promotion of Industry-led R&D and
manufacturing of core electronic innovation in all sub-sectors of electronics,
components. including grass root level innovations and
early stage Startups in emerging technology
• Providing special package of incentives for
areas such as 5G, Internet of Things (IoT)/
mega projects which are extremely high-
Sensors, Artificial Intelligence (Al), Machine
tech and entail huge investments, such as
Learning, Virtual Reality (VR), Drones,
semiconductor facilities display fabrication,
Robotics.
etc.
• Formulation of suitable schemes and
incentive mechanisms to encourage new
units and expansion of existing units.
 8. BANKING IN INDIA
➢ A financial intermediary is an entity that acts as 1934. Its first Governor was Sir Osborne Smith.
the middleman between two parties in a RBI was nationalised on 1 January, 1949 and its
financial transaction-lenders vs borrowers, first Indian Governor was CD Deshmukh. The
investors vs entrepreneurs, household vs Headquarter of the RBI is in Mumbai. The
business firms. Financial Year of RBI is from April 1 to March 30.
➢ Financial intermediary can be subclassified into ➢ The main functions of the RBI includes : (i)
two types Monetary authority; (ii) Issue of currency; (iii)
o (1) formal financial Regulator of banking system; (iv) Manager of
intermediary,eg. Banks and non foreign exchange; (v) Regulator and supervisor
banks. of the payment and settlement system and (vi)
o (2) informal financial Banker and debt manager to government.
intermediar,eg.sahukar’s,money ➢ Banking regulation act empowers RBI to give
lender. license to companies to open bank,give
➢ Bank is a lawful financial organization which permission banks to open new
accepts all types of deposits from public and branches,prescribing auditing and liquidity
provides loan and advances to public as per their norms for banks such as SLR,protect interest of
requirements. depositors.force elimination/merger of weak
➢ Banking refers to a service which is provided by banks.
Bank to its customer in the form of financial The symbol Rs. of Indian rupee came on
assistance like deposit, withdrawal, loan, etc. 15th July, 2010. Rs. is an amalgamation of
➢ The first bank of india is Bank of Devanagri 'Ra' and the Roman 'R' without
Hindustan,Calcutta.it was owned by Europeans. the stem. it was designed by D. Udaya
➢ The first bank of limited liability managed by Kumar, a post graduate of IIT Bombay,
Indian was Oudh Commercial Bank founded in which was finally selected by the Union
Cabinet in 15th July, 2010.
1881. Subsequently, Punjab National Bank was
established in 1894. Swadeshi movement, which
began in 1906, encouraged the formation of a
PHASES OF NATIONALIZATION OF
number of commercial banks.
➢ The Banking Companies Act was passed in
BANK
February, 1949, which was subsequently (1) On 19 July 1969, Government nationalised
amended to read as Banking Regulation Act, those Banks whose minimum capital was not
1949. Post-Independence, that is on 1st July, less than Rs. 50 crore.
1955, Imperial bank of India was nationalized as ➢ Total 14 Banks were nationalised during
State Bank of India by government of India Fourth Five Year Plan under the Prime
through SBI Act, 1955. Ministership of Late Smt. Indira Gandhi.
➢ Reserve Bank of India (RBI) : RBI is the Central ➢ Those 14 Banks are — 1. Allahabad Bank; 2.
Bank of India. RBI was set-up on the basis of Bank of Baroda; 3. Bank of India; 4. Bank of
Hilton Young Commission recommendation on 1 Maharashtra; 5. Canara Bank; 6. Central Bank
April, 1935_ with the enactment of RBI Act, of India; 7. Dena Bank; 8. Indian Overseas
 Bank; 9. Indian Bank; 10. Punjab National Public/Private Sector Banks,(b) Foreign Bank,(c)
Bank; 11. Syndicate Bank; 12. Union Bank of Differential bank eg. Regional Rural bank,local
India; 13. United Bank of India and 14. United area bank,Small finance bank,Payment banks
Commercial Bank (UCO). (a) Public/Private Sector Banks :
The Banks incorporated in India and have
Second Phase of Nationalisation their head offices in India. They are of two
➢ It happened on 15 April, 1980. Government types:
acquired those Banks having minimum required (1) Public Sector Banks : These are the banks
capital of Rs. 200 crore. Total 6 Banks fell under where majority stake is held by the
its ambit during sixth Five-year plan by former Government of India or Reserve Bank of
Prime Minister Late Smt. Indira Gandhi. India. For example— SBI, Punjab National
➢ They are: 1. Andhra Bank; 2. Vijaya Bank; 3. Bank, Indian Bank etc.
Corporation Bank; 4. Punjab and Sind Bank; 5. (2) Private Sector Banks: These are the banks
Oriental Bank of Commerce and 6. New Bank of where majority of share capital of the bank
India (merged with Punjab National Bank on 4 is held by private individuals.For instance,
September 1993). HDFC, ICICI, Axis Bank, Jammu and Kashmir
Bank Ltd., Bank of Rajasthan Ltd., etc.
Consolidation of Public Sector Banks (b) Foreign Banks : These banks are registered
A. Merger – April 2013, Vijaya and Dena bank and have their headquarters in a foreign
to be merged into BOB country but operate their branches or
August 2019, Finance minister subsidiary in other country. Some of the
announced merger of 10 banks into 4 foreign banks operating in our country are
anchor banks. Hong Kong and Shanghai Banking
1. Oriental bank of commerce, United Corporation (HSBC), Citibank, American
bank of India merged into Punjab Express Bank, Standard & Chartered Bank,
National bank. Grindlay's Bank, etc.
2. Syndicate banks merged into Canara (c) Differential banks:These banks may have
bank. geographical restrictions on branch opening
3. Andhra bank and Corporation bank eg. RRB,LAB or may be deposite limit per
merged into Union bank of India. customer eg.payment banks
4. Allahabad bank merged into Indian
Regional rural banks:these banks are based on
bank narasimham’s committee on financial inclusion
B. Privatisation – IDBI bank purchased by Life in 1970s.these bank’s are setup under the
Insurance Corporation(LIC). Govt. has provision of RRB act 1976.eg. uttar bihar gramin
announced to reduce share holding in IDBI bank(sponsor bank;central bank of
bank. india).imediate regulator-NABARD;ultimate
regulator-RBI;Voting
Commercial Banks share(union+state+sponsor)=51%.
➢ Cooperative Bank : Registered at State Registrar
➢ Those banks having the motive of profit and work
for Cooperative society license. When a co-
at large with various product like savings account,
operative society engages itself in banking
current account, debit card, credit card, insurance,
business it is called a Co-operative Bank. Any co-
house loan, vehicle loan, etc. They are of types (a)
 operative bank as a society has to function under Anantha Subramanian was appointed as the first
the overall supervision of the Registrar, Co- CMD of BMB. It is based on the principle of :
operative Societies of the State. Women Empowerment in India.it has been
➢ Classification of Cooperative Bank : There are merged with SBI in 2017.
four types of co-operative banks operating in our ➢ Mudra Bank (Micro Units Development and
country. They are primary credit societies, Refinance Agency Bank): It was launched on 8th
central co-operative banks and state co- April, 2015 with a corpus of Rs. 20,000 crore and
operative banks,urban co-operative banks. These a credit guarantee corpus of Rs. 3000 crore. It
banks are organized at levels-village or town provides loans at low rates to small
level, district level and state level. entrepreneurs. Mudra Bank has launched three
➢ Specialised Banks : Banks engaged themselves loan instruments: (i) Shishu-covers loans upto Rs.
insome specific area or activity are called 50,000; (ii) Kishor-covers loans above Rs. 50,000
specialised banks. They cater to the and upto 5 lakh and (iii) Tarun-covers loans above
requirements and provide overall support for 5 lakh and upto 10 lakh.
setting up business in specific areas of activity. ➢ Micro Finance Institutions(MFI) – It is created by
For example- EXIM Bank, SIDBI, NABARD, etc. RBI as a new NBFC category on the basis of
Malegam Committee’s recommendation. It gives
➢ Export Import Bank of India (EXIM Bank) : It was small loans to poor without collateral, flexible
established in 1982 and having head office in EMI.
Mumbai. The bank grants loans to exporters and
New Mahatma series currency notes in India-
importers and also provides information about
the international market. • ₹10- Sun temple
➢ National Bank for Agriculture and Rural
• ₹20-Ellora caves
Development (NABARD ) : It was established in
the year 1982 and having head office in Mumbai. • ₹50-Hampi chariot
It is a central or apex institution for financing • ₹100-Rani ki vav
agricultural and rural sectors. • ₹200-Sanchi stupa
➢ National Housing Bank (NHB).: It was established
• ₹500- Red fort
in 1988 and having head office in New Delhi. Apex
• ₹2000-Mangalyaan
institution for housing finance in India. Finance to
banks and Non-Banking financial corporation for Budget 2020 has announced a museum on
housing projects. NHB calculate RESIDEX Index to numismatics and trade will be built at the old mint
building in Kolkata.
know housing sector inflation.
➢ Small Industries Development Bank of India
(SIDBI): It was established in 1990 and having
IMPORTANT BANKING
head office in Lucknow. The focus of SIDBI is to TERMINOLOGY
promote, finance and develop small-scale ➢ Basel Norms : Set by Bank of International
industries. Settlement (BIS) headquartered in Basel,
➢ Bharatiya Mahila Bank (BMB) : It is the India's Switzerland. It prescribes for a set of minimum
first all women bank and inaugurated in Mumbai capital requirement for banks. In India, Basel
on 19th November, 2013. The bank commenced norms viz, Basel-I and Basel II have been
with an initial capital of Rs. 1,000 crore. Usha
 implemented and 'third is Basel-III norms capital • CTS(Cheque Truncation System) scanned image
regulation is started from 1st Jan, 2013. of cheque electronically sent to the drawee
➢ NEFT (National Electronic Fund Transfer) :NEFT, branch for faster clearance without theft or
enables funds transfer from one bank to another tempering. MICR reader not required.
but works a bit differently than RTGS. NEFT is • UPI(Unified Payment Interface) : It is a
slower than RTGS. The transfer is not direct and technology for building digital payment apps
based on IMPS. BHIM(Bharat Interface for
RBI acts as the service provider to transfer the
Money) is an app based on UPI technology.
money from one account to another. One can
transfer any amount through NEFT, even a rupee. • RUPAY : It is world’s 7th payment gateway similar
to mastercard, VISA card. It works in three
➢ RTGS (Real Time Gross Settlement) : In RTGS
channels – ATM, POS(Point Of Sale) and online.
system funds takes place from one bank to
another on a 'real time' and 'gross' basis. • AEPS(Adhaar Enabled Payment System) : useful
for direct benefit transfer into beneficiaries a/c
Settlement in 'real time' means payment
for MNREGA wages, LPG subsidy etc.
transaction is not subjected to any waiting
period. The transactions are settled as soon as • NETC(National Electronic Toll Collection)
:provides backend technological support to the
they are processed. Minimum and Maximum
Fastag toll collection.
Limit of RTGS : 2 lakh and no upper limit depend
on banks to banks. MDR(Merchant Discount Rate)
➢ IMPS (Immediate Payment Service) IMPS is an It is a fees that a merchant must pay to his acquirer
instant interbank electronic fund transfer service bank for every credit and debit card transaction. This
through mobile phones. It is also being extended fee is shared among 1. Customer’s card issuing bank
through other channels such as ATM, Internet 2. Merchant’s acquiring bank 3. Payment gateway
Banking, etc. provider.
Overdraft
Note – RTGS and NEFT service facilities are provided
by RBI but, IMPS is provided by National Payment If a person has insufficient balance from his a/c still
Corporation of India(NPCI). Only banks can provide he can withdraw money from the bank as a loan, this
NEFT and RTGS facility as it requires IFSC branch facility is called overdraft. Example – PM Jan Dhan
code but, banks and even prepaid payment Yojana a/c has overdraft facility upto ₹10,000.
instrument like paytm, phonepay can provide IMPS
facility. RBI’s Nandan Nilekani Panel
National Payment Corporation of India(NPCI) This panel is formed to promote less cash economy
and to promote digital transaction in India.
It is a not for profit company developed by 10
promoter banks to provide cost effective payment Crptocurrency and Blockchain technology
solutions.
Crptocurrency is a digital/virtual currency created
Notable initiative has been taken by NPCI includes: and stored using blockchain technology. Example –
• NACH(National Automatic Clearing House) for Bitcoin, Lightcoin, Digicoin. Blockchain is a secured
bulk monthly payments of utility bills, salaries, decentralized database that maintains a
pension and continuously growing list of records and
transactions. Old entry can’t be deleted, new entries
• insurance premiums etc.,
will be visible to all, it is mainly used for running
• NFS(Nationa Financial Switch) runs the ATM cryptocurrency network.
network, IMPS, UPI & BHIM;
NOSTRO Account : A Nostro account is maintained dealings. It is basic tool to control money
by an Indian Bank in the foreign countries. laundering.
➢ VOSTRO Account : A Vostro account is ➢ IFSC (Indian Financial System Code) : It is an
maintained by a foreign bank in India with their alpha-numeric 11 character code for unique
corresponding bank. identification of a bank branch provided by RBI.
➢ CRAR (Capital to Risk Weighted Assets Ratio) : The first 4 alpha characters speak the bank
Capital to risk weighted assets ratio is arrived at name, the 5th character is 0 (Zero) and the last
by dividing the capital of the bank with 6 characters represent branch code.
aggregated risk weighted assets for credit risk, ➢ NBFC (Non-Banking Financial Company) : It is
market risk and operational risk. company registered under the Companies Act of
➢ Non-Performing Assets (NPA) : An asset (loan), 1956. The NBFC cannot accept demand
including a leased asset, becomes non- deposits.
performing when it stops generating income for ➢ MICR (Magnetic Ink Character Recognition) :
the bank. MICR code is 9 digit in character printed on a
➢ SWIFT (Society for World Wide Interbank cheque book to facilitate the Processing of
Financial Telecommunication) : It was setup in cheques to identify the branch and bank.
1973 in Belgium. It is a cooperative society ➢ CBS (Core Banking Solution) : Core stands for
under Belgian Law. The Majority of International centralized online real time exchange. CBS is the
Interbank Messages use the swift network. technology used for fast communication
➢ KYC (Know Your Customer) : It enables banks to between the bank branches and also for fund
know their customers and their financial transfer. Example – RBI ekuber platform

Establishment Years of Major Financial Institutions in India

Reserve Bank of India (RBI) 1April, 1935
Industrial Finance Corporation of India (IFCI) 1948
State Bank of India (SBI) 1 July, 1955
Life Insurance Corporation (LIC) September 1956
Unit Trust of India (UTI) 1 February, 1964
Industrial Development Bank of India (IDBI) July 1964
General Insurance Corporation (GIC) November 1972
Regional Rural Banks (RRB) 2 October, 1975
Housing Development Finance Corporation (HDFC) 1977
Risk Capital and Technology Finance Corporation Ltd. March 1975
National Bank for Agriculture and Rural Development (NABARD) 12 July, 1982
Export-Import Bank of India (EXIM Bank) 1 January, 1982
National Housing Bank (NHB) July 1988
Technology Development & Information Co. of India Ltd. 1989
Small Industrial Development Bank of India (SIDBI) 1990
Industrial Credit and Investment Corporation of India Ltd. (ICICI) 1995
The Indian Currency System • M1 = Coins and currency with public + Demand
Deposits with commercial banks.
The present monetary system of India is based on
• M2 = Coins and currency with public + Demand
inconvertible paper currency and is managed by the
Deposits with commercial banks + Post office
RBI. The present currency system is based on
demand deposits.
Minimum Reserve System (MRS) for note issuing. It
• M3 = Coins and currency with public + Demand
was adopted in 1957, under the MRS, RBI’s assets
Deposits with commercial banks + time
must match its liabilities. The assets of RBI issue’s
deposit with commercial banks.
department are gold coins (minimum Rs. 200 crore),
gold bullion(Minimum Rs. 115 crore), rupees • M4 = Coins and currency with public + Demand
coin(RBI buys coins and Rs. 1 note from govt.), Deposits with commercial banks+ time
foreign securities including IMF securities and Indian deposit with commercial bank + post office
demand and time deposits.
govt. It is also called Reserve money or Govt. money
Liquidity
or High powered money or M0.
Ease of converting an asset into cash is called
Measures of money supply : liquidity. Cash is most liquid asset. Home/Real estate
are relatively illiquid assets because difficult to find
➢ Money supply means the total amount of
buyers at right pice instantly.
money in economy at any given time.
M3
➢ Money supply plays a crucial role in the Money Multiplier = M0
, RBI’s cash reserve ratio
determination of inflation and interest rate on leads to fractional reserve banking and credit
deposits and loans. creation by the commercial banks. Every reserve
➢ RBI measures money supply through ratio (R) generates 1/R new money. Here, 10%
indicators 𝑀0 , 𝑀1 , M2, M3, M4 reserve (R) generated 1/R=1/10%=10 times more
than M0
Printing of Securities and Minting in India

Printing of Securities and Minting in India

Security Press Station Related
India Security Press (1922) Nashik Postal material, Postal stamps etc.
Security Printing Press (1982) Hyderabad Union excise duty stamps
Currency Notes Press (1928) Nashik Bank notes from Rs. 1 Rs. 100
Bank Notes Press (1974) Dewas Bank note of Rs. 20, Rs. 50, Rs. 100,
Rs. 500
Modernised Currency Notes Mysore (Karnataka) -
Press (1965) Saibani (W. Bengal)
Security Paper (Estd 1967-68) Hoshangabad Banks and Currency notes paper

Coins are minted at four places, viz Mumbai, Kolkata, Hyderabad and Noida.
RBI MONETARY POLICY money supply and interest rates. RBI review its
monetary policy by 6 member’s statutory monetary
Monetary Policy is the macro economical policy, policy committee bi-monthly basis.
designed by the central bank of a country to manage
 Types of Tools to Implement monetary Policy
Quantitative Tools Qualitative Tools
1. SLR, CRR 1. Margin requirements
2. Open Market Operation (OMO) 2. Selection credit control
3. Policy Rate (Bank Rate, MSF, Repo Rate etc.) 3. Moral Suasion
4. Direct action

• Cash Reserve Ratio (CRR) : Banks must keep (RBI) for emergency borrowing by bank.
this much deposits (or balance) with RBI. RBI Bank can also pledge securities from its SLR
does not pay interest on this deposit. It is quota. MSF is increased to fight inflation and
mandated under RBI Act,1934. decreased to fight deflation.
• Statutory Liquidity Ratio (SLR) : Bank must • Open Market Operation (OMO) : OMO refer
keep this much deposits in liquid asset such to the buying and selling of government
as cash, gold, G-sec. , T-bills, other securities securities in the open market.
-RBI buying = money supply
notified by RBI. Here some profit may be
increased/liquidity injected in the
involved. It is mandated under Banking market to fight deflation.
Regulation Act,1949. -RBI selling= money supply decreased
-CRR, SLR are counted on fortnightly basis, if /liquidity absorbed from the market.
not maintained bank will have to pay penalty ➢ Moral Suasion : A moral suasion is a
interest to persuasion tactic used by an authority (i.e.
RBI. Reserve Bank of India) to influence and put
-CRR, SLR increased to fight inflation and
pressure, but not force, banks into adhering
decreased to fight deflation.
➢ Repo Rate : It is the rate at which RBI lends to policy.
short-term money to the banks against
➢ Direct action : RBI can punish banks and
securities. Repo rate injects liquidity in the
even non banks for not complying with its
market. Bank can’t place their SLR quota
directives under RBI Act, Banking Regulation
securities for this borrowings.
Act,Payment and settlement act,Prevention
➢ Reverse Repo Rate : It is the rate at which
of money laundering act.
banks park short-term excess liquidity with
the RBI. Reserve Repo Rate withdraws • Margin Requirements/loan to value : RBI
liquidity from the market. can mandate LTB for a gold loan,home
- Repo rate is increased to suck liquidity loan,business loan etc. so a bank/NBFC cant
from the market and to fight inflation and lend more than x % of the value of the
decreased to fight deflation. collaterals and RBI can change this x% to
-Reverse repo rate is increased to fight boost /curb demand.
inflation and decreased to fight deflation.
• Selective Credit Control :
• Bank Rate : It is the standard rate at which
-Rationing of Credit : Central Bank will
RBI buys or rediscounts first class securities,
decide upper limit to loans in each sector.
bills of exchange or other commercial
Once the quota is over, no additional loan is
papers. Its loan duration is longer than repo
given. This concept is called to be Rationing
rate.
of Credit.
• Marginal Standing Facility (MSF) : MSF rate
is the rate at which banks borrow funds for
overnight from the Reserve Bank of India
 -RBI imposed quantitative seiling on non like vehicles, T.V. , fridge,etc. to boost
food loans to boost green revolution and control consumption and demand.
food inflation -Priority Sector Lending : Banks must give
in 1970s. 40% of their loans to weaker sections, marginal
-Consumer credit control : During small and big farmers and micro enterprises etc.
deflation/recession, RB can relax down All scheduled commercial banks and foreign
payment/EMI installment norms for durables banks have to give 40% PSL quota loans
 9. FINANCIAL MARKETS
• A financial Market is a market for the creation as Zero Coupon Bonds issued by the Reserve
and exchange of financial assets. Financial Bank of India on behalf of the Central
transactions could be in the form of creation of Government; Treasury bills
financial assets such as the initial issue of shares Types of Treasury Bill : (i) 14 Days Treasury
and debentures by a firm or the purchase and Bills; (ii) 91 Days Treasury Bills; (iii) 182 Days
sale of existing financial assets like equity Treasury Bills
shares, debentures and bonds. (iv)364 Days treasury Bills
• Households can buy the shares and debentures 2. Call Money: Call money is a method by
offered by a business using financial markets. which banks borrow from each other to be
The process by which allocation of funds is done able to maintain the cash reserve ratio; Call
is called financial intermediation. money is a short term finance repayable on
• Financial markets are classified on the basis of demand, with a maturity period of one day,
the maturity of financial instruments traded in used for inter-bank transactions.
them. Instruments with a maturity of less than 3. Notice Money: It is also used for inter-bank
one year are traded in the Money Market and transactions.But the duration is long than
instruments with longer maturity are traded in call money(2 to 14 days).
the Capital Market. 4. Certificate of Deposit: Unsecured,
negotiable, short-term instruments in
MONEY MARKET bearer form, issued by commercial banks
• The money market is a market for short term and development financial institutions; a CD
funds which deals in monetary assets whose should be Rs.1 lakh, and in multiples of Rs. 1
period of maturity is upto one year. These assets lakh thereafter. The maturity:, period of CDs
are close substitutes for money. It is a market issued by banks should not be less than 7
where low risk, unsecured and short term debt days and not more than one year, from the
instruments that are highly liquid are issued and date of issue.
actively traded every day. 5. Commercial Paper : Commercial Paper (CP)
• The major participants in the market are the is an unsecured money market instrument
Reserve Bank of. India (RBI), Commercial Banks, issued in the form of promissory note.
Non-Banking Finance Companies, State Corporate, primary dealers (PDs) and the All
Governments, Large Corporate Houses and India Financial Institutions (FIs) are eligible
Mutual Funds. ) to issue CP. Maturity period; between a
• Money Market Instruments : 1. Treasury Bill; 2. minimum of 7 days and a maximum of up to
Call Money; 3. Notice Money 4.Certificate of one year from the date of issue. CP can be
Deposit; 5. Commercial Paper issued in denominations of Rs.5 lakh or
1. Treasury Bill : It is an instrument of short- multiples thereof.
term borrowing by the Government of India
maturing in less than one year; Also known
 The difference between the price at which the treasury bills are issued and their redemption value is the
interest receivable on them and is called discount.

Money Market Index is an index which helps investors to decide how much and where to invest in money
market through providing information about prevailing market ratio.
LIBOR/MIBOR : London Inter Bank Offered Rate/Mumbai Inter Bank Offered Rate is the average interest rate,
at which banks in London, Mumbai respectively decide their call money and notice money rates.

CAPITAL MARKET advertisement in newspapers and

magazines. The issues may be underwritten
• The term capital market refers to facilities and
and also are required to be listed on at least
institutional arrangements through which long-
one stock exchange.
term funds, both debt and equity are raised and
(ii) Offer for Sale : Securities are not issued
invested. The capital market consists of
directly to the public but are offered for sale
development banks, commercial banks and
through intermediaries like issuing houses
stock exchanges.
or stock brokers; In this case, a company
• The Capital Market can be divided into two parts
sells securities enbloc at an agreed price to
: (a) Primary Market and (b) Secondary Market.
brokers who, in turn, resell them to the
(a) Primary Market : It refers to the new issue
investing public.
market of shares, preference shares and
(iii) Private Placement : The allotment of
debentures of non-government public
securities by a company to institutional
limited companies, and - also to the raising
investors and some selected individuals; It
of fresh capital by Government companies
helps to raise capital more quickly than a
and the issue of public sector bonds.
public issue. Access to the primary market
(b) Secondary Market : It is composed of
can be expensive on account of various
industrial security market or the stock
mandatory and non-mandatory expenses;
exchange in which industrial securities are
Some companies, therefore, cannot afford
bought and sold, and the gilt-edged market
a. public issue and choose to use private
in which the government and semi-
placement.
government securities are traded.
(iv) Rights Issue : This is a privilege given to
• Methods of Floatation : The various methods of
existing shareholders to subscribe to a new
floating new issues in the primary market ; (i)
issue of shares according to the terms and
Offer through Prospectus; (ii) Offer for Sale; (iii)
conditions of the company; The
Private Placement; (iv) Rights Issue and (v) e-
shareholders are offered the 'right' to buy
IPOs.
new shares in proportion to the number of
(i) Offer through Prospectus : The most
shares they already possess.
popular method of raising funds by public
(v) e-IPOs : A company proposing to issue
companies in the primary market; A
capital to the public through the online
prospectus makes a direct appeal to
system of the stock exchange has to enter
investors to raise capital, through an
into an agreement with the stock exchange.
 This is called an Initial Public Offer (IPO) SEBI Bombay. Today it is known as the Bombay Stock
registered brokers have to be appointed for Exchange (B SE).
the purpose of accepting applications and • After the reforms of 1991, the Indian secondary
placing orders with the company. market acquired a three tier form. This consists
of : (i) Regional Stock Exchanges; (ii) National
STOCK EXCHANGE Stock Exchange (NSE) and (iii) Over the Counter
Exchange of India (OTCEI).
• A stock exchange is an institution which • National Stock Exchange of India (NSE) : The
provides a platform for buying and selling of latest, most modern and technology driven
existing securities. Stock exchanges help exchange; Incorporated in 1992 was recognised
companies raise finance, provide liquidity and as a stock exchange in April 1993; It started
safety of investment to the investors and operations in 1994 , with trading on the
wholesale debt market segment. Subsequently,
enhance the credit worthiness of individual
it launched the capital market segment in
companies. November 1994 as a trading platform for
• Functions of a Stock Exchange : (i) Providing equities and the futures and options segment in
Liquidity and Marketability (ii) Pricing of June 2000 and NSE has set up a nationwide fully
Securities; (iii) Safety of Transaction; Growth; (v) automated screen based trading system .
Spreading of Equity Cult and so on. • Over the Counter Exchange of India (OTCEI) : A
company incorporated under the Companies
Some important indices: Actm, 1956. Set-up to provide small and
medium companies an access to the capital
• SENSEX(Sensitive Index):It’s the weighted market which commenced trading in 1992.
average of Free Float Market Capitalization • MCX SX Stock Exchange : It is a private stock
(FFMC) of 30 companies, selected by Bombay exchange headquartered in Mumbai, which was
Stock Exchange BSE’s “Index Cell”. founded in 2008. Now it is a MCX-SX Full Fledged
Stock Exchange. Securities and Exchange Board
• NIFTY:Index of 50 companie’s Free Float Market of India (SEBI) on 10th July, 2012 granted
Capitalization,selected by National Stock permission to MCX Stock Exchange (MCX-SX) to
Exchange (NSE). operate as full-fledged stock exchange.
DEMAT Account Dematerialisation of securities) : Securities and Exchange Board of
Problems of theft, forgery, transfer delays and India (SEBI)
time involved in paperwork existed; before
• Established by the Government of India on 12
DEMAT came into being. To eliminate these
April, 1988 as an interim administrative body to
problems an electronic book entry form of holding promote orderly and healthy growth of
and transferring securities has been introduced. securities market and for investor protection.
This is referred to as demaerialisation of securities An Act of Parliament known as the Securities
and Exchange Board of India Act, 1992 and given
a statutory status.
History of the Stock Market in India • Apart from its head office at Mumbai, SEBI has
• In 1850, the Companies Act was introduced for opened regional offices in Kolkata, Chennai and
the first time bringing with it the feature of Delhi to attend to investor complaints and liaise
limited liability and generating investor interest with the issuers, intermediaries and stock
in corporate securities. exchanges in the concerned region.
• Bombay Stock Exchange (BSE) : The first stock
exchange in India was set-up in 1875 as The
Native Share and Stock Brokers Association in
 Functions of SEBI speculator tends to force down the prices of
securities.
• Entrusted with the twin task of both regulation
• Intra-day trading: Individuals buy and sell shares
and development of the securities market.
over the Internet over a period of a single day's
A. Regulatory Functions : Registration of
trading, with the speculative intention of
brokers; Registration of collective profiting from small price fluctuations.
investment schemes and Mutual Funds;
• Insider Trading: Whenever company launches
Regulation of Stock Bankers and portfolio new products, wins unique patents, or
exchanges, and merchant bankers; undergoes merger&acquisition- its share prices
Controlling insider trading and takeover bids may rise. If a person associated with company
and imposing penalties for such practices; uses such confidential information for buying
Calling for information by undertaking and selling shares to make windfall gains,it is
inspection, conducting enquiries and audits called insider trading. Such insider trading is
illegal.
of stock exchanges and intermediaries;
Levying fee or other charges for carrying out • ASBA (Application Supported by Blocked
the purposes of the Act; Performing and Amount)- it allows the underwriter to block the
amount in IPO-investor-applicant’s bank
exercising such power under Securities
account, but only IF shares allotted to the
Contracts (Regulation) Act 1956, as may be applicant, his bank money will be deducted.
delegated by the Government. ASBA-Benefits: only serious investors with
B. Development Functions : Investor sufficient bank balance can apply,investor
education; Training of intermediaries; continues to earn bank interest on his blocked
Promotion of fair practices and code of amount until the process of IPO-share allotment
is over.
conduct of all SRO's and Conducting
research and publishing useful information. • Dabba Trading or Box Trading: While share
trade occurs at stock exchange linked with
Some Common Stock Market DEMAT accounts, the Dabba Trades occur in the
unofficial ledgers of an unscrupulous broker. He
Terms: may or may not execute those orders in actual
• Jobbers: They are Full time engaged in buying DEMAT account.SEBI declared it illegal.
and selling securities using money from their • Penny Stocks: Shares whose market price
own pockets. (Whereas brokers and commission remain excessively low compared to its face
agents buy&sell using money,shares of their value. Such pathetic companies give zero or
clients). little dividend.
• STAG (Male Deer): He buys newly issued • Blue Chip stocks: Shares of a nationally
securities from primary market & sells them in recognized, well-established and financially
secondary market for quick profit. sound company with a history of generating
• BULL : Optimistic speculator who hopes share good dividend.
prices will rise, so purchases (to sell them later • Venture capital funds:They are professional
at much higher price). Just like a bull tends to firms helping startup companies with seed
throw his victim up in the air, the bull speculator capital.it could be in form of debt,equity,hybrid.
stimulates the price to rise.
• Angel Investors:Rich person helping startup
• BEAR – A pessimistic speculator who fears prices companies out of his hobby, passion, profit
will fall so, he sells. A bear usually presses its motive or time pass. It could be in form of
victim down to ground. Similarly, bear debt,equity,hybrid.
 Share Index in Some Stock Exchange of the World

Share Index in Some Stock Exchange of the World

Bombay Stock Exchange (India) SENSEX, DOLLEX & PCNX
National Stock Exchange (India) NIFTY
New York Stock Exchange (US) DOW JONES
Tokyo Stock Exchange (Japan) NIKKEI
Frankfurt Stock Exchange (Germany) MIDDAY
Hongkong Stock Exchange (CHina) HANGSENG
Indonesia Stock Exchange JAKARTA COMPOSITE
Singapore Stock Exchange SIMEX
Shenghai Stock Exchange (China) COMPOSITE INDEX
South Korea Stock Exchange SEOUL COMPOSITE
Korea Stock Exchange (North Korea) KOSPI

Meaning of Credit Rating alliance with the Standard & Poor's (S&P)
Ratings Groups.
• A credit rating is an assessment of the
creditworthiness of a borrower in general • ICRA (Investment Information and Credit
terms or with respect to a particular debt or Rating Agency) : India's second credit rating
financial obligation. agency is ICRA which was set up in 1991. It
• A credit rating can be assigned to any entity was promoted by Industrial Finance
that seeks to borrow money — an Corporation of India (IFCI), other leading
individual, corporation, state or provincial financial/investment institutions,
authority, or sovereign government.
commercial banks and financial services
• A credit rating agency (CRA) is a company
that assigns credit ratings, which rate a companies.
debtor's ability to pay back debt by making • CARE (Credit Analysis and Research Ltd) The
timely principal and interest payments and third credit rating agency in India was CARE,
the likelihood of default. that started working in 1993. It was mainly
• There are six credit rating agencies promoted by the 1DBL
registered under SEBI namely, CRISIL, ICRA,
• ONICRA : Later, another credit rating agency
CARE, SMERA, Fitch India and Brickwork
ONICRA was established which is now
Rating
India's Credit Rating Agencies known as Onicra Credit Rating Agency of
India Ltd. This is a private sector agency set
• CRISIL (Credit Rating Information Services of up by Onida Finance. It provides
India Limited) is India's first credit rating assessment, grading and rating models for
agency, incorporated in 1987 and was individuals and MSMEs.
promoted by the erstwhile ICICI Ltd, along • CIBIL (Credit Information Bureau of India
with UTI and other financial institutions. In Limited) : CIBIL maintains records of an
1995, in partnership with National Stock individual's payments related to credit cards
Exchange, CRISIL developed CRISIL 500 and loans.
Equity Index. In 1996, it made a strategic
 • ICRA Limited : ICRA Limited is a joint venture receipts. ECB is a foreign currency debt
between Moody's Investors and various instrument issued by an Indian company.
financial services companies and is a part of
ICRA groups. Mutual Funds (MFs):
• SMERA : SMERA a joint venture of SIDBI, • A mutual fund collects money from investors
several private sector banks in the country and invests the money, on their behalf, in
and Dun & Bradstreet Information Services securities (debt, equity or both). It charges a
small fee for managing the money.
India Pvt. Ltd. (D & B).
• Mutual fund sectors are one of the fastest
Credit Rating Head
Established growing sectors in Indian economy that have
Agency Quarters potential for sustained future growth. Mutual
• FITCH funds make saving and investing simple and
1993 Paris
Group affordable. Anybody with an investible surplus
• S&P of as little as a few hundred rupees can invest in
1860 New York mutual funds.
Group
• The other advantages of mutual funds include
• Moody's professional management, diversification,
Investor 1909 New York variety, liquidity, convenience as well as strict
Services government regulations and full disclosure.
• SEBI is the regulatory body to control and
Global Depository Receipts (GDR) regulate the securities market and mutual funds
• GDRs are negotiable instruments. GDRs are also industry in India. Infrastructure investment
known as Euro Equity Shares_. It allows Trust (InvIt) and Real estate Investment Trust
(ReITs) are examples of mutual funds.
companies to access international capital
markets through it. It is a Euro dominated Social Stock exchange:
instrument traded on the stock exchanges in • The idea of the Social Stock Exchange (SSE) as a
Europe. The GDR represents a fixed ratio of India platform for listing social enterprise, voluntary
shares. and welfare organisations so that they can
raise capital was mooted in the Union Budget
American Depository Receipts (ADR) 2019-20.
• ADRs are also negotiable instruments. ADRs are • Social enterprise can be defined as a non-loss;
non-dividend paying company created and
usually listed in the New York stock exchange.
designed to address a social problem. It works
These are US dollar denominated instruments under the market regulator SEBI.
issued by a depository bank in the USA • The aim of the initiative is to help social and
representing ownership in the non-USA voluntary organisations which work for social
securities, usually referred to as underlying causes to raise capital as equity or debt or a
equity shares. unit of mutual fund. It provides new and
cheaper sources of financing for social welfare
projects, while showcasing India’s
Euro Convertible Bonds (ECB)
independence from foreign aid.
• ECB is a equity linked security which can be
converted into shares or into depository
 10. INFLATION
Inflation : Here the intensity and magnitude of
inflation lies between 4 to 10 per cent
• Inflation refers to the rise in the prices of most
annually. At this level, it is a warning signal
goods and services of daily or common use, such
as food, clothing, housing, recreation, transport, for most governments to take measures to
consumer staples, etc. avoid exceeding double - digit figures.
(c) Galloping Inflation : The severity of inflation
• Inflation measures the average price change in a
basket of commodities and services over time. ranges between 10 to 20 per cent annually.
This range is known as Galloping Inflation.
• The opposite and rare fall in the price index of
this basket of items is called ‘deflation’. Other names to this inflation - hopping
inflation, jumping inflation and runaway
• Inflation is indicative of the decrease in the
inflation.
purchasing power of a unit of a country’s
currency. This could ultimately lead to a (d) Hyper Inflation : When the inflation rate
deceleration in economic growth. However, a rises to over 20%, it is generally considered
moderate level of inflation is required in the as hyper inflation. The best example of
economy to ensure that production is hyper inflation in modern day is Venezuela
promoted. and Zimbabwe. Due to misgovernance of
• Inflation is measured by a central government ruling parties resulting into broken
authority, which is in charge of adopting economies and shortage of essential
measures to ensure the smooth running of the commodities. Here, money becomes quite
economy. In India, the Ministry of Statistics and
worthless and new currency may have to be
Programme Implementation measures inflation.
introduced.
• Inflation is primarily measured by two main
indices — WPI (Wholesale Price Index) and CPI
(Consumer Price Index) which measure Causes of Inflation :
wholesale and retail-level price changes,
• The reasons responsible for inflation in mainly
respectively. The CPI calculates the difference in
the price of commodities and services such as two parts— (a) Demand - Pull Inflation; (b) Cost
food, medical care, education, electronics etc, - Push Inflation
which Indian consumers buy for use. (a) Demand-Pull Inflation: A mismatch
between demand and supply pulls up prices.
Stages of Inflation :
Either the demand increases over the same
• Depending on the intensity of inflation, there level of supply or the supply decreases with
are several stages, namely : (a) Creeping the same level of demand and thus the
inflation; (b) Trotting inflation; (c) Galloping situation of demand-pull inflation arise. This
inflation and (d) Hyper inflation. phenomenon occurs due to following
(a) Creeping inflation : If the intensity of reasons : (i) Wage revision : It creates extra
inflation (general rise in prices) at very low purchasing power to the consumer over the
rates, which is usually between 0.1 to 4 per same level of production; (ii) Printing of
cent annually. This stage refers to be Currency of Public Borrowing without
creeping inflation. equivalent creation in production/supply;
(b) Trotting Inflation : Trotting inflation also (iii) Black Market : It is an illegal method to
refers to be Walking and Running Inflation. create artificial demand or to show up the
 shortage of product by keeping aside or wholesale price. The base year of All-India WPI
hoarding and-(iv) Failure of Monsoon. has been revised from 2004-05 to 2011-12 in
(b) Cost-Push Inflation : An increase in factor 2017.
input costs (i.e. wages and raw materials) Consumer Price Index (CPI)
pushes up prices. The price rise which is the • It measures price changes from the
result of increase in the production cost is perspective of a retail buyer. It measures
cost-push inflation. This happens mainly changes over time in the level of retail prices
due to : (i) Increase of prices in raw materials of selected goods and services on which
consumers of a defined group spend their
in International market; (ii) Frequent strike
incomes.
called by the trade union to raise the wage; • Four types of CPI are as follows: CPI for
(iii) Higher Tax rate on raw materials; (iv) Industrial Workers (IW). CPI for Agricultural
Pricing Power Inflation — Also known as the Labourer (AL). CPI for Rural Labourer (RL). CPI
Administered Price Inflation. This occurs (Rural/Urban/Combined).
when business and individuals raise their • The first three are compiled by the Labour
prices retrospectively to increase their Bureau in the Ministry of Labour and
Employment. Fourth is compiled by the
profits and (iv) Sectoral Inflation : This
Central Statistical Organisation (CSO) in the
occurs when the price of one product Ministry of Statistics and Programme
directly affects the price of another product Implementation. Base Year for CPI is 2012.
or service. CPI vs WPI

Effect of Inflation : • WPI, tracks inflation at the producer level and

CPI captures changes in prices levels at the
• Businessman and borrowers make huge profit consumer level. Both baskets measure
because the price of the final product is rising at inflationary trends (the movement of price
a much faster speed than the raw material. signals) within the broader economy, the two
• Fixed income groups, lender suffer because indices differ in which weightages are
assigned to food, fuel and manufactured
even a borrowed money is return, their real
items.
purchasing power would have declined due to • WPI does not capture changes in the prices of
the fall in real interest rate. services, which CPI does.
• When rupees purchasing power will decline, its • In April 2014, the RBI had adopted the CPI as
exchange rate value will weaken against foreign its key measure of inflation.
currencies as foreigners get less keen to buy Related Terms
from India.
• Index of Industrial Production : It measures
Measurement of Inflation in India the growth of industrial production in India.
This index classifies industries into mining,
Wholesale Price Index (WPI)
manufacturing and electricity sectors and
• It is the most widely used inflation indicator in measures growth in production in each
India. It is Published by the Office of Economic industry; This helps in predicting GDP growth
Adviser, Ministry of Commerce and Industry. of Industry and III) is released by CSO on a
• All transactions at the first point of bulk sale in
monthly basis.
the domestic market are included.
• Major criticism for this index is that the • Purchasing Manager's Index (PMI) : Predicts
general public does not buy products at the level of industrial production in advance;
 This is done by surveying purchasing opposite of disinflation. Such actions take
executives over 500 manufacturing economy from deflationary path toward
companies in India. In India, it is released by inflation path.
HSBC in partnership with Markit, a global • Stagflation : Due to persistent high inflation,
financial information service company. The high unemployment and low growth
index shows the above 50 reflects expansion resulting into stagflation.
and below 50 reflects contraction in the
industrial production. ➢ Headline Inflation : It is measure of the
total inflation within an economy,
• Agflation : The term is derived from a
usually presented in the form of CPI or
combination of the words agriculture and WPI.It includes price rise in food, fuel
inflation. An increase in the price of food that and all other commodities.
occurs as a result of increased demand for ➢ Core Inflation : It doesn’t consider the
human consumption. inflation in food and fuel. It is measured
• GDP Deflator : GDP deflator is a measure of by excluding food and fuel items from
the price, of all the goods and services wholesale price index(WPI) or
included in Gross Domestic Product (GDP). ] consumer price index(CPI).
• Deflation : A general decline in prices, often ➢ Laspeyre Index : German economist
caused by a reduction in the supply of money Etienne Laspeyres formula is used in
or credit. Deflation can be caused by a calculation of WPI, CPI, IIP index. It is
weighted arithmetic mean of a basket of
decrease in government, personal or
commodities that track
investment spending. price/production level inflation against
• Disinflation : Disinflation is used to describe the base year. Passche index,Fisher
instances when the inflation rate has reduced index are also used to measure inflation.
marginally over the short term. A slowing in ➢ Producer’s price index(PPI) : WPI
the rate of price inflation. covers only goods whereas, PPI covers
• Phillips Curve : Phillips curve is a historical both goods and services. It measures
inverse relationship between the rate of price change from seller’s perspective.
unemployment and the rate of inflation in an ➢ OBICUS survey by RBI : It is done by RBI.
economy. It surveys quarterly to asses
consumption and investment demand
• Reflation : Reflation is the act of stimulating
through order books, inventories and
the economy by increasing the money capacity utilization survey.
supply or by reducing taxes. It is the
 11. INSURANCE SECTOR
Insurance New India Insurance Company Limited,
Mumbai;(iii) The Oriental Fire and General
• Insurance policy is a Debt instrument or Legal Insurance Company Limited, New Delhi and
contract against eventualities of death or (iv) United India General Insurance Company
damage. There are three parties involved in Limited, Chennai.
this contract: 1) Insured / client 2) Insurer / • Private insurance companies were allowed
Underwriter. and FDI was liberalized after the
recommendation of Malhotra
• Insurance provide stability to the households
Committee(1993).
(against death, disability, damage) and
entrepreneurs (against fire, theft, natural Insurance Regulatory and
disasters etc.) Development Authority Act, 1999
• Insurance companies invest clients’ • It is an autonomous apex statutory body
premium in various public and private sector which regulates and develops the insurance
projects, thereby channelizing savings industry in India. The Insurance Regulatory
towards investment & economic growth. and Development Authority (IRDA) has
• In 1818 Europeans started insurance changed its name to Insurance Regulatory and
companies in India, but they charged higher Development Authority of India (IRDAI).
premium on Indian clients with racist bias that
• The agency operates from its headquarters at
Indians belong to an inferior race.
• In 1870 Bombay Mutual Life Insurance was Hyderabad, Telangana where it shifted from
the first Swadeshi life insurance company and Delhi in 2001.
they did not charge extra premium on Indian
clients. Pension Sector
• In 1912 Life Insurance Companies Act to • New Pension System (NPS) launched on 1st
regulate them, but the norms were lax, so just
January, 2004. With effect from 1St
like the banking industry, the insurance
industry too faced problems in the aftermath November, 2009, the NPS was opened to all
of Great Depression. citizens. Swavalamban Scheme was
• Just like the banking industry, the insurance announced in the budget 2010.
industry had to be nationalized after • The National Securities Depositories Limited
independence due to scams, financial (NSDL) has been appointed as the Central
inclusion and Five-Year Plans. Record Keeping Agency, for the NPS.
• Life Insurance Corporation (LIC) was
• The revised guidelines for NPS has raised the
nationalized in September 1956.
• General Insurance Corporation (GIC) was age from 55 years to 60 years. The Pension
established in November 1972. Fund Regulatory Development Authority was
• GIC has four subsidiaries, viz, (i) National established on 23rd - I August, 2003.
Insurance Company Limited, Kolkata; (ii) The
 Insurance Sector Schemes
Programme/Schemes Main Provision
Aam Aadmi Bima Yojana (AABY) • Launched on 2nd October, 2007 by LIC.
• The age covered is 18 year to 59 years.
• Premium fixed at Rs. 200 per person per annum to be
shared equally by centre and the states.
• Death/permanent disability Rs. 75000, partial disability
Rs. 37500.

• Janshree Bima Yojana(Unorganized workers group

insurance) was merged with AABY in 2012.
Janashree Bima Yojana (JBY) • Launched on 10th August, 200 by LIC.
• Provides for an insurance cover of Rs. 30000 on natural
death, Rs. 75000 on permanent disability to accident
and Rs. 37500 on partial disability.
• The premium is Rs. 200 per member per annum.
Rashtriya Swasthya Bima Yojana (RSBY) • Launched on 1st October, 2007.
• Provides smart-card based health insurance cover. Rs.
30000 per family per annum to BPL families (a unit of
five) in the unorganised sector.
• The premium is shared in the ratio of 75 : 25 between
the centre nad the states.
• It's a smart card based cashless health insurance, cover
30000 per annum, of insurance of a family floats basis.
• No age limit had been prescribed.
Universal Health Insurance Scheme (UHIS) • launched from the year 2003-04 for improving the
healthcare access to the poor families.
• Export Credit Guarantee Corporation (ECFC) and the
Agriculture Insurance company (AIC) are the specialised
insurers.
• It gives reimbursement of medical expenses upto Rs.
30000 towards hospitalisation.
Sampoorna Bima Gram Yojana (2017) • by Ministry of Communications
• In every district, atleast 1 village identified and In that
village, cover all households with a minimum of one
RPLI (Rural Postal Life Insurance) policy.
• All villages under the Saansad Adarsh Gram Yojana will
also be covered.
Pradhan Mantri Jeevan Jyoti Bima Yojana • 18-50 years with bank account in India. NRIs eligible
(PMJJB) but payment in rupee currency only.
 • Launched by department of financial services
• Premium: Rs. 330 per person/ annum,Type: LIFE
Insurance
• 1 year “term” LIFE insurance( Term LIFE insurance
means if no death then no money returned).
• Insurance cover of 2 lakhs in any type of death.
Pradhan Mantri Suraksha Bima Yojana • 18-70 years. Remaining same as PMJJB
(PMSBY)
• Launched by department of financial services
• Premium: Rs. 12 per person/ annum,Type: GENERAL
Insurance
• 1-year “term” accident cum death insurance.
• Accidental Death: murder, natural disaster etc. ₹2
lakhs.
If Loss of 1 eye/hand/leg then 1 lakh.
If Loss of 2 or more organs: maximum 2 lakhs.
 12. INDIAN FISCAL POLICY/BUDGET
Fiscal Policy president directs. Before 2017 budget was
presented on the last working day of February
• It is the set of government decisions regarding
but 2017 onwards, current government began
taxation, expenditure,subsidies and other
tabling the budget on the 1st working day of
finanvial operations . Government influences
February.
the savings, investment and consumption in an
• The budget is prepared by the Budget division in
economy, to accomplish certain national goals
the Ministry of Finance (MoF). The three parts in
such as income pre distribution, socio and
which the government account is kept : (i)
economic welfare, economic development and
Consolidated Fund (Article 266); (ii) Contingency
inclusive growth.
Fund (Article 267); and (iii) Public Account
Budget (Article 266).

• Budget is an annual financial statement Budget related constitutional provisions:

containing estimate revenues and expenditures
for the next financial year. It is the primary tool • Annual financial statement (Article 112) :- It
contains received and expenditure of last
used by government to implement its fiscal
year(and projection for the next year).
policy
• The term Budget is actually derived from a • The revenue expenditure must be shown
separately from other expenditures.
French word Bougette, which means a sack or
pouch. It was first used in France in 1803. In the • Finance Bill (Article 265) :- To obtain
Constitution of India the term Budget is no parliament’s permission to collect access,
parliament can reduce or abolish a tax
where used. It is rather mentioned as Annual
proposed by the government. But
Financial Statement under Article 112 parliament can not increase tax beyond
comprising the revenue budget, capital budget what government has proposed in the
and also the estimates for the next fiscal year finance bill.
called budgeted estimates. • Appropriation Bill (Article 114):- To obtain
parliament’s permissionto spend money
• Budget System was introduced in India on 7th from consolidated fund of India. Such
April, 1860, James Wilson, the first Indian expenditure can be of two types : The
Finance Member, delivered the budget speech. expenditures ‘charged’ upon the
The financial year for the Union and the State consolidated fund of India e.g. judges
Governments in India is from April to March. salaries. They can be discussed but they are
non-votable & automatically approved. The
• Railway Budget was separated from General
expenditure ‘made’ from consolidated fund
Budget in the year 1924 on the
of India. E.g. Rs. allotted for a scheme. They
recommendations of Acworth Committee. In are discussed and voted.
2017, the central government had merged the
• The finance bill and appropriation bill are
railway budget with the union budget, thus considered money bills under article 110.
ending a practice that had strated in 1924. Therefore Rajya Sabha approval is not
• The constitution doesn’t mandate any specific necessary. At maximum Rajya sabha can
date for presentation of budget, but it is discuss it for 14 days and give suggestions to
presented to lok sabha on such day as the Lok sabha for amendments, but it’s not
 binding on the Lok sabha to accept Rajya between it’s new government is formed,
sabha’s suggestions. they may present another budget to change
➢ Economic Survey : It is a two volume the provisions.
document prepared by chief economic • The Annual Budget : The annual budget of the
advisor in the finance ministry. Volume II central government provides estimates of
shows the annual data of past year. Volume receipts and expenditure. The budget consists of
I shows prospects and suggestions for the
two parts viz : (i) Revenue Budget and (ii) Capital
future year. There is no Constitutional
obligation to present it but usually it is Budget.
tabled in the parliament a day before the (i) Revenue Budget : It is associated with the
union budget. income and expenditure that are of
➢ Department of economic affair under M/o temporary in nature(1 year or less), and do
Finance, prepares and present the union not result into creation of permanent or
budget including the railway component of capital or physical or financial assets.
budget. It also prepare the fiscal policies. e.g. Taxation, revenue from selling goods
➢ Vote on account : It is a grant in advance for and services, interest payment on previous
the central government to meet short term loans, salaries, pension, subsidies and other
expenditures needs from the consolidated non developmental expenditure.
fund of India, generally granted for two (ii) Capital Budget : It is associated with the
months for an amount equivalent to 1/6th of
income and expenditure that are of long
the total budget estimation.
term nature &/or results into creation of
➢ Interim budget : During election year for
permanent or capital or financial assets,
extreme situations,it is considered unethical
for government to make drastic changes in such as land, buildings, machinery,
budget, so, they will present the budget in equipment, shares, bonds. E.g. G-sec.
the regular manner, but without having Borrowings, disinvestment, and
grand populist announcements, such expenditure on assets creation.
budgets are called interim budgets. So, in
• The first Union budget of independent India was presented by R.K. Shanmukham Chetty on Nov.
26, 1947. John Mathai proposed the first budget of Republic of India in 1950.
• Finance minister Morarji Desai has given budget for the maximum number of times (10)
followed by P. Chidambaram, who has given 8 budget.
• Morarji Desai was the only Finance Minister to have had the opportunity to present two budget
on his birthday - in 1964 and 1968.
• CD Deshmukh was the first Indian Governor of RBI to have presented the Interim Budget for the
year 1951-52.
• Mrs Indira Gandhi is the only woman to hold the post of the Finance Minister.
• Pranab Mukherjee, the first Rajya Sabha member to hold the Finance portfolio, presented the
annual budgets for 1982-83, 1983-84 and 1984-85.
 Sources of Revenue : Tax-Revenue and Non - Tax Revenue
Tax-Reven shifting of tax burden is not possible. It
means that the one who pays the direct tax
• It includes taxes such as customs duties, excise
also bears the burden of the tax. Examples
duty, service tax, income tax and so on. There
of direct taxes are corporate tax, income
are two types of taxes : (i) Direct taxes and (ii)
tax, etc.
Indirect taxes.
(ii) Indirect taxes : Indirect taxes are those
Non Tax Revenue taxes which are paid by someone who shifts
the burden of the tax on some other
• It includes borrowings, income of government
person.. Therefore, tax impact and tax
undertakings, Interest earning on loans and
incidence is on two different people.
advances, gifts, donation, grants and aid, etc.
Examples are : excise tax, sales tax etc.
(i) Direct taxes: In this tax, the impact and
incidences is on the same person and
Progressive tax
A tax that takes away a higher proportion of one's income with an -increase in the income is known as progress
tax. Indian income tax is progressive and direct tax.

Regressive Tax
It is in opposition with a progressive tax, which takes a larger percentage from high-income earners. A
regressive tax is generally a tax that is applied uniformly to all situations, regardless of the payer. E.g. 18% GST
on electronics for all individuals irrespective of their income.

Types of Taxes
Direct Tax Income Tax, Property Tax, Minimun alternate Tax etc.
Indirect Tax Sales Tax, Excise Duty, Custom Duty etc.
Taxes imposed by the Central Government Income Tax, Corporate Tax, Custom Duty etc.
Taxes imposed by the State Government Land revenue tax, Agricultural income tax,
Agricultural Land Revenue, Stamp duty,
Professional tax etc.

Important Taxes Imposed in India book profit(the profit shown in the profit and
loss account).
• Corporate income Tax : Corporate tax is
• Capital gains tax : When an owner gains profit
imposed on registered companies and
by selling his capital assets such as non-agro
corporations. The rate of corporate tax on all land, property, paintings, vehicles, share, bonds
companies is equal. However, various types of etc and he has to pay capital gains tax(CGT).
rebates and exemptions have been provided. It
• Income tax on individuals : It is a tax imposed
is manadatory under the Income tac act,1961. on individuals in respect of the income or profits
earned by them. It was started in India by James
• Minimum Alternate tax : It is levied on zero tax Willson on 24th July,1860. So, 24th July is
paying companies, it was introduced by the celebrated as income tax day.
Fninace act,1987. It is calculated at 8.5 % on the
• Customs Duties : As per the constitutional Goods And Services Tax(GST):
provisions, the central government imposed
• It is a destination-based taxation system.It has
import duty and export duty both. Import and been established by the 101st Constitutional
export duties are not only sources of income but Amendment Act.it was implemented across
with the help of it the central government india from 1 july 2017.
regulates the foreign trade. • It is an indirect tax for the whole country on the
• Import Duties : Generally import duties are ad- lines of “One Nation One Tax” to make India a
valorem in India. It means import duties are unified market.
• It is a single tax on supply of Goods and Services
imposed on the taxable item on the basis of
in its entire product cycle or life cycle i.e. from
percentage. manufacturer to the consumer.
• Export Duties : Export duties are more • It is calculated only in the “Value addition” at
important, compared to the import duties in any stage of a goods or services.The final
terms of revenue and regulation of foreign consumer will pay only his part of the tax and
trade. not the entire supply chain which was the case
• Excise Duties : Excise duties are commodity tax earlier.
• There is a provision of GST Council to decide
as it is imposed on production of an item and it
upon any matter related to GST whose chairman
has no relevance with its sale. This is the largest in the finance minister of India
source of revenue for the central government. Taxes subsumed into GST:
• The major tax revenue sources for states are
their shares in union excise duties and income
• At the State Level:State Value Added
tax, commercial taxes, land revenue, stamp
Tax/Sales Tax,Entertainment Tax (Other
duty, registration fees, state excise duties on than the tax levied by the local
alcohol and narcotics, etc. bodies),Octroi and Entry Tax,Purchase
• Ad-Valorem Tax : It is a kind of indirect tax in Tax,Luxury Tax,Taxes on lottery, betting,
which the goods or commodities are taxed as and gambling
per its value. VAT is an example of AD Valorem • At the Central level:Central Excise
Duty,Additional Excise Duty,Service
tax.
Tax,Additional Customs Duty
• Specific Tax : It is the tax that is imposed on the (Countervailing Duty),Special Additional
basis of special attributes of the commodity. For Duty of Customs.
example, the length, breadth, weight are used in
the international trade or in case of import- GST Council
export.
• Value Added Tax (VAT) : Vat is the tax levied on • It is the 1st Federal Institution of India, as per the
the value added at various stages of the output Finance minister.It will approve all decision
of commodity. As on 2 June, 2004, VAT has been related to taxation in the country.It consists of
implemented in all states and union territories Centre, all state, Delhi and Puducherry.Centre
in India. has 1/3rd voting rights and states have
2/3rd voting rights.Decisions are taken after a
• Services Tax : It was introduced for the first time
majority in the council.
in 1984-85 budget at a 5% union service tax on
three specific services namely telephone, Principle of GST:
general insurance and stock brokerage.now,it is
subsumed in GST. • The Centre will levy and collect the Central GST.
• States will levy and collect the State GST on the revenue receipt and revenue expenditure.
supply of goods and services within a state. Major indicators of deficits are :
• The Centre will levy the Integrated GST (IGST) on
the interstate supply of goods and services, and • Revenue Deficit = Revenue deficit =
apportion the state’s share of tax to the state Revenue expenditure – Revenue receipts.
where the good or service is consumed. most of revenue expenditure is ‘committed’
Laffer curve (like Interest repayment on previous loans,
staff-salaries & pensions.
American economist Arthur Laffer): if direct tax • Budget Deficit=Total expenditure(Non plan
rates are increasing above a certain level, then tax Expenditure + Plan Expenditure) - Total
revenue collection will decrease because higher tax Receipts or (Revenue Receipts + Capital
rates discourage people from working and Receipts)
encourage them to evade tax. • Fiscal Deficit =Budget Deficit +
Borrowing.(This borrowing includes internal
Expenditure of the centre borrowing such as through Small Savings
Scheme, and the G-Secs subscribed by
• The central government makes expenditure Banks&NBFCs + Borrowing from RBI +
broadly under two heads : (i) Plan expenditure,
External Borrowing).it was implemented as
and (ii) Non plan expenditure.
per Sukhmoy Chakravarti Committee
▪ Plan Expenditure : It includes the outlay for report.
agriculture, rural development, irrigation • Primary Deficit: If the government
and flood control, energy, industry and continues to borrow year after year, it leads
minerals, transport, science and technology, to accumulation of debt and the
environment and economic services, etc. government has to pay more and more
▪ Non-Plan Expenditures : The major non-plan interest. These interest payments
expenditures are interest payments, themselves add more burden to borrow
defence, subsidies, and general services. next year.So, to get a clearer picture of how
Expenditure of the state : Maintenance of much is the government borrowing for new
law and order, education, health services,
programs, they look at another indicator
irrigation, agricultural development, etc.
comprise the revenue expenditure of major primary deficit.
heads of states. Primary Deficit = Fiscal deficit minus the
interest to be paid on the previous loans.
• Public debt of the government of India is of two
kinds : Internal and External. Internal debt : It • Efective revenue deficit: Some portion of
comprises of loans raised from the open market, revenue expenditure may have been spent
compensation bonds, prize bonds, treasury bills by the States and Local Bodies for building
issued to the RBI commercial banks, etc. Panchayat Bhavans, Disaster Management
External debt : It consists of loans taken from the Training Institutes etc. which are actually
World Bank, IMF, ADB and individual countries “Capital Assets”.
like the USA, Japan and others. Therefore, Budget 2011 introduced a new
concept: -
• Deficit financing is a fiscal tools in the hands of
the government to bridge the gap between
 Effective Revenue Deficit = Revenue
Deficit- Grants to various bodies which were
spent for creation of Capital Assets.

15TH Finance commission horizontal tax devolution formula :

15th FC distribution formula components(among the states) Weight(in percentage)

Income Distance: State GSDP divided by its Population = per capita

45%
GSDP

Area 15%

Population(census 2011) 15%

Demographic Performance:(States that have lower Total Fertility

12.5%
Rate will get more rupees).

Forest and Ecology 10%

Tax Effort: States who have improved their per capita (State) tax
2.5%
collection in the last 3 years will get more money.

Total = 100%
 13. FOREIGN TRADE
• Trade between two or more nations is called Trade Deficit
foreign trade or international trade.
• Balance of Payment (BoP) : It can be defined as • A trade deficit is an amount by which the cost of
a systematic statement of all economic a country's imports exceeds its exports. The
transactions of a country with the rest of the trade deficit in goods shows a rise of demand in
world during a specific period usually one year. the economy. It is a part of the Current Account
Components of BoP Deficit.

• For preparing BoP accounts, economic Current Account Deficit

transactions between a country and rest of the
world are grouped under - Current account, • The current account records exports and
Capital account and Financial Account and imports in goods and services and transfer
Errors and Omissions. It also shows changes in payments. It represents a country’s transactions
Foreign Exchange Reserves. with the rest of the world and, like the capital
• Current Account: It shows export and import of account, is a component of a country’s Balance
visibles (also called merchandise or goods - of Payments (BOP).
represent trade balance) and invisibles (also • There is a deficit in Current Account if the value
called nonmerchandise). Invisibles include of the goods and services imported exceeds the
services, transfers and income. value of those exported.
• Capital Account and Financial Account: It shows • Major components are: Goods, Services, and
a capital expenditure and income for a country. Net earnings on overseas investments (such as
• Errors and Omissions: Sometimes the balance of interests and dividend) and net transfer of
payment does not balance. This imbalance is payments over a period of time, such as
shown in the BoP as errors and omissions. It remittances.
reflects the country’s inability to record all • It is measured as a percentage of Gross
international transactions accurately. Domestic Product (GDP). The formulae for
• Overall the BoP account can be a surplus or a calculating Current Account Balance is: Current
deficit. If there is a deficit then it can be bridged Account Balance = Trade gap + Net current
by taking money from the Foreign Exchange transfers + Net income abroad.
(Forex) Account. If the reserves in the forex • Trade gap = Exports – Imports
account are falling short then this scenario is
referred to as BoP crisis.

Current Account Capital & Financial Account

Goods and services 1. Direct Investment (FDI)

2. Portfolio Investment (FPI)

Primary Income: wages, dividend, interest 3. Loans / ECB

4.Non-resident’s investment in Bank, Insurance,
Pension schemes.
5. RBI’s foreign exchange reserve

Secondary income: remittance, gift, donation

India’s top imports and exports :

Goods: Top Imports Goods: Top Exports

 1. Petroleum: Crude (22%) 1. Petroleum Products (14%)
2. Gold (6%) 2. Pearl, Precious & Semi-Precious Stones
3. Pearl, Precious, Semi-Precious Stones 3. Drug Formulations, Biologicals
4. Petroleum Products 4. Gold and other Precious Metal Jewellery
5. Coal, Coke and Briquettes etc. 5. Iron And Steel

Services: Top Imports Services: Top Exports

1. Business service 1. Software service

2. Travel (Indian going on foreign trip) 2. Business service
3. Transport (of cargo/goods) 3. Travel
4. Software service 4. Transport

Top Imports partners Top Exports partners

1.China 1. USA
2. USA 2. United Arab Emirates
3. United Arab Emirates 3. China
4. Saudi Arab 4. Hong Kong
5. Iraq 5. Singapore

➢ India’s top five trading partners are USA, ➢ World Bank’s Remittance Report : India
China, UAE, Saudi Arabia and Hong Kong. receives largest amount of remittance
➢ We have large Trade Deficit with China followed by China and Mexico. World Bank
(cheap electronics, toys etc.), Switzerland also noted that remittances have a direct
(Gold, Luxury items), Middle Eastern nations impact in poverty removal for many
(Oil). households.
➢ We have Trade Surplus with USA
(Chemicals, textile, services etc.), UAE (Tea,
Spices, textile etc.)
Geographical Indication (GI Tag)
A Geographical Indication is a sign used on products manufactured outside of the designated
with specific geographical origin and unique region, else party can be punished under the
qualities due to that origin. E.g. Darjeeling tea from law.
West Bengal- It was the first to obtain GI tag from • International Nodal Agency : World
India. Intellectual Property Organization (WIPO),
• Governing bodies : According to India’s HQ at Geneva,Switzerland.
Geographical Indication of Goods Act, 1999. • Indian Nodal Agency : Geographical
Once a product gets GI tag, it’s valid for 10 Indications Registry in Chennai (Controller
years (and can be renewed further). GI General of Patents, Designs and
name cannot be used for products that are Trademarks) under Commerce ministry.
GI Product Origin
Araku avlley, Arabica coffee Andhra and Odisha
Idu mishmi textile Arunachal pradesh
Jeera phool Chattisgarh
Shahi litchi Bihar
Chunar Balua patthar, Gorakhpur terracotta Uttar pradesh
Dindigul locks Tamil nadu
 Kashmir saffron Jammu kashmir
Kolhapuri chappal Maharashtra and Karnataka
Alphonso mango, Sangli Turmeric Maharashtra
Khola chilli Goa
Silao khaja Bihar
Himachali chulli oil Himachal
Himachali kala jeera Himachal
Rajkot patola, pethapur printing blocks Gujarat
Bokachaul, kajinemu Assam
Coffee from Coorg, chikamanglur, Baba budan hills ; Sirsi supari;
gulbarga tur dal Karnataka
Sohrai - khobar painting Jharkhand
Kadaknath-black chicken meat MP(Jhabua)
Chak-hau Manipur
Kandhmal turmeric, odisha rasagulla Odisha
Telia rumal Telangana
Pawndum, ngotekherh, hmaram,tawlhlohpuan, mizo puanchei Mizoram
Erode turmeric, Kodaikanal malai poondu Tamil nadu
Thribhuvanam silk saree, Kadangi saree, Thanjavur pith works,
Arumbavur wood carving Tamil nadu
Palani panchamratam, Srivilliputur palkova, Kovilpatti kadalai mittai Tamil nadu
Wayanad coffee, Marayoor jaggery-Sharkara, Tirur betel leaf Kerala

Special Economic Zone treatment, weighingpackaging-labelling etc

infrastructure within the SEZ.
➢ Special Economic Zones are specifically • They are regulated under SEZ policy (2000)
demarcated area of India which is deemed as and Special Economic Zone Act, 2005.
foreign territory for the purpose of Tax laws and • 1965: Asia's first SEZ was set up in Kandla,
Trade law. Gujarat (At that time it was called Export
• They get single window clearance for Processing Zone/EPZ). Currently we have
various import and export licenses and 220+ SEZ in India.
permissions .Government will bear the cost
of developing the roads, sewage, affluent
Foreign Exchange Regulation Act) was enacted in 1973, to consolidate and regulate dealings in foreign
exchange, so as to, conserve the foreign exchange and utilise it to promote economic development.
FEMA (Foreign -Exchange Management Act) was enacted in 1999 to replace existing FERA. This act seeks to
make offences related to foreign-exchange civil offences.

Foreign Direct Invest (FDI) • FDI occurs when a company invests in a

business that is located in another country
• FDI is a type of investment that involves the
and it is investing not less than 10% of shares
injection of foreign funds into an enterprises
belonging to the foreign company.
that operates in a different country of origin
• FPI (Foreign portfolio investor): Foreign
from the investor.
portfolio investment occurs, when foreign
 investment in the form of shares, equities and • Petroleum & Natural Gas, Chemicals, Coal &
bond is made by a foreign company in Indian Lignite, Thermal & Renewable Energy.
company up to 10%. • Civil Aviation (Selected services), Airports
• Foreign Investment is prohibited in atomic (Greenfield & Brownfield)
energy, railway operations (except Metro & • Ports and Shipping, Railway Infrastructure,
infra dev.), Tobacco Products, Real Estate Roads & Highways.
Business, Farm Houses, Chit Funds, Nidhi • 2019-Jul: Insurance intermediaries (e.g.
Companies, Betting Gambling Casino & agents, brokers, surveyors, 3rd party admin
Lottery. etc) .

• For the remaining sectors, Foreign Investment • 2019-Sept: Coal mining, coal sale & associated
is permitted either through activities; Contract manufacturing.

Automatic Route: It means Foreign entity RBI’s Forex reserve:

doesn’t require Indian Govt’s approval. • The Forex Reserve component(s) in
Government Route:It means prior to decreasing order of size;
investment, they’ve to get approval from the 1) Foreign Currency Assets (includes
Govt of India’s respective Administrative foreign currencies & G-Sec/bonds of
Ministry/ Department ( Commerce Ministry). foreign Govts .
Foreign investment(100% permitted through 2) Gold

automatic root): 3) Reserve Tranche Position (RTP) in the

IMF.
• Agriculture, Animal Husbandry, Plantation 4) Special Drawing Right (SDR) of
Sector, Food Processing companies. International Monetary fund
• Asset Reconstruction Companies (ARC), Credit • 2020: India became 5th largest foreign forex
Information Companies, Core Investment reserve after China, Japan, Switzerland and
Company, White Label ATM Operation and Russia.
Other Financial Services.
• 2021:It has crossed 600 billion dollars.
• Pharma & Biotechnology(Greenfield),
Currency Exchange Rate : - The price of one
Healthcare (Greenfield), Medical Devices.
currency in terms of the other currency is called
• Broadcast of non-NEWS TV Channels, Printing exchange rate. E.g. $1 = ₹ 80. Meaning, it costs ₹ 80
of scientific and technical magazines; to buy one dollar. This is also called Nominal
Wholesale Trading, Single Brand Retail, E- Exchange Rate because it does not take into
Commerce (market-place). consideration inflation or purchasing power in the
• IT and Business process management (BPM); respective countries.
Township Construction, Housing, Exchange Rate Regime :
Infrastructure; Gems & Jewellery, Duty Free
• Floating or Flexible Exchange Rate : the
Shops, Tourism & Hospitality . exchange rate is determined by the market
• Leather, Textiles & Garments, Manufacturing, forces of demand and supply.
Capital Goods, Industrial Parks . • Fixed or Pegged Exchange Rate : When the
• Mining and Exploration of metal and non- central bank of a country itself decides the
metal. exchange rate of local currency to foreign
currency e.g. People’s Bank of China (PBC) $1 =
7 Yuan.
• Managed float / Dirty float : RBI will not decide Japanese Yen, British Pound sterling. SDR is
the exchange rate (unlike the fixed system). In called ‘Paper Gold’ because it’s merely an
the ordinary days, RBI will let the market forces accounting entry or artificial currency, without
of supply and demand decide the exchange rate. any gold involved.
But if there is too much volatility, then RBI will Currency Convertibility : It is the ease with which a
intervene to buy and sell dollars to keep the country’s currency can be converted to gold or
volatility controlled. another currency through global exchanges. India’s
IMF Special Drawing Rights (SDR) : Rupee is a partially convertible currency it means
rupees can be exchanged at market rates in certain
• After the collapse of Bretton Woods Exchange
cases, but approval is required for large amounts.
Rate System, IMF was converted into a type of
‘deposit bank’, where the members would NEER : RBI calculates geometric average of rupee’s
deposit currencies in the proportion of quotas exchange rate against upto 36 types of foreign
allotted to them. IMF will pay them a small currencies. The formula will give weightage to each
interest rate for their deposits. And IMF would of those 36 foreign currencies depending on their
lend this money to a member facing balance of trade volume with India.The result is called
payment crisis. To operationalize this “Nominal effective exchange rate (NEER)”.
mechanism, IMF would allot an artificial REER: When NEER is mathematically adjusted as per
currency / accounting unit called SDR to the the CPI-inflation levels in India and those foreign
members based on their deposits. countries, it’s called “Real effective exchange rate
• The value of the SDR is based on a basket of five (REER)”
currencies – US Dollar, Euro, Chinese Renminbi,
 14. INTERNATIONAL ECONOMIC
ORGANISATION
1. WTO • Green Box Subsidies : Those subsidies which
don't distort the free trade. These supports
• It was constituted on 1st January, 1995, under
shall be provided through publicly funded
the Marrakesh Agreement and took the place
government programme and these supports
of GATT. (General Agreement on Trade and
shall not provide price support to the
Tariff) as an effective formal organisation.
producer.
GATT was an informal organisation, which
• Special and Differential Treatment Box (S & D
regulated world trade since 1948.
Box) Subsidies : Essential for rural
• Aim : To liberalise international trade.
development and upliftment of poor fariners
• Headquarters : Geneva, Switzerland.
are called S & D box subsidies. While green
• Membership : 160 member states (Yemen box subsidies are available to all countries,
became 160th WTO member). Special and Differential treatment box
• Conflict : On free trade vs protectionism and subsidies are not available to developed
subsidies (as pushed by developing and countries.
welfare nations). • Blue Box Subsidies : Blue box subsidies are
• The highest decision-making body of the WTO direct payments under production limiting
is the Ministerial Conference, which usually programmes.
meets every two years. • Export Subsidies : The subsidies that subsidise
• Few important agreements : Agreement on export are called export subsidies. These are
Agriculture (MA), Trade Related Aspects of direct subsidies given by government or
Intellectual Property Rights (TRIPS), Trade government agencies either in cash or in kind
Related Aspects of Investment Measures to producers of agriculture products against
(TRIMS), General Agreement on Trade in export performance and export of non-
Services (GATE). commercial agricultural product at lower price
• Special safeguard mechanism means the and transport subsidies etc.
option available to countries to impose • Trade Related Intellectual Property Rights
additional duties on imported products when (TRIPS) : Intellectual properties are
there is surge in imports or products are knowledge oriented creations, inventions and
imported at lower price. innovations. TRIPS cover Copyright and
• Tariffication means converting non-tariff related rights, trademarks including service
barriers into tariffs that ensures same level of marks, geographical indicators, industrial
protection. designs, patents, lay out designs
• Domestic Subsidies : This provision calls for (topographies) of integrated circuits, trade
reduction of domestic subsidies that result in secrets.
lower price of exported products and distort • Copyright : Related with literary and artistic
free trade. These subsidies are called Amber works like books, lectures, sermons, music
Box subsidies. Apart from de-minimus etc. The copyright means the right conferred
subsidies, following three categories of on creator, author and producer etc.
subsidies are also not included in the • Trade Mark : The symbols that give unique
calculation of AMS. They are : Green box indentity to products of particular producer.
subsidies, Special and Differential treatment (The Trade Marks Act, 1999).
box (S & D Box) subsidies and Blue box • Geographical Indicator : The unique identity
subsidies. attached to a particular product for the reason
that particular product is produced in a
 particular geographical location. For example, • Its members are represented through a quota
Banaras silk sarees, Coimbatore wet grinder system broadly based on their relative size in
etc. are given geographical indication tags the global economy. A country must pay its
under and the Geographical Indications of subscription in full upon joining the IMF : up
Goods Act, 1999 . to 25 per cent must be paid in the IMF's own
• Industrial Designs : The Designs Act, 2000 currency, called Special Drawing Right (SDRs)
observes "design" means only the features of or widely accepted currencies (such as the
shape, configuration, pattern, ornament or dollar, the euro, the yen, or pound sterling),
composition of lines or colours applied to any while the rest is paid in the member's own
article. currency.
• Patents : Recongnition of invention and • The member with the largest quotas is USA
conferment of certain exclusive rights to followed by Japan and China. Tuvalu is the
inventor. member with smallest quota. India with a
• Trade Secret : Trade secret means the quota share of 2.75% is now placed at the
information regarding process, formula etc. eighth largest quota holding country at the
• Trade Related Aspects of Investment IMF.
Measures (TRIMS) : TRIMS are essentially to • For India, Finance Minister is the Ex-officio
promote investment and equality among Governor of the Board of Governors of the
countries in the sphere of foreign IMF. Governor of the RBI, is India's alternate
investments. Governor.
• General Agreement on Trade in Services SDR allocations : SDRs are used as an international
(GATS) : GATS call for liberalisation of trade in reserve asset. A member's share of general SDR
service sector. This agreement covers only allocations is established in proportion to its
commercial service excluding air transport quota.
service and excludes government services Voting power : The quota largely determines a
which are not in the commercial nature. member's voting power in IMF decisions. Each
• Peace Clause : The Agreement on Agriculture IMF member's votes are comprised of basic votes
(AoA) has a clause under Article 13 of AoA. The plus one additional vote for each SDR 100,000 of
clause restrains other countries from taking quota.
counter measure against some of the
subsidies given like Green Box Subsidies. 3. WORLD BANK
• Swiss Formula : Gives the rate of tariff
reduction. It calls for higher rate of reduction • World Bank is one of the first institutions
for countries which has higher initial tariff and created at the Bretton Woods Conference in
lower rate for countries which Has lower 1944. Along with the IMF, it constitutes
initial tariff. 'twin-sister' of Bretton Woods. World Bank
has 188 members and is headquartered in
2. IMF (INTERNATIONAL MONETARY Washington DC.
FUND) • The World Bank Group (WBG) is a family of
five international organisations that make
• IMF was conceived on 22nd July, 1944 and
leveraged loans to poor countries. These are
came into existence on 27th December, 1945,
:
when 29 countries signed the agreement. It
• The International Bank for Reconstruction
originally had 45 members and India is one of
and Development (IBRD).
the founding member.
• The International Development Association
• The IMF has 188 member countries. It is a
(IDA).
specialised agency of the United Nations but
has its own charter, governing structure, and • The International Finance Corporation (IFC).
finances.
• The Multilateral Investment Guarantee • International Development Association
Agency (MIGA). (IDA), known as the soft loan window of the
• The International Centre for Settlement of World Bank was established on 24th
Investment Disputeg (ICSID). September, 1960.
• The World Bank Group has set two goals for • International Centre for Settlement of
the world to achieve by 2030 : Investment Disputes (ICSID) was established
• End extreme poverty by decreasing the in 1966, to provide facilities for the
percentage of people living on less than conciliation and arbitration of investment
$1.25 a day to no more than 3%. disputes between member countries. It has
• Promote shared prosperity by fostering the 157 members.
income growth of the bottom 40% for every • Multilateral Investment Guarantee Agency
country. (MIGA) was founded in 1988 to promote
• International Finance Corporation (IFC) was foreign direct investment into developing
established in 1955, to provide loans to countries. It has 175 members.
private industries of developing nations.
World Organisation Head Quarters
Amnesty International London (England)
Asian Development Bank (ADB) Manila (Philippines)
ASEAN (Association of South-East-Asian Nations) Jakarta (Indonesia )
African Union (AU) Canberra (Australlia)
ANZUS council Canberra (Australlia)
BENELUX Economic Union Brussels
COMECON Minsk (Belarus)
CENTO (Central Treaty Organisation) Ankara (Turkey)
Commonwealth London
Council of European Strasbourg
European Energy Commission (EFC) Geneva
Economic Commission of Africa (ECA) Addis-Ababa
Economic Commission of West Asia (ECWA) Baghdad
European Common Market (ECM) Geneva
European Economy Community (EFC) Brussels
European Space Research Organisation (ESRO) Paris
Economic and Social Commission for Asia and the Pacific (ESCAP) Bangkok (Thailand)
Economic Commission for Europe (ECE) Geneva
Economic Commission for Latin America and the Carribbean (ECLAC) Santiago (Chile)
Economic and Social Commission for Western Asia (ESCWA) Amman (Jordan)
European Free Trade Association (EFTA) Geneva
Food and Agriculture Organisation (FAO) Rome (Italy)
GATT (General Agreement on Tariffs & Trade) Geneva
International Committee of the Red Cross (ICRC) Geneva (Switzerland)
INTERPOLE (International Police) Lyons (France)
International Olympic Committee (IOC) Lusane
International Atomic Energy Agency (IAEA) Vienna (Austria)
International Civil Aviation Organisation (ICAO) Montreal (Canada)
International Fund for Agricultural Development (IFAD) Rome
International Labour Organisation (ILO) Geneva
International Monetary Fund (IMF) Washington
International Telecommunication Union (ITU) Geneva
International Bank for Reconstruction and Development (IBRD) (World Bank) Washington
League of Arab States Cario (Egypt)
NATO (North Atlantic Treaty Organisation) Brussels (Belgium)
OPEC (Organisation of Petroleum Exporting Countries) Vienna
OECD (Organisation for Economic Co-operation and Development) Paris
Organisation of Arab Petroleum Exporting Countries Kuwait
 15. MISCELLANEOUS
Important Committees
S.N. Committees Appointed for
1. Hanumant Rao Committee Fertilisers
2. Mahajan Committee Sugar industry
3. R.V. Gupta Committee Agriculture reforms
4. Narshimhan committee Banking reforms
5. Khan Working group Development finance institutions
6. Chandratre Committee Delusting in share market
7. U.K. Sharma Committee NABARD's role in RRB
8. C.B. Bhave committee Company information
9. Bimal Julka Committee Working conditions of ATCOS
10. Dhanulka Committee Simplification of transfer rules in security market
11. S.L. Kapur Committee Credit and flow Problems of SSI
12. Dave Committee Pension Scheme for unorgnised sector
13. Mashelkal Committee Auto fuel policy
14. S.N. Verma Committee Restructuring the commercial banks
15. Y.B. Reddy committee Review of income tax reports
16. Bhunal Committee Increase in motor vehicles tax
17. Sapla Reshi Committee Development of domestic tier industry
18. Abhijeet Sen Committee Long-term food policy
19. Kelkar committee Tax structure reforms
20. J.J. Irani Committee Company Law reforms
21. Pareekh Committee Infrastructure financing.
22. Tarapore committee Capital account convertibility
23. Vasudev Committee NBFC Sector reform
24. Vaghul Committee Money market in india
25. Udesh kohli Committee Analysing fund requirement in power sector
26. Sukhmoy Chakravartyb Committee To access the functioning of Indian monetory system

27. Abhijit Sen Committee Long Term Food Policy

28. Abid Hussain Committee On Small Scale Industries
29. Athreya Committee Restructuring Of IDBI
30. C. Rangrajan Committee: To review the Methodology for Measurement of
Poverty

31. Chandra Shekhar Committee Venture Capital

32. Chore Committee Review the Operation of the Cash Credit System

33. G. V. Ramakrishna Committee On Disinvestment

34. MB Shah Committee To investigate black money, mostly hoarded abroad

35. Mahajan Committee (1997) Sugar Industry

36. K. Santhanam Committee Establishment of CBI

37. Suresh Tendulkar Committee Redefining Poverty Line and Its Calculation Formula

38. Shah Committee Reforms Relating To Non Banking Financial Companies

(NFBCs)

39. Rekhi Committee Indirect Taxes

40. Raja Chelliah Committee Tax Reforms
Abbreviation ➢ IDBI : Industrial Development Bank of India
➢ IFC : International Finance Corporation
➢ ADB : Asian Development Bank
➢ IIP : Index of Industrial Production
➢ APC : Agriculture Prices Commission
➢ ILO : International Labour Organisation
➢ APL : Above Poverty Line
➢ IMR : Infant Mortality Rate IPR : Industrial
➢ ASSOCHAM : Associated Chamber of
Policy Resolution
Commerce and Industry
➢ IRBI : Industrial Reconstruction Bank of India
➢ BIFR : Board for Industrial and Financial
➢ LDC : Least Developed Countries
Reconstruction
➢ LERMS : Liberalised Exchange Rate
➢ BOP : Balance of Payments
Management System
➢ BPL : Below Poverty Line
➢ MAT : Minimum Alternate Tax
➢ CPI : Consumer Price Index
➢ MRP : Maximum Retail Price
➢ CPSUs : Central Public Undertakings
➢ MMTC : Mineral and Metals Trading
➢ CRR : Cash Reserve Ratio
Corporation
➢ CSO : Central Statistical Organisation
➢ MNC : Multi National Corporation
➢ DFHI : Discount and Finance House of India
➢ MOD VAT : Modified Value Added Tax
➢ DRI : Differential Rate of Interest
➢ MOU : Memorandum of Understanding
➢ ECBs : External Commercial Borrowings
➢ MRTP : Monopolies and Restrictive Trade
➢ EPZ : Export Processing Zone
Practices
➢ FC : Finance Commission
➢ NABARD : National Bank of Agriculture and
➢ FCI : Food Corporation of India
Rural Development
➢ FCNR(A) : Foreign Currency Non-Resident
➢ NAIED : National Agricultural Co-operative
(Accounts)
Marketing Federation of India Ltd.
➢ FDI : Foreign Direct Investment
➢ NBFC : Non-Banking Financial Companies
➢ FEMA : Foreign Exchange Management Act
➢ NDC : National Development Council
➢ FICCI : Federation of Indian Chamber of
➢ NDP : Net Domestic Product
Commerce and Industry
➢ NGO : Non-Government Organisation
➢ FIIs : Foreign Institutional Investors
➢ NHAI : National Highway Authority of India
➢ FTZs : Free Trade Zones
➢ NHB : National Housing Bank
➢ GATS : General Agreement on Trade and
➢ NI : National Income
Services
➢ NNI : Net National Income
➢ GATT : General Agreement on Tariff and Trade
➢ NPAs : Non-Performing Assets
➢ GDP : Gross Domestic Product
➢ NRI : Non-Resident Indians
➢ GNP : Gross National Product
➢ NSDL : National Securities Depository Limited
➢ GIC : General Insurance Corporation
➢ NSSO : National Sample Survey Organisation
➢ HDI : Human Development Index
➢ OECD : Organisation for Economic Co
➢ HUDCO : Housing and Urban Development
operation and Development
Corporation
➢ OMO : Open Market Operations
➢ HYVP High Yielding Varieties Programme
➢ ONGC : Oil and Natural Gas Company
➢ IBRD : International Bank for Reconstruction
➢ OPEC : Organisation of Petroleum Exporting
and Development (World Bank)
Countries
➢ ICICI : Industrial Credit and Investment
Corporation of India
➢ PDS : Public Distribution System PLR : Prime ➢ SIDF : Small Industries Development Fund
Lending Rate ➢ SLR : Statutory Liquidity Ratio
➢ PIO : Persons of Indian Origin ➢ SWS : Single Window Scheme
➢ PRIs : Panchayati Raj Institutions ➢ TDS : Tax Deduction at Source
➢ PSB : Public Sector Banks ➢ TPDS : Targeted Public Distribution System
➢ PSU : Public Sector Undertaking ➢ TRAI : Telecom Regulatory Authority of India
➢ QRs : Quantitative Restrictions ➢ TRIFED : Tribal Co-operative Marketing
➢ RBI : Reserve Bank of India Development Federation of India Limited
➢ RIDF : Rural Infrastructure Development Fund ➢ TRIM : Trade Related Investment Measures
➢ RRBs : Regional Rural Banks ➢ TRIPS : Trade Related Intellectual Property
➢ SAARC : South Asian Association for Regional Rights
Cooperation ➢ UNDP : United Nations Development
➢ SAIL : Steel Authority of India Ltd. Programme
➢ SAPTA : South Asian Preferential Trade ➢ UNO : United Nations Organisation
Agreement ➢ UTI : Unit Trust of India
➢ SDRs : Special Drawing Rights ➢ VAT : Value Added Tax
➢ SEBI : Securities and Exchange Board of India ➢ VRS : Voluntary Retirement Scheme
➢ SFC : State Finance Corporation ➢ WEF : World Economic Forum
➢ SIDBI : Small Industries Development Bank of ➢ WMA : Ways and Means Advances
India ➢ WPI : Wholesale Price Index
 16. GLOSSARY
➢ Adam Smith (1723-1790): Regarded as the money from the latter in case of a shortage
father of Economics. Author of Wealth of of reserves.
Nations. ➢ Barter Exchange: Exchange of commodities
➢ Aggregate Monetary Resources: Broad without the mediation of money.
money without time deposits of post office ➢ 1Base Year: The year whose prices are used
savings organisation (M3). to calculate the real GDP.
➢ Automatic Stabilisers: Under certain ➢ Bonds: A paper bearing the promise of a
spending and tax rules, expenditures that stream of future monetary returns over a
automatically increase or taxes that specified period of time. Issued by firms or
automatically decrease when economic governments for borrowing money from the
conditions worsen, therefore, stabilising the public.
economy automatically. ➢ Broad Money: Narrow money + time
➢ Autonomous Change: A change in the deposits held by commercial banks and post
values of variables in a macro economic office savings organisation.
model caused by a factor exogenous to the ➢ Break-even Point: The point on the supply
model. curve at which a firm earns normal profit.
➢ Autonomous Expenditure Multiplier: The ➢ Budget line consists of all bundles which
ratio of increase (or decrease) in aggregate cost exactly equal to the consumer's
output or income to an increase (or income.
decrease) in autonomous spending. ➢ Budget set is the collection of all bundles
➢ Average Cost: Total cost per unit of output. that the consumer can buy with her income
➢ Average Fixed Cost: Total fixed cost per unit at the prevailing market prices.
of output. ➢ Capital: Factor of production which has
➢ Average Product: Output per unit of the itself been produced and which is not
variable input. generally entirely consumed in the
➢ Average Revenue: Total revenue per unit of production process.
outpt. ➢ Capital gain/loss: Increase or decrease in
➢ Average Variable Cost: Total variable cost the value of wealth of a bondholder due to
per unit of output. an appreciation or reduction in the price of
➢ Balance of Payments: A set of accounts that his/her bonds in the bond market.
summarise a country's transactions with the ➢ Capital Goods: Goods which are bought not
rest of the world. for meeting immediate need of the
➢ Balanced Budget: A budget in which taxes consumer but for producing other goods.
are equal to government spending. ➢ Capitalist Country or Economy: A country in
➢ Balanced Budget Multiplier: The change in which most of the production is carried out
equilibrium output that results from a unit by capitalist firms.
increase or decrease in both taxes and ➢ Capitalist Firms : These are firms with the
government spending. following features (a) private ownership of
➢ Bank Rate: The rate of interest payable by means of production (b) production for the
commercial banks to RBI if they borrow market (c) sale and purchase of labour at a
 price which is called the wage rate (d) ➢ Depreciation : A decrease in the price of the
continuous accumulation of capital. domestic currency in terms of the foreign
➢ Cash Reserve Ratio (CRR) : The fraction of currency under floating exchange rates
their deposits which the commercial banks regime; Wear and tear or depletion which
are required to keep with RBI. capital stock undergoes over a period of
➢ Circular Flow of Income : The concept that time.
the aggregate value of goods and services ➢ Devaluation : The decrease in the price of
produced in an economy is going around in domestic currency under pegged exchange
a circular way. Either as factor payments, or rates through official action.
as expenditures on goods and services, or as ➢ Double Coincidence of Wants : A situation
the value of aggregate production. where two economic agents have
➢ Consumer Durables : Consumption goods complementary demand for each others'
which do not get exhausted immediately surplus production.
but last over a period of time are consumer ➢ Demand Curve : A graphical representation
durables. of the demand function. It gives the quantity
➢ Consumer Price Index (CPI) : Percentage demanded by the consumer at each price.
change in the weighted average price level. ➢ Demand Function : A consumer's demand
We take the prices of a given basket of function for a goods gives the amount of the
consumption goods. Consumption Goods : goods that the consumer chooses at
Goods which are consumed by the ultimate different levels of its price when the other
consumers or meet the immediate need of things remain unchanged.
the consumer are called consumption ➢ Duopoly : A market with just two firms.
goods. It may include services as well. ➢ Economic Agents or Units : Economic units
➢ Corporate Tax : Taxes imposed on the or economic agents are those individuals or
income made by the corporations (or institutions which take economic decisions.
private sector firms). ➢ Effective Demand Principle : If the supply of
➢ Currency Deposit Ratio : The ratio of money final goods is assumed to be infinitely elastic
held by the public in currency to that held as at constant price over a short period of time,
deposits in commercial banks. aggregate output is determined solely by
➢ Constant Returns to Scale : A property of the value of aggregate demand. This is
production function that holds when a called effective demand principle.
proportional increase in all inputs results in ➢ Entrepreneurship : The task of organising,
an increase in output by the same coordinating and risk-taking during
proportion. production.
➢ Cost function : For every level of output, it ➢ Ex Ante Consumption : The value of planned
shows the minimum cost for the fine. consumption.
➢ Deficit Financing Through Central Bank ➢ Ex Ante Investment : The value of planned
Borrowing : Financing of budget deficit by investment. Ex Ante : The planned value of
the government through borrowing money a variable as opposed to its actual value.
from the central bank. Leads to increase in ➢ Ex Post : The actual or realised value of a
money supply in an economy and may result variable as opposed to its planned value.
in inflation.
➢ Expenditure method of calculating national ➢ Fixed Exchange Rate : An exchange rate
income : Method of calculating the national between the currencies of two or more
income by measuring the aggregate value of countries that is fixed at some level and
final expenditure for the goods and services adjusted only infrequently.
produced in an economy over a period of ➢ Flexible/Floating Exchange Rate : An
time. exchange rate determined by the forces of
➢ Exports : Sale of goods and services by the demand and supply in the foreign exchange
domestic country to the rest of the world. market without central bank intervention.
➢ External Sector : It refers to the economic ➢ Flows : Variables which are defined over a
transaction of the domestic country with period of time.
the rest of the world. ➢ Foreign Exchange : Foreign currency, all
➢ Externalities : Those benefits or harms currencies other than the domestic currency
accruing to another person, firm or any of a given country.
other entity which occur because some ➢ Foreign Exchange Reserves : Foreign assets
person, firm or any other entity may be held by the central bank of the country.
.involved in an economic activity. If ➢ Four factors of production Land, Labour,
someone is causing benefits or good Capital and Entrepreneurship. Together
externality to another, the latter does not these help in the production of goods and
pay the former. If someone is inflicting harm services.
or bad externality to another, the former ➢ Firm's Supply Curve : Shows the levels of
does not compensate the latter. output that a profit maximising firm will
➢ Equilibrium : A situation *here the plans of choose to produce at different values of the
all consumers and firms in the market market price.
match. ➢ Fixed Input : An input which cannot be
➢ Excess Demand : If at a market price, varied in the short run is called a fixed input.
demand exceeds market supply, it is said ➢ GDP Deflator : Ratio of nominal to real GDP.
that excess demand exists in the market at ➢ Government Expenditure Multiplier : The
that price. numerical co-efficient showing the size of
➢ Excess Supply : If at a market price, supply is the increase in output resulting from each
greater than market demand, it is said that unit increase in government spending.
there is excess supply in the market at that ➢ Government : The state, which maintains
price. law and order in the country, imposes taxes
➢ Final Goods : Those goods Which do not and fines, makes laws and promotes the
undergo any further transformation in the economic well-being of the citizens.
production process. ➢ Great Depression : The time period of 1930s
➢ Firms : Economic units which carry out (started with the stock market crash in New
production of goods and services and York in 1929) which saw the output in the
employ factors of production. developed countries fall and unemployment
➢ Fiscal Policy : The policy of the government rise by huge amounts.
regarding the level of government spending ➢ Gross Domestic Product (GDP) : Aggregate
and transfers and the tax structure. value of goods and services produced within
the domestic territory of a country. It
 includes the replacement investment of the in the price of the goods is called the income
depreciation of capital stock. effect.
➢ Gross Fiscal Deficit : The excess of total ➢ Increasing Returns to Scale : A property of
government expenditure over revenue production function that holds when a
receipts and capital receipts that do not proportional increase in all inputs results in
create debt. an increase in output by more than the
➢ Gross Investment : Addition to capital stock proportion. Indifference Curve : The locus of
which also includes replacement for the all points among which the consumer is
wear and tear which the capital stock indifferent.
undergoes. ➢ Inferior Goods : A goods for which the
➢ Gross National Product (GNP) : GDP + Net demand decreases with increase in the
FaCtor Inclome from Abroad. In other income of the consumer is called an inferior
words, GNP includes the aggregate income goods.
made by all citizens of the country, whereas ➢ Isoquant : The set of all possible
GDP includes incomes by foreigners within combinations of the two inputs that yield
the domestic economy and excludes the same maximum possible level of output.
incomes earned by the citizens in a foreign ➢ Inventories : The unsold goods, unused raw
economy. materials or semi-finished goods which a
➢ Gross Primary Deficit : The fiscal deficit firm carries from a year to the next.
minus interest payments. ➢ John Maynard Keynes (1883 — 1946) :
➢ High Powered Money : Money injected by Arguably the founder of Macro-economics
the monetary authority in the economy. as a separate discipline.
Consists mainly of currency. ➢ Labour : Human physical effort used in
➢ Households : The families or individuals production.
who supply factors of production to the ➢ Land : Natural resources used in production
firms and which buy the goods and services — either fixed or consumed.
from the firms. ➢ Legal Tender : Money issued by the
➢ Imports : Purchase of goods and services by monetary authority or the government
the domestic country to the rest of the which cannot be refused by anyone.
world. ➢ Lender of Last Resort : The function of the
➢ Income Method of Calculating National monetary authority of a country in which it
Income: Method of calculating national provides guarantee of solvency to
income by measuring the aggregate value of commercial banks in a situation of liquidity
final factor payments made (= income) in an crisis or bank runs.
economy over a period of time. ➢ Liquidity Trap : A situation of very low rate
➢ Intermediate Goods : Goods which are used of interest in the economy where every
during the process of production of other economic agent expects the interest rate to
goods. rise in future and consequently bond prices
➢ Income Effect : The change in the optimal fall, causing capital loss. Everybody holds
quantity of a good when the purchasing wealth in money and speculative demand
power changes consequent upon a change for money is infinite.
➢ Law of Demand : If a consumer's demand ➢ Market Supply Curve: Shows the output
for a goods moves in the same direction as levels that firms in the market produce in
the consumer's income, the consumer's aggregate corresponding to different values
demand for that goods must be inversely of the market price.
related to the price of the goods. ➢ Monopolistic Competition: A market
➢ Law of Diminishing Marginal Product: If we structure where there exists a very large
keep increasing the employment of an input number of sellers selling differentiated but
with other inputs fixed then eventually a substitutable products.
point will be reached after which the ➢ Monopoly: A market structure in which
marginal product of that input will start there is al single seller and there are
falling. sufficient restrictions to prevent any other
➢ Law of Variable Proportions: The marginal seller film entering the market.
product of a factor input initially rises with ➢ Monotonic Preferences: A consumer's
its employment level when the level of preferences are monotonic if and only if
employment of the input is low. But after between any two bundles, the consumer
reaching a certain level of employment, it prefers the bundle which has more of at
starts falling. least one of the goods and no less of the
➢ Long Run refers to a time period in which all other goods as compared to the other
factors of production can be varied. bundle.
➢ Macro-economic Model: Presenting the ➢ Narrow Money: Currency notes, coins and
simplified version of the functioning of a demand deposits held by the public in
macro-economy through either analytical commercial banks.
reasoning or mathematical, graphical ➢ National Disposable Income: Net National
representation. Product at market prices + Other Current
➢ Managed Floating: A system in which the Transfers from the rest of the World.
central bank allows the exchange rate to be ➢ Net Domestic Product (NDP) : Aggregate
determined by market forces but intervene value of goods and services produced within
at times to influence the Marginal the domestic territory of a country which
Propensity to Consume : The ratio of does not include the depreciation of capital
additional consumption to additional stock.
income. ➢ Net Interest Payments Made by
➢ Medium of Exchange: The principal Households: Interest payment made by the
function f money for facilitating commodity households to the firms — interest
exchanges. payments received by the households.
➢ Money Multiplier: The ratio of total money ➢ Net Investment: Addition to capital stock;
supply to the stock of high powered money unlike gross investment, it does not include
in an economy. the replacement for the depletion of capital
➢ Marginal Product: Change in output per stock.
unit of change in the input when all other ➢ Net National Product (NNP): (at market
inputs are held constant. price) GNP — depreciation.
➢ Marginal Revenue: Change in total revenue
per unit change in sale of output.
➢ NNP (at factor cost) or National Income (NI) payments to the households from the
: NNP at market price — (Indirect taxes — government and firms.
Subsidies). ➢ Personal Tax Payments: Taxes which are
➢ Nominal Exchange Rate: The number of imposed on individuals, such as income tax.
units of domestic currency one must give up ➢ Planned Change in Inventories: Change in
to get an unit of foreign currency; the price the stock of inventories which has occurred
of foreign currency in terms of domestic in a planned way.
currency. ➢ Present Value (of a bond): That amount of
➢ Nominal (GDP) : GDP evaluated at current money which, if kept today in an interest
market prices. earning project, would generate the same
➢ Non-tax Payments: Payments made by income as the sum promised by a bond over
'households to the firms or the government its lifetime.
as non-tax obligations such as fines. ➢ Private Income : Factor income from net
➢ Normal Goods: A good for which the domestic product accruing to the private
demand increases with increase in the sector + National debt interest + Net factor
income of the consumer is called a normal income from abroad + Current transfers
goods. from government + Other net transfers
➢ Normal Profit: The profit level that is just from the rest of the world.
enough to cover the explicit costs and ➢ Product Method of Calculating National
opportunity costs of the firm is called the Income: Method of calculating the national
normal profit. income by measuring the aggregate value of
➢ Open Market Operation: Purchase or sales production taking place in an economy over
of government securities by the central a period of time.
bank from the general public in the bond ➢ Public Goods: Goods or services that are
market in a bid to increase or decrease the collectively consumed; it is not possible to
money supply in the economy. exclude anyone from enjoying their benefits
➢ Oligopoly: A market consisting of more than and one person's consumption does not
one (but few) sellers is called a oligopoly. reduce that available to others.
➢ Opportunity Cost of some activity is the gain ➢ Purchasing Power Parity: A theory of
foregone from the second best activity. international exchange which holds that the
➢ Paradox of Thrift: As people become more price of similar goods in different countries
thrifty they end up saving less or same as is the same.
before in. aggregate. ➢ Perfect Competition: A market
➢ Parametric Shift: Shift of a graph due to a environment wherein (i) all firms in the
change in the value of a parameter. market produce the same goods and (ii)
➢ Personal Disposable Income (PDI) : PI — buyers and sellers are price-takers.
Personal tax payments — Non-tax ➢ Price Ceiling: The government imposed
payments. upper limit on the price of a goods or service
➢ Personal Income (PI): NI — Undistributed is called price ceiling.
profits — Net interest payments made by ➢ Price Elasticity of Demand: A goods is
households — Corporate tax + Transfer defined as the percentage change in
 demand for the goods divided by the ➢ Speculative Demand: Demand for money as
percentage change in its price. a store of wealth.
➢ Price Elasticity of Supply: The percentage ➢ Stocks: Those variables which are defined at
change in quantity supplied due to one per a point of time.
cent change in the market price of the ➢ Statutory Liquidity Ratio (SLR): The fraction
goods. of their total demand and time deposits
➢ Price Floor: The government-imposed lower which the commercial banks are required by
limit on the price that may be I charged for RBI to invest in specified liquid assets.
a particular goods or service is called price ➢ Sterilisation: Intervention by the monetary
floor. authority of a country in the money market
➢ Price Line: A horizontal straight line that to keep the money supply stable against
shows the relationship between market exogenous or sometimes external shocks
price and a firm's output level. such as an increase in foreign exchange
➢ Production Function: Shows the maximum inflow.
quantity of output that can be produced by ➢ Store of Value: Wealth can be stored in the
using different combinations of the inputs. form of money for future use. This function
➢ Profit: The difference between a firm's total of money is referred to as store of value.
revenue and its total cost of production. ➢ Short Run: Refers to a time period in which
➢ Real Exchange Rate: The relative price of some factors of production cannot be
foreign goods in terms of domestic goods. varied.
➢ Real GDP: GDP evaluated at a set of ➢ Shut Down Point: In the short run, it is the
constant prices. minimum point of AVC curve and in the long
➢ Rent: Payment for services which are run, it is the minimum point of LRAC curve.
provided by land (natural resources). ➢ Substitution Effect: The change in the
➢ Reserve Deposit Ratio: The fraction of their optimal quantity of a goods when its price
total deposits which commercial banks keep changes and the consumer's income is
as reserves. adjusted so that one can just buy the bundle
➢ Revaluation: A decrease in the exchange that one was buying before the price change
rate in a pegged exchange rate system is called the substitution effect.
which makes the foreign currency cheaper ➢ Super-normal Profit: Profit that a firm earns
in terms of the domestic currency. over and above the normal profit is called
➢ Revenue Deficit: The excess of revenue the super-normal profit.
expenditure over revenue receipts. ➢ Transaction Demand: Demand for money
➢ Ricardian Equivalence: The theory that for carrying out transactions etc.
consumers are forward looking and ➢ Transfer Payments to Households from the
anticipate that government borrowing Government and Firms : Transfer paymer is
today will mean a tax increase in the future are payments which are made without any
to repay the debt, and will adjust counterpart of services received by the
consumption accordingly so that it will have payer. For examples, gifts, scholarships,
the same effect on the economy as a tax pensions.
increase today. ➢ Total Cost is the sum of total fixed cost and
total variable cost.
➢ Total Fixed Cost: The cost that a firm incurs ➢ Unemployment Rate: This may be defined
to employ fixed inputs is called the total as the number of people who were unable
fixed cost. to find a job (though they were looking for
➢ Total Product: If we vary a single input jobs), as a ratio of total number of people
keeping all other inputs constant, then for who were looking for jobs.
different levels of employment of that input ➢ Unit of Account: The role of money as a
we get different levels of output from the yardstick for measuring and comparing
production function. This relationship values of different commodities.
between the variable input and output is ➢ Unplanned Change in Inventories: Change
referred to as total product. in the stock of inventories which has
➢ Total Return: Same as the total product. occurred in an unexpected way.
➢ Total Revenue: Equal to the market price of ➢ Value Added: Net contribution made by a
the goods multiplied by the quantity of the firm in the process of production. It is
goods sold by a firm. defined as, Value of production — Value of
➢ Total Revenue Curve: Shows the intermediate goods used.
relationship between firm's total revenue ➢ Variable Input: An input the amount of
and firm's output level. which can be varied.
➢ Total Variable Cost: The cost that a firm ➢ Wage: Payment for the services which are
incurs to employ variable inputs is called the rendered by a labour.
total variable cost. ➢ Wholesale Price Index (WPI): Percentage
➢ Undistributed Profits: That part of profits change in the weighted average price level.
earned by the private and government We take the prices of a given basket of
owned firms which are not distributed goods which is traded in bulk.
among the factors of production.